FBT
Minor benefits exemption
The minor benefits exemption removes fringe benefits tax on a benefit of low value that is provided infrequently and irregularly, subject to a threshold set by law.
The minor benefits exemption is a rule that lets employers provide small, occasional benefits to employees without paying fringe benefits tax. To qualify, a benefit must have a notional taxable value below the threshold set by legislation, and it must be provided infrequently and irregularly. The threshold is set by law and can change, so employers should check ato.gov.au for the current amount rather than relying on a figure from memory.
The two tests work together. The first is value, which is the notional taxable value of the benefit, worked out as if it were an ordinary fringe benefit. The second is frequency and regularity. A one-off gift on a special occasion, such as a bottle of wine at Christmas, is typically infrequent and irregular. A weekly coffee or monthly lunch is more likely to be regular, even if each instance is small, and could be taxable. The ATO has guidance on how to apply the test.
Associated benefits are grouped. If an employer provides several minor benefits to the same employee at around the same time, they may be treated as a single benefit for the purpose of testing the threshold. The employer also needs to consider the aggregation rules, which look at benefits provided to the same employee and, in some cases, related benefits provided over the FBT year. Employers should keep a register to help.
Certain benefits are excluded from the exemption. For example, the exemption may not apply to some salary-packaged benefits, and the value of benefits provided under a salary sacrifice arrangement is not treated as minor, because they are regular and in place of salary. Employers who provide benefits instead of wages should assume the exemption does not apply.
GST credits can be claimed on the purchase of a minor benefit provided that the purchase is a creditable acquisition and the employer holds a valid tax invoice. Entertainment-type benefits are an exception, where GST credits are denied unless FBT is payable, which may be relevant where the benefit is exempt under the minor benefits rule. The effect on income tax deductions should also be considered.
A common mistake is to treat every small gift as minor without thinking about frequency. Another is to ignore the aggregation rules and to treat each small item separately when they are related. Employers should also keep records, because without them the exemption may be denied.
This is general information only, so confirm your position with the ATO or a registered tax professional.
Worked example
A business gives each employee a $90 hamper at Christmas, once a year. Assuming the notional value is below the legislated threshold and the gift is infrequent and irregular, the minor benefits exemption applies and there is no FBT. The $90 includes $8.18 of GST ($90 x 1/11), which the business may or may not be able to claim, depending on the entertainment rules, and the owner checks before claiming.
Practical tips
- Check the current threshold on the ATO website before you rely on the exemption.
- Keep a register of minor benefits given to each employee so you can show they were infrequent and irregular.
- Do not use the exemption for regular perks or items provided in place of salary.