31 March, being the end of the fringe benefits tax (FBT) year, is fast approaching and now is the time to ensure that certain obligations under the FBT law are being satisfied before the end of that year.
In this week’s Top Tax Tips, we discuss the FBT implications of employers supplied food and drink to their employees.
1. Meals and Fringe Benefits Tax
The provision of meals by an employer to an employee gives rise to several types of fringe benefits:
- A meal entertainment fringe benefit;
- An exempt property fringe benefit;
- A meal fringe benefit that is reduced to nil under the otherwise deductible rule; and
- A board fringe benefit.
2. Meal entertainment fringe benefits
An entertainment fringe benefit arises where an employer supplies entertainment:
- by way of food, drink or recreation; or
- accommodation or travel in connection with that entertainment.
In most cases, the supply of meals by an employer will be an entertainment fringe benefit unless the exempt property fringe benefit rules, the otherwise deductible rule or the board fringe benefits rules apply (see below).
A meal entertainment fringe benefit can be calculated using any of the following three methods:
- The actual cost method;
- 50-50 split method; or
- 12-week register method.
Employers must elect to use one of the above methods for the FBT year. Employers are permitted to choose the most tax efficient method.
Your Nexia adviser can assist you in deciding which calculation method is best for your business.
3. Exempt Property Fringe Benefits
Food and/or drink supplied to an employee is an exempt benefit if food and/or drink is both provided and consumed on the employer’s premises on a working day. Examples of exempt benefits are morning and afternoon tea, light meals and food prepared in an in-house dining facility.
This exemption does not apply to:
- Employers that are exempt from income tax where entertainment arises as a result of providing the property benefit (tax-exempt body entertainment fringe benefits)
- Employers who choose to use the meal entertainment method and calculate the taxable value under the 50-50 split method or the 12-week register method.
- Meals provided under a salary sacrifice arrangement.
A fringe benefit may be supplied by another person on behalf of an employer or to another person on behalf of an employee (for example to employee’s relative).
4. Otherwise Deductible Rule
Meals provided by employers are not subject to FBT, if the meal would be otherwise deductible under the income tax law if the employee had incurred the expense directly e.g. meals when employees are travelling overnight on company business. The employee must sign a declaration to this effect.
5. Board Fringe Benefits
The value of board fringe benefits is limited to $2 per meal per day under the FBT law. To qualify as a board fringe benefit the following conditions must be satisfied under the FBT law:
- At least two meals per day are supplied under an industrial award or employment arrangement;
- the meal is supplied by the employer;
- the meal is cooked or prepared on the employer’s premises; and
- the meal is supplied on the employer’s premises.
For further information regarding meals and FBT speak to your Nexia Adviser today.
