1.10 What are the income tax consequences of providing benefits?

The cost you incur in providing either a fringe benefit or exempt benefit is usually an allowable income tax deduction. However, the income tax legislation specifically prevents some benefits from being deductible. Entertainment expenses are the main exception to the tax deductibility rule and are generally not an allowable income tax deduction. For more about entertainment and tax deductibility, refer to section 14.15 of Fringe benefits tax and entertainment.

You would also have to include any employee contributions paid directly to you (including those received by journal entry) in your assessable income. Employee contributions paid to a third party who is not an associate (for example, for fuel) are not assessable to you.

The amount of FBT you have paid is generally an allowable income tax deduction. If an employee reimburses you for the FBT paid, the reimbursement is included in your assessable income. However, it is not an allowable deduction for the employee.

A fringe benefit is exempt income in the hands of the recipient.

Where a GST credit is available in respect of a fringe benefit, the income tax deduction is the GST-exclusive value of the fringe benefit. If no GST credit is available, the income tax deduction is the full amount paid or incurred on the relevant acquisition, including GST where applicable.

Where an employee contributes towards a GST taxable sale, you include the GST-exclusive value of the contribution in your assessable income.

    Last modified: 18 Jan 2012QC 17808