The festive season is often the time that questions get asked around what is caught under the FBT rules and what is not. There are a few key points to keep in mind when it comes to FBT rules and what to expect.
Starting with the premise that every non-cash benefit you provide to an employee (or to an associate of an employee) is caught for FBT, let’s look at what is then legally exempt under Division 13 of Fringe Benefits Tax Assessment Act 1986.
- The first out – exempt property benefits
The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. This exemption does not apply to associates of employees but the next one might.
- The second out – minor benefits*
The cost of laying on a Christmas party for employees may be a minor benefit and therefore exempt if the cost of the party is less than $300 per employee.
The benefit of a Christmas party provided to associates of employees may also be a minor benefit and exempt if the cost is less than $300 per associate.
Similarly, the cost of providing a gift to an employee may be a minor benefit and exempt if the value of the gift is less than $300.
Note: Special rules apply for tax-exempt bodies (not covered in this article) and for employers that use the 50/50 method for calculating the taxable value of meal entertainment fringe benefits (see below).
So what are minor benefits?
A minor benefit is both:
- Less than $300 in value; and
- Unreasonable to treat as a fringe benefit
Less than $300 in value
A minor benefit must have a ‘notional taxable value’ of less than $300. That is the amount that would be taxable if the benefit was deemed a fringe benefit.
Unreasonable to treat as a fringe benefit
Determining what is ‘reasonable’ is a relatively subjective thing. Whilst that isn’t spectacularly helpful in definition the taxman has been helpful enough to set out 5 criteria that need to be considered when deciding if it would be unreasonable to treat the benefit as a fringe benefit:
- If the associated benefits are identical or similar to the identified minor benefits and are provided infrequently they will qualify as exempt. If they are incurred on a frequent basis they are less likely to qualify as exempt.
- The total of the notional taxable values of the minor benefit and identical or similar benefits. The greater the aggregate value, the less likely they will qualify as exempt.
- The likely total of the notional values of other associated benefits – e.g. travel and accommodation. The greater the total, the less likely they will qualify as exempt.
- The practicality of determining what would be the notional value of the minor benefit and any associated benefits. This addresses how difficult it is for you to keep the necessary records to determine the value.
- The circumstances in which the minor benefit and any associated benefits were provided. This would include whether the benefit was an unexpected result and whether or not it could be considered as remuneration.
So, there you have it. The taxman is not trying to be all bah-humbug, merely putting a few rules in place
Are you using the 50/50 method?
The two ’outs’ discussed above will not apply to you if you are using the 50/50 method for calculating the taxable value of meal entertainment fringe benefits. Under this method, all meal entertainment fringe benefits (whether provided to staff, associates or clients) must go into the pot before calculating the 50% that will be subject to FBT.
For more information chat to Sue Liebert or Mitchell Turnbull on 1300 656 141.