It is beneficial to understand when FBT applies before decisions are made to avoid any nasty surprises.
Broadly, fringe benefits tax (FBT) is a tax imposed on non-cash benefits provided to an employee and paid by the employer. FBT is particularly broad and it is important to seek advice before providing any non-cash benefits to employees so that the implications are understood.
Below we discuss three main categories where wine clients are often caught by FBT.
It is common for wineries to provide their employees with a ‘wine allowance’ which entitles the employee to wine, either free of charge or at a discount. This gives rise to an in-house property fringe benefit because there is a provision of goods which are identical or similar to the goods sold by the business.
The taxable value of an in-house benefit is 75% of the arms-length selling price and is reduced by the amount of any contribution by the recipient. A reduction of $1,000 per employee per FBT year in respect of the total taxable value of in-house property benefits can also be applied when not part of a salary sacrifice arrangement.
It is important to note that the $1,000 concession amount does not apply if the benefit is provided as part of a salary packaging arrangement. A salary packaging arrangement is where a benefit is provided:
In the example below, assume an employee is provided with wine free of charge up to a monetary value of $200 of the retail price each month:
|Taxable Value (75%)||1,800|
|Total taxable value||800|
|FBT gross up amount (x 2.0802)||1,664|
|Tax Payable by employer (47%)||782|
Accordingly, a wine business offering $2400 of wine value to their employees creates a fringe benefits tax liability of $782.
The instant asset write off has been increased from $30,000 to $150,000 from 12 March 2020 until 30 June 2020 for businesses with an aggregated turnover of less than $500 million. To claim the immediate deduction, the asset must be installed and ready for use by 30 June 2020. Different rules apply to motor vehicles.
It is important to note that a $57,581 depreciation cost limit applies to cars that are designed to carry a load of less than one tonne and fewer than nine passengers. The limit applies mainly to cars which are designed for carrying passengers. In this situation, the business can claim an instant deduction of $57,581 however any excess cost cannot be claimed under any other depreciation rules.
Assets which do not fall under the definition of a car are not subject to these rules. For example, if a van is purchased on 31 May 2020 for $70,000 and it has been delivered and ready for use by 30 June 2020, the business can claim the entire cost of the van in the 2020 financial year.
When purchasing a motor vehicle, it is important to always consider the FBT implications associated with the way it is used. A car owned or leased by an employer which is made available to an employee may give rise to a car fringe benefit – this is commonly referred to as a ‘company car’. A car is considered as being available for private use not only when it is used for private purposes, but also when the car is garaged at the employee’s home and/or not at the business premises and available for the employee’s private use. For FBT purposes, a car is any of the following:
Under some limited circumstances, some vehicles are exempt from FBT provided the following conditions are met:
The vehicle meets the definition of an ‘exempt vehicle’. An exempt vehicle is a taxi, panel van or utility designed to carry a load of one tonne or more.
Private use of the vehicle is primarily limited to home to work travel and incidental travel in the course of performing employment-related travel. Any other private use must be “minor, infrequent and irregular”.
Entertainment for FBT purposes can be provided by way of food, drink or recreation; or accommodation or travel in connection with, or to facilitate, the provision of entertainment.
Some examples include concert, football or event tickets and meals and drinks at staff social functions (e.g. Christmas parties).
The most common provision of entertainment is by way of food and drink and can be difficult to determine whether FBT applies because it involves identifying the entertainment context. For example, providing a morning tea to employees on a working day on the employer’s premises does not constitute the provision of entertainment. However, if alcohol is provided, it would be considered entertainment and FBT would apply.
For example – providing an employee with food and wine at a wine festival. If the food/drink is provided in a social situation whereby the purpose is enjoyment, then it is likely to be considered entertainment and FBT will apply.
The most common exemption to meal entertainment is the minor and infrequent exemption which applies when:
Both conditions must be satisfied for the meal entertainment benefit to be exempt.
Please contact Raoul Stevenson or your Nexia Edwards Marshall Adviser for assistance with your FBT return.
The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.