Entertainment is the standing exception to the GST credit rule. When food, drink or recreation counts as entertainment (client lunches, staff parties, golf days, event tickets) the cost isn't income tax deductible, and Division 69 of the GST Act blocks the GST credit along with the deduction, however business-motivated the spend. The main way through is FBT: entertainment provided to employees as a fringe benefit becomes deductible, and the GST on the FBT-subject portion is claimable, but an FBT exemption (a party under $300 a head, food on your premises) kills the credit too. Client entertainment is never claimable. Everyday sustenance (tea and coffee at work, light refreshments, meals while travelling overnight for business, seminar catering) isn't entertainment at all and stays fully claimable.
Register for GST →5-minute form · usually done in 24 hours
The rule: no deduction, no credit
Most business purchases follow a simple line: registered business, business purpose, tax invoice over $82.50, claim the GST credit. Entertainment breaks it on purpose. Division 32 of the Income Tax Assessment Act 1997 denies an income tax deduction for entertainment (food, drink and recreation provided in a social setting, and the travel and accommodation that go with it) on the long-standing view that a meal or a day out carries a private benefit no matter how commercial the occasion. Division 69 of the GST Act then ties the two taxes together: no input tax credit on an expense that isn't deductible. One policy, both taxes, so a business can't lose the deduction and quietly recover the GST anyway.
The practical consequence is that a restaurant receipt full of GST can contribute exactly nothing to your BAS. The exceptions all run through the same gate (deductibility) which is why the rest of this guide is really about two questions: is this spend entertainment at all, and if it is, does FBT make it deductible?
Is it entertainment? The four questions
Food and drink isn't automatically entertainment: the ATO's test (set out in ruling TR 97/17) weighs why, what, when and where it's provided. Sustenance that keeps people working points one way; a social occasion points the other. Why: getting through the working day versus enjoyment. What: light refreshments versus an elaborate meal, with alcohol pushing hard toward entertainment. When: during work hours, overtime or work travel versus after hours. Where: your own premises versus a restaurant, hotel or function room. No single factor decides it, but the purpose and the menu carry the most weight.
| Scenario | Entertainment? | GST credit |
|---|---|---|
| Tea, coffee, biscuits, sandwiches at the office | No: sustenance | Yes: fully claimable, fully deductible |
| Meal while an employee travels overnight for work | No: travel sustenance | Yes: claimable under the normal rules |
| Catering at an eligible seminar or training day (4+ hours) | No: statutory exception | Yes: claimable |
| Restaurant lunch with a client | Yes | No: never claimable for the client share |
| Staff Christmas party, under $300 a head | Yes: FBT-exempt minor benefit | No: the exemption takes the credit with it |
| Staff function on which FBT is actually paid | Yes: fringe benefit | Yes: on the FBT-subject portion |
| Corporate box, golf day, concert or sports tickets | Yes: recreation | No for clients; staff portion only via FBT |
The first three rows are the quiet win: they're not entertainment, so they never meet Division 32 and the GST comes back under the ordinary credit rules. Keep them booked separately from true entertainment: one "meals and entertainment" account that mixes the office coffee with the client dinners is how claimable GST gets lost and unclaimable GST gets claimed, and it's a standard find in a records review.
Clients and employees: split the bill
One table, two tax outcomes. Entertainment provided to clients, suppliers or contractors sits outside FBT entirely (FBT is a tax on employee benefits) so the client share of a bill has no bridge back to deductibility: no FBT, no deduction, no GST credit, ever. The employee share is the only part that can become claimable, and only where FBT actually applies to it.
That makes the split worth recording at the time. Take four people at lunch: you, an employee and two clients, $440 with $40 of GST. The two client seats are gone whatever you do. The two staff seats are claimable only if they're subject to FBT, and at an ordinary infrequent lunch under $300 a head, the minor benefits exemption usually means they aren't. Most small businesses claim nothing on that bill, and the bookkeeping should say so.
