What is FBT?
In Australia, Fringe Benefits Tax (FBT) is like a tax on the extra perks or benefits that employees receive from their employers (apart from their regular salary or wages). These perks, or “fringe benefits,” could include things like private use of a company car, health insurance, or even expenses paid for a work-related party or event.
So, if your boss provides you with any of these extra goodies, the government might consider it a kind of income, and FBT is the tax that the employer has to pay on the value of those benefits. Basically it’s a way for the government to make sure that all the different kinds of compensation employees receive are accounted for and taxed appropriately, even if it’s not in the form of a traditional pay check so to speak.
A minor benefit is exempt from FBT where it is both:
- Less than $300 in notional taxable value (that is, the value if it was taxable), and
- Unreasonable for it to be treated as a fringe benefit.
Christmas Party Exemption from FBT
If you host a Christmas party on a business day at your workplace, exclusively for current employees, the expenses for food and drinks provided are exempt from FBT. It’s crucial that no other individuals, such as spouses or partners, attend for the exemption to apply. GST is NOT claimable on these expenses (considered entertainment).
Christmas Party Away from the Office
If your team Christmas party takes place outside the office, keeping costs below $300 per head qualifies it as a minor benefit exempt from FBT. If costs exceed $300 per person, FBT applies to all employees (and their partners if applicable). FBT is not applicable to clients in attendance.
Employee Gifts
A Christmas gift or hamper meeting the conditions of the minor benefits exemption and costing less than $300 does not attract FBT.
The “otherwise deductible” rule
According to this rule, if an expense would be tax-deductible to the employee personally, the expense is considered “otherwise deductible,” and no fringe benefit arises. In other words, if the employee would have been able to claim a tax deduction for the expense if they had paid for it themselves, then the employer is not liable for FBT on that particular benefit.
For example, if an employee incurs a work-related expense during the course of their duties and could have claimed it as a tax deduction if they had personally paid for it, the employer is not required to pay FBT on that expense. This rule is designed to avoid double taxation, ensuring that the same expense is not subject to both income tax for the employee and FBT for the employer.
It’s important for employers to carefully consider whether the “otherwise deductible” rule applies to specific benefits provided to employees when determining their FBT liability.
Here’s a table from the ATO that outlines how a variety of common situations are treated in terms of Income Tax and Fringe Benefits Tax:
Employee takes two clients to lunch at a restaurant – cost $150
Income tax: Employee’s portion: $50 tax deductible
Client’s portion: $100 non-deductible
FBT: Employee’s portion: $50 fringe benefit
Client’s portion: No FBT
Employee has meal in restaurant while traveling on a business trip
Income tax: Tax deductible
FBT: No FBT (‘otherwise deductible’ rule)
Employee has meal in an ‘in-house canteen’
Income tax: Tax deductible
FBT: Exempt from FBT
Employer provides sandwiches and juice for working lunch in the office (not entertainment)
Income tax: Tax deductible
FBT: Exempt from FBT
Employer provides a substantial lunch with wine for employees and clients in the office
Income tax: Non-deductible
FBT: Exempt from FBT
Employer provides a social function for employees/clients in the office
Income tax: Non-deductible
FBT: Exempt from FBT
Employer provides a social function for employees and associates in the office
Income tax: Cost per employee: Non-deductible
Cost per associate: Tax deductible
FBT: Cost per employee: Exempt benefit
Cost per associate: Taxable fringe benefit
Employer reimburses the employee for the cost of a private party
Income tax: Amount reimbursed is tax deductible
FBT: Taxable fringe benefit
Employer provides employees and associates with theatre tickets
Income tax: Tax deductible
FBT: Taxable fringe benefit
For more information on the FBT and the deductibility of gifts and entertainment expenses, don’t hesitate to get in touch with our team.
