The FBT year ends on 31.3.2022 and given its focus on the “tax gap” the ATO will be giving FBT compliance special attention. The below ATO guidance will help you correctly complete the 2022 FBT annual return.

Christmas parties

There is no separate fringe benefits tax (FBT) category for Christmas parties, and you may encounter many different circumstances when providing these events to your staff. Fringe benefits provided by you, an associate, or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT.

Implications for taxpaying body

If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment, the following explanations may help you determine whether there are FBT implications arising from a Christmas party.

Exempt property benefits

The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. The property benefits exemption is only available for employees, not associates.

Exempt benefits – minor benefits

The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.

Gifts provided to employees at a Christmas party

The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.

Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.

Tax deductibility of a Christmas party

The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.

The costs of entertaining clients are not subject to FBT and are not income tax-deductible.

Christmas party held on the business premises

A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt unless it is a minor benefit.

Example
A small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer and wine.

Employer implicationsThe implications for the employer in this situation would be as follows.If…Then…current employees only attendthere are no FBT implications as it is an exempt property benefit.current employees and their associates attend at a cost of $180 per head·        for employees – there are no FBT implications as it is an exempt property benefit, and the minor benefits exemption could also apply*

·        for associates – there are no FBT implications as the minor benefits exemption applies.*

current employees, their associates and some clients attend at a cost of $365 per head·        for employees – there are no FBT implications as it is an exempt property benefit

·        for associates – a taxable fringe benefit will arise as the value is equal to or more than $300

·        for clients – there is no FBT payable and no income tax deduction.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

Christmas party held off business premises

The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.

Example
Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment.

• Employer implicationsThe implications for the employer in this situation would be as follows.If…Then…current employees only attend at a cost of $195 per headthere are no FBT implications as the minor benefits exemption applies.*current employees and their associates attend at a cost of $180 per headthere are no FBT implications as the minor benefits exemption applies.*current employees, their associates and clients attend at a cost of $365 per headfor employees – a taxable fringe benefit will arise
• for associates – a taxable fringe benefit will arise, and
• for clients – there is no FBT payable and the cost of providing the entertainment is not income tax-deductible.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

Implications for tax-exempt body

If you are a tax-exempt body, the following explanations may help you determine the FBT implications arising from a Christmas party.

Gifts provided to employees at a Christmas party

A Christmas gift or hamper provided to an employee that meets the conditions of the minor benefits exemption rule and is less than $300 will not attract any FBT.

Christmas party held on business premises

The exempt property benefits (property benefits provided on your business premises) would not apply as the tax-exempt body entertainment provisions would apply.

The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply.

For tax-exempt body entertainment fringe benefits the minor benefits exemption is only available in the following circumstances:

• where the provision of entertainment is incidental to the provision of entertainment to outsiders and does not consist of a meal other than light refreshments; or
• a function is held on your business premises solely as a means of recognising the special achievements of your employee in a matter relating to the employment of your employee.

Example
A tax-exempt organisation decides to run a Christmas morning tea for its sponsors. Employees attend as well. There would be no FBT implications as the minor entertainment benefit provided to the employees is incidental to entertaining the sponsors and only light refreshments are provided.

Christmas party held off business premises

The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply. The example immediately above will apply in these circumstances.

Further guidance

Taxation ruling TR 97/17 sets out the ATO view on parties with examples. Paras 27 and 43-56 cover parties on your business premises and Paras 57-62 are specific to parties held at a restaurant, function centre, or similar venue.

Taxation determination 94/55 sets out the ATO view in relation to gifts.

TAX TIP – MAKE THE MOST OF THE MINOR AND INFREQUENT BENEFIT EXEMPTION

The $300 minor and infrequent benefit exemption applies separately on a per-benefit basis (e.g., the minor benefits exemption can apply if a present worth $270 is provided to an employee and another present worth $280 is provided to the employee’s spouse).

The annual Christmas party held outside of the employer’s premises, such as at a restaurant, often amounts to less than $300 per person.

As outlined above, the amount of FBT payable can be influenced by:

• When the party will be held (i.e., for the minor and infrequent benefit exemption, the cost of the benefit provided must be less than $300 per head and not provided regularly or frequently).
• Where the party will be held (i.e., for the property fringe benefit exemption to apply, the food and drink must be provided and consumed by current employees on the employer’s premises on a business day).
• For whom the party will be held (i.e., the tax consequences are different depending on whether the benefits are provided to employees, their associates, or clients).

