• FBT changes to salary packaged meal and other entertainment benefits

    From 1 April 2016, there are changes to the fringe benefits tax treatment of salary packaged meal entertainment and entertainment facility leasing expense benefits. If you, the employer, provide these benefits to your employees (for example, through the use of a meal card), you need to be aware of these changes.

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

    All employers

    The following information is relevant for all employers, regardless of whether you are a not-for-profit employer or not:

    • all salary packaged meal entertainment and entertainment facility leasing expenses are reportable and will be included on an employee’s payment summary where the reporting exclusion threshold is exceeded
    • the 50-50 split method and 12-week register method cannot be used for valuing salary packaged meal entertainment or entertainment facility leasing expenses.

    Salary packaging

    These changes only apply to meal entertainment or entertainment facility leasing benefits provided under a salary packaging arrangement. A salary packaging arrangement is an arrangement between you and your employee, whereby your employee agrees to forgo part of their future entitlement to salary or wages in return for you providing them 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, and
    • other premises or facilities for providing entertainment.

    Entertainment facility leasing expenses do not include:

    • expenses attributable to providing food or beverages
    • expenses attributable to advertising that would be an income tax deduction.

    When a benefit is provided

    The FBT law identifies various types of fringe benefits and has specific valuation rules for each type of benefit. There is no type of fringe benefit called entertainment but the following types of benefits may arise when you provide entertainment. It is important to note when the benefit is provided as this may affect whether the current rules or new rules apply.

    Property fringe benefit

    A property fringe benefit may arise when you provide your employee with property, either free or at a discount.

    Note: this type of benefit does not apply if the benefit is a tax-exempt body entertainment benefit (see Not-for-profit employers below).

    For FBT purposes, property includes:

    • all goods, for example food and drink
    • real property, for example land and buildings
    • other property, for example shares and bonds.

    A property fringe benefit is provided at the time you provide the property to your employee.

    Example 1 - Property fringe benefit

    Under an effective salary sacrifice arrangement, an employer who is not income tax-exempt allows an employee to purchase restaurant meals on a corporate credit card. The employer is responsible for paying for any purchases on the card. All meals purchased by the employee before 1 April 2016 are taxed under the old rules while all meals purchased by the employee from 1 April 2016 onwards are taxed under the new rules.

    End of example

    Expense payment

    This type of benefit does not apply if the benefit is a tax-exempt body entertainment benefit – see Not for profit employers below.

    You may provide an expense payment fringe benefit if an employee incurs expenses and you do either of the following:

    • reimburse them for their expenses
    • pay a third party for their expenses.

    The expenses must be incurred by the employee. If you incur the expense, for example through a corporate credit card, you don’t have an expense payment fringe benefit. Depending on what is paid for, you could have a property, residual or tax-exempt body entertainment fringe benefit.

    An expense payment fringe benefit is provided at the time you pay the third party, or you reimburse your employee for their expenditure incurred, for the entertainment

    Example 2 - Expense payment fringe benefit

    Under an effective salary sacrifice arrangement, an employee has use of an entertainment card with their employer. The employee is responsible for any of the amounts spent using the card, and the employee uses the card to pay for hotel accommodation. The employer reimburses the amounts spent using salary sacrificed funds. Any reimbursements made before 1 April 2016 are taxed under the current rules whereas any reimbursements made from 1 April 2016 onwards are taxed under the new rules.

    End of example

    Residual

    This type of benefit does not apply if the benefit is a tax-exempt body entertainment benefit – see Not for profit employers below.

    A residual fringe benefit may arise when you provide your employee with any benefit (including a right, privilege, service or facility) that is not one of the other types of fringe benefits.

    A residual fringe benefit is provided at the time the entertainment is provided.

    Example 3 - Residual fringe benefit

    An employer owns a restaurant and function rooms. Employees are able to hire the function room at a nominal cost under a salary sacrifice arrangement for significant family celebrations at times when the restaurant is not busy. Where an employee uses the function room before 1 April 2016, the current FBT law applies. Where the employee uses the function room from 1 April 2016 onwards, the new rules apply.

    End of example

    Meal entertainment

    Where expense payment fringe benefits, property fringe benefits, residual fringe benefits or tax-exempt body entertainment fringe benefits arise from providing meal entertainment, you can elect to classify these fringe benefits as meal entertainment fringe benefits.

    Meal entertainment means:

    • providing entertainment by way of food or drink
    • providing accommodation or travel in connection with, or to facilitate the provision of, such entertainment
    • paying or reimbursing expenses incurred by the employee for the above.

    You can use the 50-50 split method or 12-week register method to calculate the taxable value of meal entertainment fringe benefits, unless the benefits are provided under a salary packaging arrangement.

    A meal entertainment fringe benefit is provided at the time the relevant benefit arises (expense payment, property, residual or tax-exempt body entertainment).

    Example 4 - Meal entertainment fringe benefit

    An employee of a public benevolent institution uses a meal card to purchase meals at restaurants under a salary sacrifice arrangement. The employer is responsible for any purchases with the card. The employer elects to classify the resulting benefits as meal entertainment, instead of tax-exempt body entertainment. All purchases with the card before 1 April 2016 are taxed under the old rules and are meal entertainment fringe benefits. All purchases with the card from 1 April 2016 onwards are taxed under the new rules and are tax-exempt body entertainment.

