Member Q&A: Does the 12 week register method reduce FBT for meal entertainment?

Question

Our organisation generally elects to use the 50/50 method in the Division 9A ‘meal entertainment’ provisions of the Fringe Benefits Tax Assessment Act 1986  (the ‘FBT Act’). Can we use the ‘minor benefits’ exemption to disregard ad-hoc meal entertainment costing less than $300 (including GST) per recipient?

Answer

When using the meal entertainment provisions, the minor benefits exemption is not able to be used directly to exempt discrete meal entertainment fringe benefits.

However, if an employer elects to use the 12-week register method, the minor benefits exemption can be indirectly utilised.

How this outcome is achieved requires some explanation as it involves the interaction of various definitions in the FBT Act.

Where an employer elects to use the meal entertainment provisions for a particular year, two methods are available to value meal entertainment fringe benefits in the year:

• the 50/50 method (the default method); or
• the 12-week register method (which requires an additional election).

Before applying the valuation method, the meal entertainment provisions require the employer to tally up the costs it incurred in providing all meal entertainment benefits during the year. It is important to note that the definition of meal entertainment benefits includes meal entertainment provided to any person. Therefore, meal entertainment provided to employees and their associates, subcontractors, customers and suppliers etc. are required to be included. For completeness, we note that meal entertainment provisions also treat certain other costs incurred in connection with providing meal entertainment as also being meal entertainment (being travel and accommodation in relation to the meal entertainment).

The 50/50 Method

When using the 50/50 valuation method, the taxable value of meal entertainment fringe benefits is calculated as 50% of the total meal entertainment benefits.

The 12-week Register Method

When using the 12-week register method, the taxable value of meal entertainment fringe benefits is calculated multiplying the register percentage by the total meal entertainment benefits.

To understand how the minor benefits exemption interacts with the meal entertainment provisions it is first important to understand the mechanism by which the minor benefits exemption operates.

The definition of a fringe benefit in section 136 of the FBT Act excludes an exempt benefit (such as a minor benefit). However, the definition of benefit and the definition of meal entertainment benefits do not exclude exempt benefits.

Therefore, meal entertainment benefits includes meal entertainment that may otherwise have been eligible to be treated as a minor benefit.

Further, in calculating the taxable value of meal entertainment fringe benefits, both the 50/50 method and 12-week register method only have regard to meal entertainment benefits which includes meal entertainment that may otherwise have been eligible to be treated as a minor benefit.

However, where the 12-week register method is used, the minor benefits exemption may indirectly apply. This is because the formula to calculate an employer’s register percentage is as follows:

The register percentage uses the total value of meal entertainment fringe benefits. As the definition of meal entertainment fringe benefits takes its definition from the definition of fringe benefit (which specifically excludes an exempt benefit), the minor benefits exemption may be available for meal entertainment benefits provided during the 12-week register period.

For the avoidance of doubt, we note that the minor benefits exemption only applies in calculating the register percentage, but not for the purposes of tallying up all meal entertainment benefits provided during the year, to which the register percentage is then applied.

Editors note – In the September 2022 TaxEd newsletter we will provide some examples showing how the 12 week register method deals with meal entertainment/minor benefits. We will also explore when, based on employer’s meal entertainment spend profile, it may be advantageous to use the  12 week method register method.

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This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.