COMMON ENTERTAINMENT SCENARIOS

Example 1 – Christmas party on the business premises – cost is less than $300

• A company holds a Christmas lunch on its business premises on a working day. Employees, their partners, and clients attend. Food and drink are provided at the party and the company provides taxi travel home. The cost per head is $125.

Entertainment is being provided

• A party for employees, associates and clients is entertainment, because the purpose of the function is for people attending to enjoy themselves.

Employees – exemption applies

• Food and drink – the food or drink provided to employees are exempt from FBT because it’s provided and consumed on a working day on the business premises.
• Taxi travel – taxi travel is exempt from FBT because there is a specific FBT exemption for taxi travel provided to an employee directly to or from the workplace.

Associates – exemption applies

• Food, drink, and taxi travel: The food, drink and taxi travel provided to the employees’ partners (associates) are exempt from FBT because of the minor benefits exemption.

Clients – no FBT

• Clients’ food drink and taxi travel: There is no FBT on benefits provided to clients.

Income tax and GST credits

• The employer can’t claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates, or clients.

 Example 2 – Gym membership

• A conveyancing firm pays a one-year gym membership costing $480 per person for the company’s director and each employee.

Entertainment is being provided

• Paying for employees to have membership of a gym is providing recreation entertainment.

Director – no exemption

• The company will have to pay FBT on the gym membership provided to the director because they’re an employee of the company. The minor benefits exemption doesn’t apply because the cost of the gym membership is $480 per employee.

Other employees – no exemption

• The company would have to pay FBT on the gym membership provided to its other employees. The minor benefits exemption doesn’t apply, because the cost of the gym membership is $480 per employee.

Income tax and GST credits

• The employer can claim an income tax deduction and GST credits for the cost of the gym membership for its employees and for the FBT paid.

Example 3 – Holiday given as reward – cost is $300 or more

• A computer manufacturer offers a reward to employees of Home Office, a retail computer store.
• The retailer agrees that the manufacturer can offer a reward to its employees.
• If an employee sells 200 computers in a month, they will receive a holiday consisting of two nights’ accommodation at the coast and two tickets to the aquarium including a swimming-with-sharks experience.
• The total value of each holiday package is $600.

Entertainment is being provided

• Providing employees with a holiday and tickets to the aquarium is recreation entertainment.

Employees – no exemption

• No exemption applies to the accommodation and tickets given to the employee who meets the sales target. The minor benefits exemption doesn’t apply in this case because the value of the holiday package is $600.

FBT liability – retailer

• The retailer, as the employer, would pay the FBT in this case as the benefits are being provided under an agreement with the manufacturer.

Income tax and GST credits

• The retailer can claim an income tax deduction for the FBT paid.
• The manufacturer can claim an income tax deduction and GST credits for the cost of purchasing the accommodation and tickets.

Example 4 – Golf Day for employees, associates and clients – cost is $320 per person

Paul, an employee, takes several clients and his partner to a corporate golf day paid for by his employer. The event is not held on a working day and Paul has been provided with taxi vouchers to escort his clients to and from the event. His taxi trips didn’t start or end at the workplace.

Entertainment is being provided

Entertainment is being provided as attending a golf day is a social event and therefore its purpose is entertainment related.

Employees – no exemption

Food, drink and taxi travel are not exempt from FBT. The minor benefits exemption doesn’t apply because the cost per person is $320. A taxi travel exemption doesn’t apply as Pauls’ trip did not begin or end at the workplace.

Associates – no exemption

Food, drink and taxi travel are not exempt from FBT. The minor benefits exemption doesn’t apply because the value of the benefit is $320.

Income tax and GST credits

The employer is entitled to an income tax deduction and GST credit for the cost of providing the benefit to employees and their associates and the FBT paid.

Clients – no FBT payable

There is no FBT payable on the food or drink, and taxi travel provided to clients.

Income tax and GST credits

The employer can’t claim an income tax deduction or GST credits for food or drink provided to the clients.

Example 5 – Celebration afternoon tea on the business premises – cost is $25 per head

Anjelica is getting married. To celebrate, her employer holds an afternoon tea on the business premises and invites Anjelica’s associates, work colleagues and clients.

Entertainment is being provided

The afternoon tea provided to employees, associates and clients in this situation is a social event and is therefore entertainment.

Employees – exemption applies

The exemption for food and drink provided and consumed on business premises on a working day applies to the employees.

Associates – exemption applies

The food and drink provided to the employee’s associates are exempt from FBT because of the minor benefits exemption. That is, the cost of the activity is less than $300 per employee and, considering the five factors, it would be unreasonable to treat the benefit as a fringe benefit.

Clients – no FBT

There is no FBT on benefits provided to clients.

Income tax and GST credits

The employer can’t claim an income tax deduction or GST credits for food or drink provided to the employees, their associates, or clients.

Example 6 – Business planning day

An insurance company organises a planning day for their managers at a conference centre. Morning and afternoon tea and a three-course lunch (excluding alcohol) are provided at a cost of $125 per head.

Entertainment is not being provided

Providing light meals is not considered entertainment. Although the lunch provided in this situation is work-related, the three-course meal would be elaborate and therefore considered to be entertainment.

Employees – exemption applies

The exemption for food and drink provided and consumed on the employer’s premises on a workday doesn’t apply. However, the minor benefits exemption applies as the cost of the activity is less than $300 per employee and, considering the other factors, it would be unreasonable to treat the benefit as a fringe benefit.

Income tax and GST credits

As the minor benefits exemption applies, the employer can’t claim an income tax deduction or GST credits for food or drink provided.

EXTENDING SUPPORT FOR SMALL AND MEDIUM-SIZED BUSINESSES

The Federal Government, with a view to assisting Australia’s small business-led recovery from the COVID-19 pandemic, has extended the SME Recovery Loan Scheme by a further six months to 30 June 2022.

Around 80,000 loans worth approximately $7.3 billion have been written to date since the scheme commenced in March 2020.

As with the existing scheme, SMEs who are dealing with the economic impacts of COVID-19 with a turnover of less than $250 million will be able to access loans of up to $5 million over a term of up to 10 years.

With the economy showing signs of a strong rebound as restrictions ease, the Government has reduced its loan guarantee from 80 per cent to 50 per cent, helping drive a private sector-led recovery.

Other key features of the SME Recovery Loan Scheme include:

• Lenders can offer borrowers a repayment holiday of up to 24 months.
• Loans can be used for a broad range of business purposes, including to support investment.
• Loans may be used to refinance any pre-existing debt of an eligible borrower.
• Loans can be either unsecured or secured (excluding residential property).

Extension of the scheme will complement other investment incentives which allow for the full and immediate expensing of the cost of eligible assets.

Further information can be found on the Treasury website.

COVID-19 VACCINATION INCENTIVES AND REWARDS – YOUR TAX AND SUPER OBLIGATIONS

If you give your employees incentives or rewards for getting their COVID-19 vaccination, you need to consider any tax and super obligations. These tax and super obligations also apply to incentives or rewards offered for a COVID-19 booster dose.

The tax and super consequences differ depending on whether you give your employees a cash payment, paid leave, transport to and from the vaccination, or other non-cash benefits.

The tax consequences are different depending on whether the incentive or reward is available exclusively to employees, or more generally to clients or the public.

Cash payment for getting the vaccine

If you give your employees a cash payment for getting vaccinated (for example, a $200 payment), you need to:

• report the payment via Single Touch Payroll (STP) as part of the employee’s salary or wages
• withhold tax from the amount under pay as you go (PAYG) withholding, and
• include the amount in your employee’s ordinary time earnings for the purpose of determining your super contributions for your employee.

If you have already made a cash payment and did not withhold tax, you should contact the ATO straight away so that they can consider the remission of any applicable failure-to-withhold penalties.

If you have not made super contributions, you need to ensure you make them no later than 28 days after the end of the quarter in which the cash payment was made, otherwise, you may be liable for the super guarantee charge.

Paid leave

If you give your employees paid leave to get their COVID-19 vaccination or additional paid leave to recover from any COVID-19 vaccination side effects, your employee earns salary or wages while they are on paid leave.

You should withhold tax under PAYG withholding and make super contributions on the amount as you usually would.

Transport to and from the vaccination

If you provide or pay for an employee’s transport to get their COVID-19 vaccination, there is generally no fringe benefits tax (FBT) payable. The travel is associated with work-related preventative health care and is exempt from FBT.

Other non-cash benefits

Other non-cash benefits you provide to your employees may be subject to FBT. Non-cash benefits could include:

• goods and services
• vouchers and gift cards, or
• points in a reward scheme.

The FBT treatment of these kinds of benefits will depend on their specific terms and conditions, and the benefits may be subject to FBT unless an exemption or reduction applies.

The fringe benefits you provide may also need to be included in your employee’s reportable fringe benefits amount and reported on your employee’s income statement.

