1986 Fringe Benefits Tax introduced

Restaurants suffered as the Fringe Benefits Tax hit business lunches

The federal Fringe Benefits Tax (FBT) was introduced on 1 July 1986. FBT was payable on restaurant meals, which were redefined as a fringe benefit for employees rather than a legitimate cost of doing business. According to Restaurant and Catering Australia, this had an immediate and dramatic effect on business entertaining, particularly the business lunch, and had many restaurants struggling.

The Fringe Benefits Tax was part of a tax reform package introduced by the Hawke government. During the 1970s and early ’80s, salary packages commonly included a range of tax-free benefits including company cars, travel and restaurant meals. These were all claimable by the company as legitimate business expenses and did not have to be declared on an individual’s tax return. Employees could use their company credit cards for eating out and travel without needing to prove the expenses were business-related.

The business lunch was often a drawn-out, boozy affair. The Australian Financial Review quotes Neil Perry, who ran Sails at Sydney’s McMahon’s Point in the late 1970s, saying: “We had guys come for lunch at 1pm and leave at 6pm every day. We’d sell 24 to 36 bottles of port per day. You’d probably sell a bottle every year now.”

The effect of the Fringe Benefits Tax was sudden and severe. According to the AFR article, one restaurant went from 90 covers a day to 15 overnight. While top-end restaurants were affected, so were BYOs. Licensed restaurants were able to claw back some profits via mark-ups on alcohol, but BYOs had less flexibility with margins. Since the FBT didn’t apply to in-house dining, boardroom lunches replaced restaurant entertaining for many companies.

A commentator in The Age called the tax a “vicious and cynically hypocritical exercise” but many among the general public applauded it as extracting money from the so-called fat cats of the corporate world in favour of tax cuts for wage-earners. And, although corporate excesses were curbed, the restaurant industry soldiered on. New restaurants appeared: in Melbourne, 1986 saw the birth of France Soir (still operating) and Gilbert Lau opened a second Flower Drum.

It wasn’t the last storm the industry had to weather. The introduction of the GST in 2000 and the Global Financial Crisis in 2008 posed similar challenges, helping to prompt a move away from traditional menu structures and a trend to less formal dining.

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