Being an employer within s. 57A of the Fringe Benefits legislation gives rise to an unexpected favourable outcome.
One of many unexpected outcomes that arises in an FBT context is the fact that entities covered by s. 57A of the Fringe Benefits Tax Assessment Act 1986 (‘FBT Act’) are not subject to FBT on non-salary packaged meal entertainment.
Hardly a ‘free lunch’, but nevertheless a ‘free kick’ that employers often overlook when preparing the annual FBT return.
To understand this outcome, it is necessary to explore:
- which entities are covered by s. 57A; and
- the reason that non-salary packaged meal entertainment is not subject to FBT but other entertainment (including salary packaged meal entertainment) may be subject to FBT.
Section 57A
Section 57A provides that (inter alia) a benefit provided in respect of the employment of an employee is an exempt benefit where:
- the employer is a registered public benevolent institution (meaning it is registered with the ACNC as a charity with a subtype of public benevolent institution);
- the employer is a public hospital;
- the employer provides public ambulance services or services that support those services and the employee is predominantly involved in connection with the provision of those services;
- the employer is a hospital carried on by a society or association that is a rebateable employer (which includes a not-for-profit charitable institution); or
- the employer is a registered health promotion charity which is endorsed under section 123D(1) of the FBT Act.
For now, let us consider a public benevolent institution (PBI) employer that regularly provide certain employees with meal entertainment as a means of liaising with stakeholders and potential benefactors. It should be kept in mind that this article deals with benefits in the nature of meal entertainment which is defined as entertainment by way of food and drink and includes travel or accommodation in connection with, or for the purpose of facilitating, such entertainment.
You could be excused for assuming an FBT liability would arise for the s. 57A employer as it would for other non-section 57A income tax exempt employers under the ‘tax exempt body entertainment’ rules of Division 10 of the FBT Act. It is recognised an employer can elect to value non-salary sacrifice meal entertainment under the Division 9A ‘meal entertainment’ rules (commonly referred to as the 50/50 rules). However, regardless of which set of valuation rules apply, no FBT liability arises.
In the balance of this article we explore why no FBT liability arises.
Reason that FBT liability does not arise
An employer’s FBT liability (having identified and valued all benefits provided) is determined by applying one of various ‘method statements’ set out in Part IIA of the FBT Act.
This process involves an employer ascertaining the employer’s fringe benefit taxable amount for the FBT year which is the sum of the employer’s grossed up ‘Type 1 aggregate fringe benefits amount’ and ‘Type 2 aggregate fringe benefits amount’ (s. 5B). However, as a s. 57A employer only provide exempt benefits and would otherwise not have a Type 1 or Type 2 aggregate fringe benefits amount, a special approach is required to determine the fringe benefit taxable amount for this type of employer.
Where an employer provides benefits that are exempt under s. 57A the employer’s fringe benefit taxable amount (which would otherwise be nil) is increased by the employers ‘aggregate non-exempt amount’ (s. 5B(1D)).
The special approach is provided for in s. 5B(1D) and takes into consideration the fact that the blanket exemption otherwise provided by s. 57A is capped to a grossed-up limit of $17,000 or $30,000 depending on the characteristics of the employer. A further cap of $5,000 applies to certain salary sacrificed benefits (meal entertainment and entertainment facility leasing) but this doesn’t impact on the question being dealt with in this article.
The employer’s ‘aggregate non-exempt amount’ is, for each employee, the ‘individual grossed up type 1 non-exempt amount’ (per s. 5B (1F)) and the ‘individual grossed-up type 2 non-exempt amount’ (per s. 5B(1G)) that exceeds the applicable per employee capping limit for that employer.
Confused? You’re entitled to be.
The FBT Act is a certainly magnificent beast.
However, in the end, the reason why a s. 57A employer does not pay FBT on non-salary sacrifice meal entertainment is simple.
The method statement in s. 5B(1L) prescribes that when calculating the ‘individual grossed up type 1 non-exempt amount’ (required per s. 5B (1F)) and the ‘individual grossed-up type 2 non-exempt amount’ (required per s. 5B(1G)) the following benefits are disregarded:
- meal entertainment regardless of whether the Division 9A meal entertainment valuation rules are applied;
- car parking fringe benefits, and
- benefits where the taxable value is wholly or partly attributable to entertainment facility leasing expenses.
And so, there it is, s. 57A employers do not have an FBT liability on non-salary packaged meal entertainment.
However, this outcome does not extend to other than meal entertainment (e.g. entertainment by recreation). Where a s. 57A employer took the employees to the movies (hopefully not to see Horrible Bosses as unfortunately we did some time ago!), the entertainment benefit would still need to go into the FBT calculations as tax exempt body entertainment.