Draft legislation has now been released by the Government relating to the capping of salary packaged entertainment fringe benefits.

The key changes to apply from 1 April 2016 are:

  • Salary packaged ‘meal entertainment’ and ‘entertainment facility leasing expenses’ will only qualify for FBT exemption or the FBT rebate (depending on the type of employer) up to a grossed up value of $5,000. However, a further amount of such benefits can remain eligible for the concession as part of the employer’s usual cap for concessional FBT treatment (currently $31,177 or $17,667 grossed up).
  • Rebateable employers and employers in the commercial sector will no longer be able to apply the 50/50 split method (or the 12 week register method) for valuing meal entertainment and entertainment facility leasing expenses to the extent these are salary packaged. And neither will exempt employers be able to introduce these valuation rules for salary packaged benefits. However, these valuation methods will still be available for other meal entertainment and entertainment facility leasing expenses benefits (ie. not salary packaged). It is the cost of the benefits that is generally the basis for their taxable value, so it is this full cost of salary packaged benefits that will be the amount to gross up for all employers. 
  • Salary packaged benefits can include benefits provided to the employee and the employee’s associate. 
  • Salary packaged meal entertainment and entertainment facility leasing expenses will be reportable on employees’ payment summaries. This relates to benefits provided from 1 April 2016, which will first be reportable on payment summaries for the year ended 30 June 2017. Other meal entertainment and entertainment facility leasing expenses (not salary packaged) will remain not reportable.

Grant Thornton’s interpretation of where the tax effectiveness of salary packaging these entertainment benefits makes it worthwhile post 1 April 2016 is:

  • For employees of employers eligible for FBT exemption, salary packaging of these benefits will generally be tax effective up to the $5,000 cap and to the extent the general cap is not used on other benefits.
  • For employees of employers eligible for the FBT rebate, salary packaging of these benefits will generally be tax effective up to the $5,000 cap and to the extent the general cap is not used on other benefits, but only to the extent the employee’s taxable income exceeds $80,000.
  • For employees of employers not eligible for any FBT concessions, it will generally no longer be tax effective to salary package these benefits (generally, only meal entertainment would have been packaged using the 50/50 valuation method).

Submissions relating to the draft legislation are due by Friday 21 August 2015.

Grant Thornton would prefer to see changes like these bundled up with more general tax reform, so that concessions for the Not for Profit sector are properly thought through and changes implemented as a package. In particular, wholesale change to the FBT system to reduce compliance costs would assist the Not for Profit industry in channelling more of their funds to their organisations’ purposes.