The Government is proposing to introduce a new grossed-up cap of $5,000 per year per employee for salary sacrificed meal entertainment and entertainment facility leasing expenses (collectively referred to as “entertainment benefits”). Whilst this measure was probably expected a long time ago by the sector, the extent of the impact was the big unknown.
The $5,000 grossed-up cap equates to a cap of about $2,550 in actual expenses, so for someone packaging $10,000 of entertainment expenses, such as catering for a wedding, cruises, holiday accommodation and restaurant meals, it could mean a $3,600 difference to their take home pay.
Any entertainment benefits exceeding the new cap are proposed to be counted towards the existing general cap. Further, all entertainment benefits are proposed to be included as reportable fringe benefits. One hopes this is a reference to salary packaged benefits only and does not include, for instance, the staff Christmas party.
The measures are intended to be effective from 1 April 2016, so we may see a substantial increase in salary packaging of entertainment in the meantime. But if an employee has particularly high entertainment costs in one year, they could spread the salary packaging of these items across a number of years.
One of the down sides of this change is that the effective value of other NFP salary packaging opportunities has been diminishing over time and the entertainment packaging was a way of combatting this. It might now be harder for NFPs (especially small cash strapped ones) to attract and retain high calibre employees. Depending on how remuneration packages have been structured, some employers may also find it is they who are wearing the cost of these measures, rather than their employees.