With the holiday season quickly approaching, you’re probably thinking about how you can best reward and recognise your employee’s hard work. We know that the fringe benefits tax can sometimes make this hard depending on how you approach your end of year reward and recognition program.
Fringe benefits are an important part of any business and can be a useful way of attracting and retaining quality employees. However, if you’re going to provide fringe benefits to your staff, there’s vital information you need to know about the taxation obligations.
What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) is a tax payable by employers for benefits provided to an employee. FBT is separate to income tax and is calculated on the taxable value of the benefits that you provide your employees. Some common examples of fringe benefits include:
- Allowing an employee to use a work car for private purposes
- Giving an employee a discounted loan
- Paying an employee’s gym membership
- Providing entertainment by way of free tickets to concerts
Note: These examples were provided by the ATO and current as of November 2019.
What constitutes a fringe benefit can be complex and change at any time, you should consider getting professional advice on the specific requirements for your business.
Although we won’t go into all the ins and outs of fringe benefits tax, there is one area of fringe benefits we’d like to explore today, the minor fringe benefits exception.
Minor Benefits Exemptions and Reward and Recognition
Rewarding your staff doesn’t have to have to be a big affair. Sometimes a small gift is just the perfect thing to give staff that little holiday ‘boost’. They’ll go into the new year feeling appreciated and who doesn’t want that? Many small gifts are exempt from tax and you may already be exempt from paying fringe benefits tax on certain items. Keep reading to find out what defines a minor benefits exemption.
A minor benefit is a benefit that:
- Has a value of less than $300;
And it would be unreasonable to treat it as a fringe benefit, that is, if:
- The benefit is provided infrequently and irregularly
- The taxable value of the minor benefit and other similar or identical benefits (if they were treated as fringe benefits) is low
- The likely total taxable value of the minor benefit and other associated benefits is low (associated benefits are those provided in conjunction with the minor benefit, for example, electricity and telephone benefits provided as part of an accommodation package)
- It is difficult to calculate the taxable value of the benefit and any associated benefits
- The benefit is provided as a result of a contingency (for example, unexpected overtime)
Source: Minor benefits exemption, ATO, November 2019
Essentially, this exemption means that items of less than $300 delivered as part of employee reward and recognition would typically be exempt from FBT.
There are a few ifs, buts and maybe’s so you should check out the details here. But the one to look out for is that you’re not providing a bunch of similar benefits on a regular recurring basis in a year. Keep in mind, this exemption isn’t meant to be a way for employers to deliver meaningful remuneration to employees on a tax-exempt basis.
But if you’re simply providing a small recognition of an employee’s extra effort or an anniversary or birthday gift, it’s worth considering if this exemption could apply to you.
Fringe Benefits Tax and Christmas
Tis’ the season to be jolly and it can be hard to know what things qualify for fringe benefits tax and what falls under the minor benefits exemption. Thankfully, the ATO have a few handy blogs around this topic which you can read here:
- Work Christmas parties and FBT
- Work Christmas parties and gifts
It’s important to understand that depending on how you choose to celebrate Christmas, there’ll be multiple variables for your business to consider come tax time.
The Wrap Up
When dealing with employment tax requirements such as FBT, it’s always best to consult an expert. Make sure you have all the right information before you start and always consult the ATO for any questions or queries.
If you’re looking at end of year reward and recognition for your employees, using a platform such as Employment Hero can help you and we’ve written just the blog for it.
And if you need further advice on how to do right by your business, I suggest you download our guide to HR compliance. A small business must-have.
*DISCLAIMER: The Employment Hero blog is for informational and educational purposes only. It should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor.