Good employees are the hub of any business, so any tax effective method of rewarding them is a benefit to both sides. 

The Fringe Benefits Tax laws provide a challenge to rewarding employees and showing the business’ appreciation, however, there are some ways of saying thank you which do not incur FBT. These include: 

Minor Benefits

These are items not given frequently or regularly throughout the year and have a value of  less than $100* (GST inclusive). Examples include ….hampers, bottles of wine, shopping vouchers, tickets to football etc.

These items and other gifts can be given to staff free of FBT. An employer would generally be able to claim full tax deductions and full input tax credits in regard to these gifts.

So, next time it is an employee’s birthday, an employer may need to think twice about giving them a bottle of Grange Hermitage and substitute that particular bottle of wine with a less expensive one.
* this increases to $300 from 1 April 2007.

In-house Benefits

An employer can also gift employees with $500** worth of in-house benefits throughout the year tax free. These benefits are goods or supplies that the employer sells to third parties in the ordinary course of its business. For example, a clothing manufacturer or retailer could give up to $500** worth of clothes to an employee tax free. The cost would be deductible to the employer and input credits fully claimable.
** this increases to $1,000 from 1 April 2007.

Exempt Benefits

These are benefits which are specifically free from any FBT and, as such, offer  significant savings opportunities to employers. Examples include….laptop computers (one per year), electronic diaries, briefcases, mobile phones (where there is a predominate business use), membership to airline flight lounges and taxi travel to & from work.

Entertainment

The question of FBT and entertainment is a nightmare for small business. Generally, a party for employees would in the first instance, be subject to FBT. However, a party would be FBT free under the following circumstances

• The party is for employees only and the cost per employee is less than $100** (GST inclusive) or

• The party is held on the employer’s premises.

However, under the above, the cost of the party for the employer would not be deductible for tax purposes and there would be no entitlement to input tax credits.

(article from our June 2005 newsletter with minor updates)