We are an income tax exempt ‘not-for-profit’ but are subject to Payroll Tax – do we include fringe benefits that relate to entertainment?

Fortunately many income tax exempt not-for-profit organisations enjoy pay-roll tax (‘PRT’) exemption under the relevant State or Territory PRT legislation.

However there are many income tax exempt not-for-profit organisations that are not eligible for PRT exemption (or only receive a partial exemption).

Where PRT is payable it is the specifics of the relevant State or Territory legislation which determine what amounts are required to be included as ‘wages’ and subject to PRT.

With relation to ‘fringe benefits’, an employer is generally required to include the taxable value of fringe benefits grossed up at the lower gross up rate (the Type 2 rate which is 1.8868). Where a fringe benefit does not give rise to a taxable value (for example the benefit is exempt) there is no taxable value and therefore no amount to be included as wages.

However ‘tax-exempt body entertainment‘ fringe benefits (as defined for the purposes of the Fringe Benefits Tax Assessment Act 1986) are generally not required to be included in the PRT wages base as they are excluded from the definition of ‘fringe benefit’ in the PRT legislation of all States and Territories (except Western Australia). The exclusion applies equally where the nature of the entertainment is ‘meal entertainment’ and the concessional meal entertainment valuation rules in the Fringe Benefits Tax Assessment Act 1986 are applied when preparing the FBT return.

Where an organisation reviews the basis on which fringe benefits have been included in PRT returns and identifies that tax-exempt body entertainment fringe benefits have been included incorrectly, a PRT refund should be available subject to any amendment time limits in the PRT rules of the relevant State or Territory.

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