Benefits that you provide to the general public

You may be providing free or discounted goods, services, vouchers, gift cards or reward points to everyone that has had their COVID-19 vaccination. This could be offered to the public at large or to all members of a club (for example, if the employer is an automobile club).

If such benefits are provided generally to people who have been vaccinated (and not just to employees), no FBT will apply to benefits provided to employees as the benefit is not provided in respect of the employment of the employee.

Exemption for minor benefits

You may provide a non-cash benefit that qualifies for the minor benefits exemption. A benefit that has a value of less than $300 may be exempt from FBT as a minor benefit if it would be unreasonable to treat it as a fringe benefit after considering the following five criteria:

• the benefit is provided infrequently and irregularly
• the value of the minor benefit and other similar or identical benefits is low
• the total value of the minor benefit and other benefits provided in connection with it is low
• it is difficult to calculate the taxable value of the benefit and any associated benefits, and
• the benefit is provided as a result of an unexpected event.

There are exclusions where the minor benefits exemption does not apply, such as for in-house fringe benefits and minor entertainment benefits provided to employees of income tax exempt organisations.

Reduction in taxable value for in-house fringe benefits

You may be entitled to a reduction in FBT where you provide a non-cash benefit that qualifies as an in-house fringe benefit. Broadly, in-house fringe benefits are benefits that are identical or similar to the benefits you provide to customers in the ordinary course of business. If you give one or more in-house fringe benefits to an employee during the FBT year, you can reduce the aggregate of the taxable values of the in-house fringe benefits by $1,000 if the benefits are not provided under a salary packaging arrangement.

Entries in a draw to win prizes

If you offer a prize draw exclusively to your employees, there are no FBT consequences when the entry to the draw is given to the employee because you do not know which employee will receive a benefit. However, FBT may apply when the winner receives their prize unless an exemption (such as the minor benefits exemption) or a reduction (such as the in-house benefits reduction) applies.

No FBT applies if you make a prize draw, including the prize, available generally to the public or people who have been vaccinated and not just to employees.

Examples

The following are some examples of COVID-19 vaccination incentives and rewards given by employers to their employees, and the tax treatment that arises.

Example 1 – employer gives employee goods

A shoe store gives each employee who receives both of their COVID-19 vaccinations shoes of their choice up to the value of $300. Dominic, an employee, receives both of his vaccinations and receives two pairs of shoes with a total retail value of $300.

The shoes are in-house property benefits, and the store does not give their employees any other in-house benefits during the FBT year. The employer is within the $1,000 aggregate threshold for in-house benefits provided to Dominic and the other requirements relating to the concession are met. The taxable value of the fringe benefit is reduced to nil and the store has no FBT obligation in respect of those benefits.

Example 2 – employee receives cash payment

Miranda’s employer is offering all of its employees a $200 payment for getting both of their COVID-19 vaccinations. Miranda receives an extra $200 in her fortnightly pay and her employer reports this as salary and wages on her income statement at the end of the income year.

The amount is also included in Miranda’s ordinary time earnings for super guarantee purposes.

Example 3 – free goods available to the public

Food Co offers customers who have received both of their COVID-19 vaccinations a free meal. This offer is available to the general public, including Food Co’s employees.

No FBT arises if free meals are provided to Food Co employees under this promotion because they are not provided in respect of their employment with Food Co, as the promotion is available to all vaccinated customers.

EMPLOYEES WHO TRAVEL FOR WORK

If you have employees who travel for work, The ATO has new guidance available on their website to help you determine whether to pay them a travel or a living-away-from-home allowance (LAFHA).

There are some key differences between the two allowances:

• A travel allowance will need to be included as an amount in your employee assessable income and may need to have tax withheld from it. It covers accommodation, food, drink, or incidental expenses an employee incurs when they stay away from their home overnight to carry out their duties.
• A LAFHA payment you provide to your employee may be considered a LAFHA fringe benefit and will need to be reported in your annual fringe benefits tax (FBT) return. LAFHA is paid to compensate an employee for additional living expenses they incur if they’re required to live away from home.

We are also able to assist you with these matters.

MODERNISING BUSINESS REGISTERS (MBR)

There have been further updates to the ATO fact sheet on this topic.

As part of its Digital Business Plan, the government has announced the full implementation of the Modernising Business Registers (MBR) program, to:

• establish the new Australian Business Registry Services (ABRS)
• streamline how you register, view, and maintain your business information with the government.

