What the Hell is Fringe Benefit Tax and Does it apply to Buying Gifts?
There are two key things we need to understand when it comes to deducting gifts from our taxable income: Minor Benefits Exemption (MBE) and Fringe Benefits Tax (FBT). Well aren’t they some fun little acronyms that roll easily off the tongue…not exactly, but let’s start by defining what a fringe benefit is (and no it doesn’t have anything to do with the haircut you gave yourself during lockdown):
→ A ‘benefit’ is defined by the ATO as any rights, services, or privileges provided to an employee by an employer.
→ A ‘fringe benefit’ is a ‘payment’ given to an employee, but in a different form to salary or wages.
A little clearer? Basically, the most common example of a ‘fringe benefit’ is when an employer (i.e. you) provides an employee (e.g. Karen in Sales) with a discount (i.e. a ‘benefit’) or full payment for a gym membership (a ‘fringe benefit’). Another example would be the company car!
Now, before we dive into the tax part of fringe benefits, let’s tackle MBE. According to our friends at the ATO (probably less friends than acquaintances we see a few times a year because we have to):
→ A ‘minor’ benefit is any benefit (remember your definition from above) that has a value less than $300
This dollar figure is important because it’s what the ATO considers as unreasonable to tax. There are of course some rules around how regular or seemingly ‘beneficial’ the gifts are, but your accountant should be all over that. (If you have any questions, always feel free to drop The Women’s Accountant a line!)
Now we have some of the lingo down, we can define FBT as a tax paid by an employer on certain benefits they provide to their employees, clients, or their employees’ family (associates). In this case when we say employee, we mean anyone who; is a current, future, or past employee; director of the company; or a beneficiary of a trust who works in the business.
Any benefit that satisfies the above rules and is under $300 is exempt from FBT as it qualifies for MBE. The ATO provides a detailed description of fringe benefits that are exempt from FBT. So… any gifts that you buy for; clients; employees; or their associates, through your company, are considered benefits and as such may be subjected to tax or exemption depending on the gift and its context.
What Kinds of Gifts are Exempt From Fringe Benefits Tax and Can I Buy Booze?
Unless reading through a 15,000-word ATO webpage sounds like a super good use of your precious time, we are going to save you the trouble and give you a list of our mostly commonly asked for items.
As a general rule, gifts that are usually exempt from FBT are things you give once a year that are less than $300 and aren’t used for ‘entertainment’ purposes. Think: flowers, body lotion, hampers, accessories, even alcohol (yes, you heard that correctly, a champagne breakfast can sometimes be FBT exempt, grab the bottle opener).
- A once-off end of year bottle of wine to your employees? Exempt.
- A bottle of wine every Friday to celebrate the week? Not so much.
- A bunch of flowers once a year on their birthday? Exempt.
- A bunch of flowers every fortnight to brighten their home? Not so much.
We’ve got ahead and made two simplified flowcharts with some generic examples to help you out!