FBT and The Free Lunch
26 Nov 12
No such thing as a free lunch…?
There might be, but there are at least 63 different permutations or combinations that will impact on the answer to that question!
Fringe Benefits Tax (FBT) was introduced in 1989 to prevent companies providing perks to employees as a tax deduction to them. Essentially any benefit an employee receives (eg indirect payment, concession, use of asset or other personal benefits) may be subject to FBT.
FBT is a difficult area as there are so many variables for which the ATO still have ‘fuzzy’ criteria after 20+ years. Despite this, it is important we know where things are at to ensure we comply with the law and pay the correct tax, make arrangements and payments in a way that minimizes or avoids FBT, and to avoid hassles if the ATO conducts an audit.
ATO audit activity in this space has significantly increased in the past year or so. For example, by using information obtained via State (Motor Vehicle) registration records the ATO can see the number and type of vehicles owned by your business. Recent statistics show a 70% fail rate with businesses and an average adjustment of $25,000.
The main FBT problem areas are:
+ Meal entertainment
+ Motor vehicles
+ Reportable employer super contributions
Meal Entertainment
Meals are essentially a private expense which would normally be non-tax deductible, however different tax treatments apply depending on their nature and purpose, as the table below demonstrates.
Because the tax treatment of meal entertainment is so convoluted, the ATO allow three methods to deal with it:
- Based on actual costs incurred – the FBT is based on the costs of the actual entertainment provided to employees.
- Twelve Week Register Method – FBT payable is based on the total entertainment expenditure incurred by the employer on all employees for the year, multiplied by the register percentage. The register percentage is based upon a detailed register of expenditure in the period covered.
- 50/50 Split Method – the FBT payable is based on 50 per cent of the entertainment expenses paid by the employer during the FBT year.
Note also that a GST credit can only be claimed when the expense payment is a tax deduction (or would be in the case of a not-for-profit entity).
Be aware of the ‘Minor Benefits’ exemption
Small businesses may not need to pay any FBT at all on staff entertainment if the cost is less than $300 per year per staff member. Fringe benefits with a taxable value of less than $300 pa per employee are exempt from FBT where the benefits are provided on an irregular and infrequent basis.
These are just some of the many variables that apply to FBT. Please raise this topic with your local Accru accountant so we can ensure that you are minimising the FBT your business pays while being fully compliant with the law.
TYPE OF MEAL ENTERTAINMENT
|
DEDUCTIBLE |
FBT STATUS
|
MEALS TO EMPLOYEES FOR REFRESHMENT WHILST WORKING (INCLUDING OVERNIGHT TRAVEL)
|
TAX DEDUCTION
|
NO FBT
|
MEALS TO EMPLOYEES WITH EXCESSIVE ALCOHOL (MORE THAN INCIDENTAL TO THE MEAL)
|
TAX DEDUCTION
|
SUBJECT TO FBT
|
FRIDAY EVENING DRINKS AND NIBBLES
|
TAX DEDUCTION
|
SUBJECT TO FTB
|
FRIDAY EVENING PIZZA WHILST WORKING OVERTIME
|
TAX DEDUCTION
|
NO FBT
|
BUSINESS PROMOTIONAL EVENT (EG COCKTAIL PARTY, GOLF DAY)
|
TAX DEDUCTION
|
SUBJECT TO FBT
|
NIGHT OUT WITH CLIENT (CLIENT SHARE)
|
NO TAX DEDUCTION
|
NO FBT
|
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