What is and what isn’t an FBT expense?
Fun Co Pty Ltd incurred various expenses during the 2011/12 financial year. What expenses are deductible? What expenses are fringe benefits? And what expenses are entertainment and therefore, not deductible?
Expense 1: Dinner with a customer – $800
This expense is not subject to FBT and is not deductible for income tax purposes.
Expense 2: Accommodation and car hire for taking directors, who have arrived from overseas, to visit the accountant and various suppliers – $850
The payments would only be subject to FBT if the directors are treated as employees of Fun Co Pty Ltd. The expenses would be deductible for income tax purposes.
Expense 3: Dinner with employees in a restaurant as a reward for reaching quarterly sales budget – $225 ($45 each)
This is subject to FBT. However, an exemption may apply if the benefit provided is not frequent and regular. Note that the minor benefit exemption can only be applied if Fun Co Pty Ltd uses the actual method. The exemption cannot be applied under the 50/50 split method.
Expense 4: Catering lunch, consumed in the office with employees – $225 ($45 each)
This is not subject to FBT. It is deductible for income tax purposes.
Expense 5: Lunch with employees in a restaurant during Christmas – $99 each
Refer to expense 3 explanation above.
Expense 6: Christmas hamper (containing wine and chocolates) gifted to employees in December – $60 each
As long as the gift is taken home (i.e., the wine is not consumed at the business or place where the hampers were given to the employees), it should not be considered entertainment. The hamper will be subject to FBT but the exemption may apply if the benefit provided is not frequent and regular. It would be deductible for income tax purposes if it is not treated as entertainment.
Expense 7: Christmas hamper (containing wine and chocolates) gifted to a customer in December – $230
This is not subject to FBT and a deduction is allowed provided that it is incurred “in carrying on a business for the purpose of producing future assessable income”. The business is required to prove that the purpose of providing the gift is to generate goodwill or future sales for their business.
Expense 8: Gift voucher given to a customer as reward for referral of a new client – $100
This is not subject to FBT. The deductibility of the gift voucher depends on whether it has components of entertainment. For example, gift vouchers such as Coles/Myer would be deductible for income tax purposes, however, a gift voucher for a restaurant would be considered entertainment and would therefore not be deductible.
If you have a question about a particular expense you have incurred, or are considering incurring, please do not hesitate to send us an email or call us on 07 4151 8898!