    End of example

    Reporting on payment summaries

    If the value of certain fringe benefits provided to an employee exceeds $2,000 in an FBT year, you must also report the grossed-up taxable value of those benefits on that employee’s payment summary for the corresponding income year. These are reportable fringe benefits.

    From 1 April 2016, salary packaged meal entertainment and entertainment facility leasing expenses 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 an employee’s 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 employers

    If you are a not-for-profit employer:

    • a separate single grossed-up cap of $5,000 will apply for salary packaged meal entertainment and entertainment facility leasing expenses for employers of employees 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 an employee receives exceeds their general FBT exemption or rebate cap.

    Tax-exempt body entertainment

    In addition to the types of benefits explained above, where you, the employer, are a non-for-profit entity; you may be providing your employees with a tax-exempt body entertainment benefit.

    There are different rules for tax-exempt bodies when it comes to providing entertainment because they do not pay income tax.

    A tax-exempt body entertainment fringe benefit is non-deductible entertainment provided to employees (and their associates) by a tax-exempt body.

    Only entertainment that is non-deductible for income tax purposes can give rise to this benefit. Where entertainment is deductible, it is not a tax-exempt body entertainment benefit.

    A tax-exempt body entertainment fringe benefit is provided at the time you incur the non-deductible expenditure in respect of the provision of entertainment to your employees.

    Example 5 - Tax exempt body fringe benefit

    A public hospital reimburses an employee for expenses incurred on hiring a marquee for a family wedding under an effective salary sacrifice arrangement. The wedding is taking place on the 2nd April 2016, but the employee is reimbursed for the marquee hire on the 30 November 2015. The current FBT rules would apply in this case and the cost of the hire (entertainment facility leasing expense) is neither included in the employee’s FBT cap nor reportable for payment summary reporting purposes.

    End of example

    The $5,000 cap

    The single $5,000 cap for meal entertainment and entertainment facility leasing expenses provided under a salary sacrifice arrangement is available to each employee of an employer in an FBT year. If an employee works for more than one employer, they are entitled to the $5,000 cap for each employer that they work for in an FBT year.

    Grossing up and the $5,000 cap

    The $5,000 separate cap for meal entertainment and entertainment facility leasing expenses is the grossed-up amount. It is important to work out which gross-up rate to use to calculate whether or not the $5,000 cap has been exceeded.

    The higher gross-up rate is used:

    • where the employer is a rebatable employer that is registered for GST, the employer is entitled to GST credits for the entertainment provided, unless an FBT exemption applies (such as the minor benefits exemption)
    • where the employer is not one of the employer types listed above and the provision of the benefit is not exempt from FBT, GST-free or an input-taxed supply and the employer is registered for GST, there is an entitlement to GST credits for the entertainment provided.

    The lower gross-up rate is used:

    • where the employer is a public benevolent institution, public or private hospital, public ambulance service or a health promotion charity (that is, the general exemption capping is available to the employer) that is registered for GST, the employer is not entitled to GST credits for the entertainment provided
    • where the employer is not one of the employer types listed above and the provision of the benefit is exempt from FBT, there is no entitlement to GST credits for the entertainment provided
    • where the benefits provided are GST-free or input-taxed supplies (unless the supply of the benefit is an input taxed financial supply that doesn’t exceed the financial acquisitions threshold) there is no entitlement to GST credits for the entertainment provided, regardless of employer type
    • where the employer is not registered for GST, there is no entitlement to GST credits for the entertainment provided.

    Exceeding the $5,000 cap

    If the salary packaged meal entertainment and entertainment facility leasing expenses you provide to an employee exceeds the $5,000 cap, the excess over the $5,000 is added together with the other fringe benefits you provided to that employee to see if the $17,667 or $31,177 general exemption cap or the $31,177 general rebate cap has been exceeded.

    Example 6 - Exceeding the $5,000 cap

    A public hospital provides an employee with 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 this employee.

    To calculate the employee’s reportable fringe benefits amount, all of the benefits except the ones 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 policy in relation to unused salary sacrifice amounts. If employees have balances on their cards or in their accounts at 31 March 2016, you may need to refund the money and deduct PAYG or carry the balance forward to the next FBT year
    • if any unused balances are carried forward to the next FBT year, the changes will apply in relation to these amounts
    • any policy you have in relation to unused balances will need to be consistently applied each year
    • you ensure that where the benefit relates to prepaid travel expenses, the travel is actually undertaken. If the trip is cancelled and the costs are refunded, unused amounts may either be salary or wages; or remain as a balance on the employee’s card or in their account and carried forward to the next FBT year (when the changes will apply)
    • if you provide entertainment benefits under a salary sacrifice arrangement and currently elect to value these benefits using the 50-50 split method or 12-week register valuation options, review this arrangement
    • discuss these changes with your salary sacrifice provider, if applicable
    • discuss these changes with your employees and any impacts they may have on your employees’ salary packaging arrangements and reportable fringe benefits amounts on their payment summaries.

    See also:

      Last modified: 29 Feb 2016QC 48052