Common mistakes when applying the minor and infrequent benefits exemption
Many employers are unknowingly falling foul of the FBT regime through an incorrect interpretation of the minor and infrequent exemption.
Minor and infrequent benefits are exempt from FBT where they are both:
- less than $300 in notional taxable value (that is, the value if it was taxable), AND
- unreasonable to be treated as a fringe benefit.
Note that the benefit must be BOTH minor (less than $300) and infrequent.
Most commonly, mistakes are made in the provision of ‘Meal Entertainment’.
Meal Entertainment applies predominantly to the provision of food or drink to employees and they are not consumed on the employer’s business premises.
The provision of meal entertainment is defined as:
- providing entertainment by way of food or drink
- providing accommodation or travel related to, or to facilitate the provision of, such entertainment.
- paying or reimbursing expenses incurred by the employee for the above.
Considering this, some of the more common practices that are included as meal entertainment would be:
- taking your employees out to a café or restaurant for a meal.
- social functions, such as Christmas parties, where food or drink is supplied.
Where the value of the food or drink is less than $300 per person the exemption can be claimed, provided the employee only receives this benefit infrequently throughout the year.
Importantly, to access this exemption the employer must value meal entertainment using the Actual Method. The exemption is not available if the employer values meal entertainment using the 50/50 Method.
Working out whether a meal entertainment benefit is minor is straightforward – you just need to check the receipt. Where employers find themselves in trouble is working out if the benefit is infrequent enough to satisfy that condition.
As a guide, we recommend that you only provide meal entertainment benefits for an employee no more than 5 to 10 times in a given FBT year. Once the benefit you are providing exceeds the infrequent condition, all benefits of that type for that employee become subject to FBT.
Taking employees out of the office to enjoy a coffee may be a form of Meal Entertainment. If you do this too often throughout the year, an employer may find themselves subject to FBT on ALL the Meal Entertainment benefits they provide to that employee (including any year-end social functions). Failure to maintain an appropriate register of exactly which employees are receiving benefits could result in all meal entertainment benefits becoming subject to FBT.
Note that the ATO has previously advised that food and drink under $15 per employee could be viewed as sustenance and would not fall under the FBT rules. Perhaps $25 per employee may be an appropriate amount now!
Further help:
The ATO has signalled that there will be an increased focus on FBT this year. Given the ever-improving tools at the ATO’s disposal, in conjunction with the government’s need to raise additional revenues, employers must ensure they remain compliant with their FBT requirements. If you would like to ensure your business is compliant, please contact us. With our expert help, you’ll have peace of mind that you are ticking all the right boxes.
You can find out more about working with Marsh & Partners here. As your Absolute.Account.Ability partner we’re on a mission to make your business life better. We’ll help you set goals for your business, devise an Action Plan to make them happen and meet with you regularly to ensure you stay on track.