The FBT bridge: pay the tax, unlock the credit
Entertainment provided to employees is a fringe benefit, and here the linkage works in your favour: once FBT applies, the expense becomes income tax deductible and the GST credit comes back with it. You claim the deduction and the credit on the portion that was subject to FBT, and FBT itself runs at 47% of the grossed-up value, which is why "pay FBT to get the GST back" is a compliance outcome, not a strategy. Nobody volunteers for 47% to recover 10%.
Two FBT methods set how much of your meal entertainment crosses the bridge:
1. The actual method. You value what each person actually received. The exemptions are available: food and drink for current employees on your premises on a working day is exempt, and infrequent benefits under $300 a head are exempt as minor benefits, but every exempt dollar is a dollar with no deduction and no GST credit. FBT applies (and the credit returns) only on what falls outside the exemptions, like a venue function at $300 or more a head.
2. The 50/50 split method. An election that treats 50% of your total meal entertainment for the FBT year as subject to FBT: staff, clients, everyone pooled. You then deduct 50% and claim 50% of the GST credits, and the other half of both is lost. The catch: no exemptions apply under 50/50 (not minor benefits, not on-premises) so a business whose entertainment is mostly client meals or small exempt staff morale events can pay FBT it would otherwise never owe.
Whichever method applies, the GST position lands on the BAS for the period in the ordinary way, on the timing your accounting method sets, and a claim made on exempt entertainment is a standard BAS correction when it surfaces.
The Christmas party, and the gift that beats it
Run the rules over the classic year-end scenario. A restaurant party for 25 staff and partners at $5,500 all-in ($500 of GST) is $220 a head, under $300, so the minor benefits exemption applies: no FBT, which sounds like the win, but it also means no deduction and none of the $500 GST is claimable. The party is paid entirely out of after-tax money. Push the budget to $300+ a head and FBT applies instead: the deduction and GST credit return, but 47% FBT on the grossed-up amount costs far more than they recover. The exemption is still the cheaper outcome; it just isn't the free one it looks like.
The gift alongside the party is tested separately, and kind matters more than price. A non-entertainment gift under $300 (a hamper, wine to take home, flowers, a retailer gift card) is FBT-exempt and still deductible with the GST claimable, the rare benefit that's exempt on one side and claimable on the other. An entertainment gift (concert, sport or theatre tickets, a restaurant voucher) follows the entertainment rules: exempt under $300 for staff but with no deduction and no credit, and never claimable for clients. On pure tax arithmetic, the $90 hamper beats the $90 footy tickets every single year.
What this means for your BAS and your books
Three accounts keep this honest: staff amenities (sustenance: GST claimable), entertainment, non-deductible (client hospitality and exempt staff events: GST never claimed), and entertainment subject to FBT (GST claimable on that portion). Code each receipt once, at the time, and every BAS after that is mechanical; leave it to a year-end sort and the GST on a year of mixed receipts has to be re-litigated line by line. The claimable side still needs the paperwork: tax invoices over $82.50, kept for five years.
And the claimable side is bigger than it looks: coffee and amenities for the team, food that's sustenance rather than show, meals on the road, training-day catering, hampers and gift cards. Once turnover passes $75,000 registration is mandatory and those credits are simply yours to collect; below the line they join rent, insurance and equipment in the case for registering voluntarily. The one thing registration never changes is the blocked list: the client lunch stays a gesture, not a deduction.
Quick answers
Can I claim GST credits on entertainment expenses?
Generally no. GST credits follow the income tax deduction: entertainment (food, drink and recreation provided in a social setting) is denied a deduction by Division 32 of the income tax law, and Division 69 of the GST Act denies the GST credit on any expense that isn't deductible. The invoice can be entirely business-motivated and the credit is still blocked. The exceptions run through the same door: where the entertainment is provided to employees as a fringe benefit and FBT applies, the FBT-subject portion becomes deductible and its GST claimable, and food or drink that isn't entertainment at all (sustenance at work, travel meals, seminar catering) was never blocked in the first place.
Can I claim the GST on a lunch with a client?
No. A restaurant or cafe meal with a client is entertainment, and entertainment provided to clients is not subject to FBT, not income tax deductible and carries no claimable GST credit: there is no method, election or paperwork that changes that. When one bill covers a table of staff and clients, only the employee share can ever become claimable, and only if FBT is paid on it; the client share is lost whichever FBT method you use. Book client hospitality to a non-claimable entertainment account so the GST never reaches the BAS.
