In the first edition of our considerably less provocative version of MMA (but no less enthralling) we are talking all things Fringe Benefits Tax in the Media, Marketing and Advertising space. With the lodgement and payment deadline fast approaching, Rodrigo Cerqueira, Lead Advisor in Business Solutions & Media at Hill Rogers, offers some clarity for business owners.
It’s no secret that one of the leading concerns of agency owners is keeping their employees happy but it’s important to remember the true cost of those coffee runs and long lunches, and that’s where Fringe Benefits Tax (“FBT”) comes in.
But what is this fringe benefits tax your accountant keeps hassling you about? Put simply, it is the tax employers must pay on the benefits they provide to their employees. The tax is paid at a somewhat extortionate rate of 47% (remember, the company tax rate is only 27.5% for small businesses). The idea behind it being that the taxman wants a piece of your employee’s entire remuneration and this tax captures those businesses who supplement salaries with employment benefits.
The most common benefit appearing on FBT returns in the industry are entertainment related. This pretty much includes all things your employees consider a good time: food, drinks, functions, recreational activities and any travel relating to these events.
To help unravel the confusion around FBT, we have outlined some common events that are considered taxable benefits.
Business Lunches & Coffee Runs
When you are providing entertainment, whether it is a meal or coffee, to employees (including yourself) and clients, it is only the portion that relates to employees and their partners that is subject to FBT. Interestingly, if the food and drink is taken back to the office, it’s judged to be consumed whilst working and under the exempt property benefit, can be treated as staff refreshments rather than meal entertainment. To provide an everyday example, if you are having a team meeting over lunch and order some Bánh mì rolls to the office, these would be exempt from FBT.
An exemption under the minor and infrequent benefit rule is also available if the total cost is less than $300 per employee per benefit. However, eligibility for this exemption depends on the frequency each benefit is provided. The more you provide the benefit, the less likely it is to be considered exempt by the ATO.
This one is quite simple: taxi travel is exempt from FBT provided the taxi fare is a single trip that begins or ends at the employee’s place of work. Anything else is liable for FBT.
Functions, Outings & Parties
I will use a broad example to explain how these should be treated. Let’s say, you choose to reward your employees for achieving their six month revenue target by taking the team and their partners to the theatre. The show is on after work hours so you supply alcohol and order in some Deliveroo for dinner in the office before arranging taxis to the venue for your employees and their +1’s.
The first thing to establish is whether or not the purpose of the event is entertainment related or not. As the food and drink is being provided within the office, the property benefit exemption could be considered. However, as it’s outside of normal working hours and alcohol is provided, these are major indicators of the event being social in nature and therefore, a taxable benefit. Importantly, the exempt property benefit can only apply for employees and generally, any benefit provided to employees’ partners is liable for FBT. When considering the minor benefits exemption, separate benefits provided in connection with each other (i.e. the meal, taxis and the theatre) should all be looked at individually to see if the value of each benefit is less than $300 per employee. Benefits for their partners should be calculated separately and can also be exempt if it is less than $300 per partner. As stated earlier, any taxi journey starting to or from the workplace is exempt.
A major exemption rule within FBT is the ‘otherwise deductible’ rule. This rule basically means that if the expense would otherwise be deductible in an individual’s tax return then it is also exempt from FBT. This is important when thinking about travel benefits, as any travel expenses incurred for work related purposes are deductible, and therefore, exempt from FBT.
An example would be if you needed an employee to travel overseas to run a three day client workshop and you also offer to fly over their partner so they can take the rest of the week as holiday. Firstly, any employer funded travel for a partner is immediately included in FBT. As for the employee’s expenses, in order to reduce the FBT liability for the business-related travel expenses, the employee must keep a travel diary (such as an itinerary) of the trip to substantiate that the trip was for business purposes. In this case, the full cost of the employee’s flights, as well as the accommodation and meals for the first three days will be exempt from FBT. This is because the costs of the employee’s return flight would have been incurred whether they took a holiday after the first three days or not and the accommodation for the first three days was a necessary part of carrying out the client workshop.
Many employees, are excited by the idea of a lifestyle allowance and it’s not uncommon for employers to now provide gym memberships. However, any respectable gym membership would easily cost more than $300 a year and therefore, no exemptions would be available. Mindful businesses could instead subsidise these memberships up to the $300 threshold to provide an exempt benefit.
Of course, there are a number of nuances to FBT you should be aware of that have not been covered above as well as strategies you can use to minimise your FBT liability, such as choosing whether or not to elect the 50/50 entertainment method.
If this short piece has left you thinking FBT is now as clear as mud, please contact me or one of our FBT specialists at Hill Rogers who would be more than happy to help with any concerns regarding your liability or, should you need it, assist with the preparation of your FBT return.
The end of the FBT year is just around the corner on 31 March, with the lodgement and payment of your self-assessed FBT Return due before 21 May (or 25 June through a tax agent).
This article was written by Rodrigo Cerqueira, Lead Advisor in Business Solutions & Media, at Hill Rogers. It is intended to provide general information only in summary format on accounting, business advisory and taxation issues. It does not constitute accounting advice, and should not be relied on as such.