Meal Entertainment Salary Packaging: $2,650 a Year

What counts as meal entertainment

The test is the character of the spending: food or drink in a social setting, or a place to entertain. Your provider sets the card up so that it only works at eligible merchants and asks for receipts for anything else.

The saving, and the cost of going over

For the nurse on $88 000 with the hospital cap already used, adding $2 650 of meal entertainment lifts the yearly saving from $2 883 to $3 731. Spending $1 000 more than the cap on the card brings it back down to $3 448: the excess costs $283 in FBT net of the tax it saves, because FBT at 47% on a grossed-up value is more than any marginal rate.

Holiday accommodation on the same card

Packaging providers generally let the $2 650 cap pay for holiday accommodation as well as meals, such as a hotel or a holiday rental booked for leisure. Because it is part of the same capped amount, a family that spends the whole cap on a week away will have nothing left for restaurants that FBT year, and the other way round. Check with your provider which bookings it accepts and what proof it needs: rules on package deals that mix accommodation with other items differ from one provider to the next.

Timing: the FBT year, not the calendar

The $2 650 renews every 1 April and is measured on benefits provided between 1 April and 31 March. Spread the deduction evenly over the pays of the FBT year and spend as you go, so the whole amount is used without crossing the cap in March. Someone who starts packaging part-way through the year can ask the provider for larger deductions over the remaining pays to use more of the cap, as long as the total stays within $2 650.

A year of meal entertainment, worked out

A couple where one partner works at a public hospital eats out about twice a month, at around $110 a time, which comes to $2 640 a year, almost exactly the cap. Paid from pre-tax salary at a 32% marginal rate, that spending costs $1 795 of take-home pay instead of $2 640. Restaurant bills of that size are the typical use; a single expensive event can also use the cap in one go, but anything above $2 650 in the FBT year is better paid from after-tax money.

Which cap to fill first

Every dollar of either cap is saved at the same marginal rate, so the order does not change the tax. What differs is flexibility. The general cap pays rent, mortgage, loans and bills you would pay anyway, so it is used in full without changing your spending. The meal card only saves money on spending that meets the entertainment test; loading it with more than you would naturally spend on restaurants and holidays turns a tax saving into extra consumption. Fill the general cap first, then size the meal card on last year's restaurant and holiday receipts.

Mistakes that cost the saving

• Using the card at a supermarket or for takeaway alone. The provider will reject the claim or ask you to repay it from after-tax money.
• Going over $2 650. The excess attracts FBT at 47% of its grossed-up value, which costs more than it saves.
• Forgetting the reportable amount. A full card adds to the income used for HELP and the surcharge.
• Assuming a private employer offers the same. Only hospital, ambulance, PBI, health promotion charity and rebatable employers have the separate cap.

Meal entertainment is a top-up. The bulk of the saving comes from the main cap; see the salary packaging calculator, public hospital packaging and PBI and charity packaging.