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  • FBT changes for employees - Salary packaged meal and other entertainment benefits

    From 1 April 2016, there are changes to the fringe benefits tax (FBT) treatment of salary packaged meal entertainment and entertainment facility leasing expense benefits (meal and other entertainment benefits). If you receive these benefits from your employer, you need to be aware of these changes as they may affect your arrangements.

    Some of the changes will affect all employees, while others will affect employees of not-for-profit organisations.

    All employees

    The following applies to all employees:

    • all salary packaged meal and other entertainment benefits are reportable and will be included on your payment summary where the reporting exclusion threshold is exceeded
    • the 50-50 split method and 12-week register method cannot be used by your employer for valuing salary packaged meal and other entertainment benefits, which may affect how much you can salary package.

    Salary packaging

    These changes only apply to meal and other entertainment benefits provided under a salary packaging arrangement. A salary packaging arrangement is an arrangement between you and your employer, whereby you agree to forgo part of your future entitlement to salary or wages in return for your employer providing you with benefits of a similar value.

    A salary packaging arrangement is commonly referred to as salary sacrifice or total remuneration packaging.

    Entertainment and fringe benefits

    The following types of entertainment are subject to the changes:

    • entertainment by way of food or drink
    • accommodation or travel in connection with, or to facilitate the provision of, such entertainment
    • entertainment facility leasing expenses.

    Entertainment facility leasing expenses are expenses incurred in hiring or leasing:

    • a corporate box
    • boats or planes for providing entertainment
    • other premises or facilities for providing entertainment.

    Reporting on payment summaries

    If the value of certain fringe benefits you receive exceeds $2,000 in an FBT year, your employer must also report the grossed-up taxable value of those benefits on your payment summary for the corresponding income year. These are reportable fringe benefits.

    From 1 April 2016, salary packaged meal and other entertainment benefits are reportable and are included in determining whether the $2,000 threshold is exceeded. The lower gross-up rate is always used for calculating the grossed-up rate shown on an employee’s payment summary.

    The amount reported on the payment summary is not included in your assessable income or affect the amount of standard Medicare levy payable. It is, however, included in a number of income tests relating to certain government benefits and obligations.

    Not-for-profit employees

    For employees who work for a not-for-profit employer:

    • a separate single grossed-up cap of $5,000 will apply for salary packaged meal and other entertainment benefits for employees of not-for-profit organisations able to access a general FBT exemption or rebate ($31,177 or $17,667 exemption; or $31,177 rebate)
    • the amount of those benefits exceeding the separate grossed-up cap of $5,000 are included in calculating whether the value of all benefits you receive exceeds your general FBT exemption or rebate cap.

    This means that from 1 April 2016 you can receive such benefits worth between $2,329.59 and $2,549.98 (depending on whether your employer is entitled to GST credits) without exceeding the $5,000 cap.

    The $5,000 cap

    The single $5,000 cap for meal and other entertainment benefits provided under a salary sacrifice arrangement is available to each employee of a not-for-profit employer in an FBT year. If you work for more than one employer, you are entitled to the $5,000 cap for each employer that you work for in an FBT year.

    Example 1 - $5,000 cap

    An employee works for a public benevolent institution and a health promotion charity during the FBT year starting on 1 April 2016. They receive meal and other entertainment benefits from their employer under a salary packaging arrangement. The employee is able to access a $5,000 cap for meal and other entertainment benefits provided by the public benevolent institution employer. They are also able to access a $5,000 cap for meal and other entertainment benefits provided by the health promotion charity.

    End of example

    Grossing up and the $5,000 cap

    The $5,000 separate cap for meal and other entertainment benefits is the grossed-up amount. There is a different gross-up rate that is used depending on whether the not-for-profit employer is entitled to GST credits for the provision of the entertainment.

    Example 2 - Grossing up and the $5,000 cap

    An employee works for a public ambulance service. The employer is not entitled to GST credits for meal and other entertainment benefits provided. For the purposes of calculating whether the $5,000 cap is exceeded for meal and other entertainment benefits provided, the employer uses the lower gross-up rate of 1.9608. The employee can receive benefits worth $2,549.98 without the cap being exceeded.

    End of example

    Exceeding the $5,000 cap

    If you exceed the $5,000 cap, the excess over the $5,000 is added together with your other fringe benefits to see if you have exceeded the $17,667 or $31,177 general exemption cap or the $31,177 general rebate cap.

    Example 3 - Exceeding the $5,000 cap

    A public hospital employee receives the following fringe benefits during the FBT year starting 1 April 2016:

    • through a salary packaging arrangement
      • private use of a car with a taxable value of $4,900
      • reimbursed child care fees with a taxable value of $3,000
      • reimbursement of restaurant meals with a taxable value of $1,800
      • reimbursement of holiday accommodation with a taxable value of $1,200
       
    • not through a salary packaging arrangement
      • food or drink provided by a third party while attending a corporate event with a taxable value of $400.
       

    The employer is entitled to GST credits for the car fringe benefits so they are grossed-up using the type 1 gross-up rate of 2.1463:

    • $4,900 x 2.1463 = $10,516.87.

    The reimbursement of the restaurant meals and holiday accommodation are meal and other entertainment benefits provided under a salary packaging arrangement so they are included in the $5,000 cap. The employer is not entitled to GST credits for the meal and other entertainment benefits so they are grossed-up at the type 2 rate of 1.9608:

    • $3,000 x 1.9608 = $5,882.40.

    The excess over the $5,000 cap ($882.40) is included in the employee’s general exemption cap of $17,667.

    The employer is not entitled to GST credits for the reimbursed child care fees so they are grossed-up at the type 2 rate of 1.9608:

    • $3,000 x 1.9608 = $5,882.40.

    The food or drink that is not provided under a salary packaging arrangement is excluded from the cap and from the reportable fringe benefits amount. It is effectively exempt from FBT.

    The grossed-up amounts for the car fringe benefits, excess over the $5000 cap and the child care fees are added together to determine whether the employee’s cap of $17,667 is exceeded:

    • $10,516.87 + $882.40 + $5,882.40 = $17,281.67.

    The employee’s general exemption cap of $17,667 has not been exceeded, so the employer does not have an FBT liability for benefits provided to them.

    To calculate the employee’s reportable fringe benefits amount, all of the benefits except the one not provided through a salary sacrifice arrangement are taken into account and grossed up at the type 2 gross up rate:

    • $4,900 + $3,000 + $1,800 + $1,200 = $10,900
    • $10,900 x 1.9608 = $21,372.

    $21,372 is reported on the employee’s payment summary.

    End of example

    What you need to do

    We recommend that you:

    • review your salary packaging agreement, particularly if you are going to have amounts left on your card or in your salary sacrifice account on 31 March 2016. Your employer may either 
      • refund you any amounts left over, which will be subject to PAYG withholding and included as salary on your payment summary
      • carry forward any balances on your card or in your account to the next FBT year, but the changes will then apply
       
    • talk to your employer about these changes if they affect you
    • talk to your salary packaging provider about these changes if they affect you
    • review any impacts the changes to reportable fringe benefits may have on your circumstances (such as repaying your HELP debt, your entitlement to family tax benefit and your child support income).

    See also:

      Last modified: 29 Feb 2016QC 48053