About the MBR program

The MBR program will establish a new and modern registry service, the Australian Business Registry Services (ABRS).

The ABRS will:

• progressively roll out between 2021 and 2024
• bring together the Australian Business Register (ABR) and more than 30 Australian Securities and Investments Commission (ASIC) registers in one place
• introduce the director identification number (director ID) initiative.

The program aims to:

• make it easier for businesses to meet their registration obligations – giving them more time to focus on their customers and business operations
• improve the efficiency of registry service transactions
• make business information more trusted and valuable.

The ABRS high-level milestones are to:

• establish the foundations for the new registry service
• introduce director IDs
• transition existing registers to the new registry service, including
• companies
• business names
• Australian business numbers (ABNs)
• professional and historical registers.

What’s changing

The new ABRS website is live, with information on the director ID requirement and how to apply.

As the program rolls out, the ATO will keep you updated with any changes that may affect you.

What’s not changing

Registry data will continue to only be provided to other parties, including other areas of ASIC and the ATO:

• to maintain the registers
• if authorised by law.

The existing requirements for the collection, storage, integration, and management of data will be upheld.

For now, how you register, search and get extracts of the registers, and interact with the ABR and ASIC remains the same. You can still search ASIC registers.

There is a clear separation between registry functions and other functions of the ATO.

Director ID

Director identification number (director ID) is a unique identifier you apply for once and keep forever.

You must apply for your director ID yourself, so we can verify your identity. No one can apply on your behalf.

Your tax, BAS or ASIC agent can’t apply for a director ID for you. They can help you understand the new requirement if you need to apply and when.

Visit abrs.gov.au for more information and to apply.

Administering the MBR program

On 4 April 2021, the Commissioner of Taxation was appointed as Registrar under the:

• Business Names Registration Act 2011
• Commonwealth Registers Act 2020
• Corporations Act 2001
• National Consumer Credit Protection Act 2009.

The Registrar’s role is to:

• lead and implement the MBR program
• perform statutory registry functions
• exercise powers under the relevant laws.

Initially, this will also include assisting ASIC to perform statutory registry functions and exercise its powers as a delegate of ASIC. At a later stage, the Registrar will assume primary responsibility for those functions under the law.

The ATO is rolling out the MBR program in partnership with the:

• Treasury
• Australian Securities & Investments Commission
• Department of Industry, Science, Energy and Resources
• Digital Transformation Agency.

STUDENT AND WORKING HOLIDAY MAKER VISA HOLDERS

On 19.1.2022 the Government announced a series of visa measures to provide an incentive for fully vaccinated Student and Working Holiday Maker visa holders to return to Australia as soon as possible to help address current workforce shortages caused by COVID‑19.

Refunds of Visa Application Charges

Working Holiday Maker visa holders who are currently offshore and come to Australia during the next 12 weeks will be eligible for a refund of their Visa Application Charge.

Any Student visa holder who is currently offshore and comes to Australia over the next 8 weeks, will be eligible for a refund of their Visa Application Charge.

The current Visa Application Charge for a student is $630 and for a Working Holiday Maker, it is $495.

These changes will also apply for new applications, which will be processed quickly so applicants can come to Australia during the refund window.

As well as providing an incentive for existing offshore visa holders to bring forward their travel, these changes will generate new interest in Australia and new visa applications.

The provision of refunds and priority visa processing, together with a Tourism Australia advertising campaign, will generate fresh interest in Australia from students and Working Holiday Makers who contribute greatly to our economy and fill vital skills gaps.

International Student – Working Hours Flexibility

The Federal Government has supported Australian businesses during the pandemic by allowing Student visa holders to work additional hours in critical sectors.

Due to current workforce shortages, the Government is temporarily extending this arrangement by removing the limit on Student visa holders’ working hours across all sectors of the economy.

This measure takes effect immediately for all ongoing students as well as new student arrivals who start a job prior to their course commencement and will be reviewed in April 2022.

Working Holiday Makers – Employer Flexibility

In addition, effective immediately and until the end of 2022, there will be no limit on the length of time Working Holiday Makers can work for the same employer.

The above measures are temporary and designed to provide immediate assistance to Australian businesses that are currently facing critical workforce shortages, to enable them to continue delivering goods and services to the community.

There are currently around 150,000 Student and 23,500 Working Holiday Maker visa holders offshore.

All international arrivals must meet Australia’s entry requirements including in relation to vaccination.

Further details will be available on the Department of Home Affairs website.