Contact: Amanda Kennedy
Deloitte
Media and Communication Manager
+61 (0) 3 9208 7407

Contact: Frank Klasic
Deloitte
Global Employer Services Partner
+61 (0) 3 9208 7514

Deloitte’s Global Employer Services Partner, Frank Klasic today warned all employers to be careful in applying the new $300 Fringe Benefits Tax (FBT) exemption following the ATO draft ruling on minor benefits issued today.

“For a long time there has been uncertainty in the application of the minor benefits rule and today’s draft ruling does little to make things simpler for the taxpayer,” Mr Klasic said.

“Under the FBT law, an employer can exempt certain benefits provided to employees which are under $300 in value but there is other criteria which is required to be satisfied under this exemption.

“Some of the criterias the ruling highlights include ensuring that any associated identical or similar benefits are provided infrequently or irregularly.

“The ATO does not provide any guidance on what constitutes a frequent or regular benefit, but rather states that the more often and regular those benefits are provided, the less likely it will be exempt from FBT.

“The draft ruling does not go far enough in providing guidance on where to draw the line which increases uncertainty for taxpayers.

“In one example, the ATO provides that an employee who incurs 20 e-tag road tolls per year would be considered to be infrequent and irregular. However, this is only on the basis that the sum of all of the road tolls in the year is not considered to be substantial.

“It is unclear how an employer needs to determine whether the total value of minor benefits is substantial.”

Other criteria which needs to be satisfied includes having regard to whether there are associated benefits provided in addition to the minor benefit.

Christmas parties

“A gift provided to an employee at a Christmas party costing less than $300 will be a typical example of an associated benefit.  If the cost of the Christmas party is also less than $300 per employee both of these benefits can be treated as minor benefits as the Tax Office does not consider them to be substantial.

Salary packaging

“The Tax Office has also confirmed its view that minor benefits provided under a salary packaging arrangement will not be exempt from FBT. For example, an employee wishing to package cheap airline tickets costing less than $300 each would not get the benefit of the FBT exemption.

Cars

“Cars, however, can constitute a minor benefit but only where the employer values the benefit using a cents per kilometre method. This contradicts the Government’s intention to make the administration of FBT simpler.

“Applying the minor benefit to cars will require employers to track the operating costs of the vehicle, the distance travelled and the private usage, which for most employers is an administrative nightmare.

Meal entertainment

“Employers also need to be careful of applying the minor benefits rule to meal entertainment for example, as the exemption does not apply where an employer elects to treat its meal entertainment under the 50/50 method.

“However, an employer using the actual method for valuing meal entertainment can apply the minor benefits exemption where all of the criteria are satisfied.

Government sector

“The exemption does not apply in certain circumstances to tax exempt bodies such as Government agencies and departments.”