Can I claim GST on our staff Christmas party?
Usually not. A party on your premises on a working day for current employees is FBT-exempt, and a party elsewhere costing less than $300 a head is usually exempt as a minor benefit, but an FBT exemption cuts both ways: no FBT also means no income tax deduction and no GST credit on those costs. You only claim GST on a staff function to the extent FBT actually applies: a venue party at $300 or more a head under the actual method, or 50% of meal entertainment if you've elected the 50/50 split method. For most small businesses the honest answer is that the Christmas party is paid for entirely out of after-tax money, GST included.
What food and drink is not entertainment, so the GST stays claimable?
Sustenance rather than entertainment: tea, coffee, biscuits, sandwiches and other light refreshments provided at the workplace so people can get through the working day; meals an employee buys while travelling overnight for business; and food and drink reasonably incidental to attending an eligible seminar or training day running at least four hours. These are ordinary deductible business expenses, so the GST credit is claimable under the normal rules: registered, business purpose, and a tax invoice for anything over $82.50. The ATO weighs why, what, when and where the food or drink is provided: light food during work hours on your premises points to sustenance, while alcohol, restaurants and social occasions point to entertainment.
What is the 50/50 split method and what does it do to my GST credits?
It's an FBT election for meal entertainment: instead of tracking who ate what, you treat 50% of your total meal entertainment spend for the FBT year as subject to FBT, regardless of whether the diners were staff, clients or anyone else. The GST follows the same line: you claim 50% of the GST credits on meal entertainment and deduct 50% of the cost, and the other half of both is lost. The trade-off is that no exemptions apply under 50/50: the minor benefits exemption and the on-premises exemption are off the table, so a business whose entertainment is mostly client meals or small exempt staff events can be worse off electing it. It's a bookkeeping simplification, not a discount.
Can I claim GST on gifts to staff and clients?
It depends on the kind of gift, not the recipient. A non-entertainment gift (a hamper, wine to take home, flowers, a retailer gift card) is deductible and the GST is claimable, and for staff it's also FBT-exempt as a minor benefit under $300. An entertainment gift (tickets to sport, a concert, the theatre, a restaurant voucher) is entertainment: for a client it's never deductible and carries no credit, and for staff under $300 the minor benefits exemption removes the FBT but with it the deduction and the GST credit. Oddly enough, the bottle of wine beats the footy tickets on tax every time.
Why is there no GST credit when entertainment is a genuine business expense?
Because the law deliberately lines GST up with income tax. Division 32 of the Income Tax Assessment Act 1997 denies deductions for entertainment on the long-standing policy that meals and recreation carry a private benefit no matter how commercial the occasion, and Division 69 of the GST Act then denies input tax credits on expenses that are non-deductible under those rules. Parliament chose one answer for both taxes so businesses couldn't deduct nothing but still recover the GST. The same linkage is the reason the FBT route works: once FBT applies, the expense becomes deductible, and the GST credit comes back with it.
Does registering for GST change what my food and drink spending really costs?
For the sustenance side, yes: once registered, the GST in the office coffee, the team's travel meals, seminar catering and non-entertainment gifts comes back as credits on each BAS, which an unregistered business simply wears. Entertainment stays blocked either way, so registration doesn't rescue the client lunches. If your turnover has passed $75,000 you must register regardless; below it, these everyday credits join rent, insurance and equipment in the case for registering voluntarily. Registering is free through the ATO's own online services; our BAS-agent service is $119 + GST if you'd rather have it reviewed and lodged for you, with backdating up to 4 years +$25 + GST to capture credits already paid.
Related guides: How GST credits work · Tax invoice requirements · GST record-keeping · GST on food · GST on gift cards · Fixing BAS mistakes · Cash vs accrual GST
Ready to claim the credits you're actually owed? Registered in ~24 hours.
Reviewed and lodged by Registered BAS Agent 25972850 · $119 + GST, tax deductible · backdating up to 4 years +$25 + GST · free help on 1800 546 526.