How to reduce the FBT you pay
There are various ways in which you can reduce the FBT you pay. In some cases, your FBT payable could be reduced to nil.
You can reduce your FBT liability in the following ways.
Provide benefits which are income tax deductible
You may not have an FBT liability if you give an employee a benefit that they would otherwise have been able to claim as an income tax deduction.
Example: benefit where the employee is entitled to an income tax deduction
Sue, the manager of a hairdressing salon, pays for two senior stylists to attend a hair colouring course run by a hairdressing association. The course, paid for by the business, is to reward the senior stylists for their work performance over the last year.
There is no FBT payable because the two employees would be entitled to a full income tax deduction for the cost of attending the course, if they had paid for it themselves.
End of example
What is a seminar?
- Any training session, including a conference, convention, lecture, meeting, speech, question and answer session or educational course.
- A planning day where employees discuss general policy issues relevant to the internal management of your business conducted at an external premises that are available for conferences, training or seminars.
What is not a seminar?
- A business meeting, where the main purpose of the meeting is to give or receive information, or discuss matters relating to the organisation.
- A presentation, where the main purpose is to promote or advertise a business (or prospective business) or its goods or services.
Otherwise deductible rule
The otherwise deductible rule may apply to food or drink provided at seminars. If your employee would have been able to claim an income tax deduction for the cost of attending the seminar had they paid for it, the otherwise deductible rule applies as follows.
Food or drink is not entertainment
If the food or drink
Does not amount to entertainment
The registration fee would have been deductible in full and FBT does not apply.
Food or drink is entertainment
If the food or drink does amount to entertainment and
is reasonably incidental to the employee attending seminars that go for at least four hours
FBT does not apply
is not reasonably incidental to the employee attending seminars that go for at least four hours
Only that proportion of the registration fee which does not relate to the food or drink would have been deductible and FBT does apply
What does reasonably incidental mean?
Food or drink is reasonably incidental to a seminar if it:
- is provided for sustenance because of the duration, time of day or location of the seminar
- is provided immediately before, during or immediately following working sessions of the seminar
- is available to all participants.
Which part of the seminar can be included in the four hours?
The four hours does not include any part of the seminar that occurs during a meal or any breaks during the seminar for meals, rest or recreation.
Example: Food and drink provided at seminar is not entertainment
A small accounting firm sends an employee to a seminar about current global accounting trends. The seminar is held from 9.00am to 4.00pm at a city hotel. Morning and afternoon tea and a light lunch are provided during the day. The employer pays the organisation presenting the seminar.
The food or drink provided in these circumstances does not amount to entertainment and is therefore not meal entertainment. It is a property fringe benefit. The full cost of attending the CPD session would have been income tax deductible to the employee had the employee paid for it. The taxable value of the property fringe benefit can be reduced to nil under the 'otherwise deductible' rule.
End of example
Use employee contributions
You can reduce your FBT liability by having your employee contribute towards the cost of a fringe benefit. The contribution is usually a cash payment made to you or the person who provided the benefit. Under the valuation rules for most categories of fringe benefits, the taxable value of a fringe benefit can be reduced by the amount of the employee contribution.
Example: employer uses employee contributions
End of example
A company golf team has a golfing day once a month and once a quarter has a golfing day with clients. The green fees are $45 a month. The employer pays for the green fees and employees reimburse their employer 75% of the green fees. The employer will only have to pay FBT on the 25% of the green fees that are not reimbursed.
Provide a cash bonus
Provide you employee with a cash bonus instead of a benefit. As it is the employer who pays FBT, if a cash bonus is provided to an employee, it would be the employee who would pay income tax on the bonus.
Income tax deductions and entertainment
As a general rule, you can claim an income tax deduction for the cost of providing entertainment that is a fringe benefit. If you can claim GST credits for this cost as well, you claim the GST-exclusive amount as an income tax deduction.
See 14.16 of FBT: A guide for employers for a summary of the FBT and income tax consequences from providing entertainment to employees and others.
GST credits and entertainment
As a general rule, you can claim GST credits for the cost of providing entertainment that is a fringe benefit.
Note that exempt benefits are not fringe benefits. They are not income tax deductible nor can you claim GST credits for the cost of providing them.