I think all my staff deserve a round of golf as a gift for all their hard work this year”. “Let’s organize a Christmas party and we will all go to the Gold Coast for the weekend and the company can pay for it, it’s been a phenomenal year”. “I want to send a few hampers out to some of our suppliers for great service during the year”. Do any of these situations sound familiar? Do I have to report FBT?
As a small business owner it is prudent on your part to find out your obligations.
“How will the ATO find out if I don’t report it?” It’s like lung cancer, generally detected through a chance finding. So too with FBT, just like no one wants to be diagnosed with lung cancer, no one really wants to be involved in an ATO tax audit.
The costs can be huge including some if not all of the following:
- time spent in meetings with ATO representatives
- staff resources required to investigate and produce historical data and documentation (can go from months to years depending on the size of the company)
- tax bills on unpaid taxes
- interest charges
What constitutes ‘entertainment’ ?
The ATO advises that “when we talk about entertainment we mean:
- providing entertainment by way of food, drink or recreation
- providing accommodation or travel in connection with such entertainment, or
- paying or reimbursing expenses incurred in obtaining something covered by the above points.
Some examples of providing entertainment are:
- business lunches and drinks and staff social functions such as parties
- tickets to sporting or theatrical events, sightseeing tours or holidays, accommodation and travel in connection with entertaining clients and/or employees over a weekend at a tourist resort. “
So do any of our scenarios fit this criteria for entertainment?
A game of golf = recreation – YES
Gold Coast resort = entertainment – YES
Staff drink and nibblies = entertainment – YES
If only it was that SIMPLE, unfortunately NOT.
The ATO advises you need to consider the following:
- How much it costs
- Where and when it is held – a party at work on a normal workday is treated differently to an event outside of work
- Who is invited – is it just employees or are partners, clients or suppliers also invited?
Fortunately for us, the ATO provides the necessary tools for us to determine if the benefits we are providing our employees are attracting a tax or are an exempt benefit. They also provide information to help us reduce tax payable. 
There are many fringe benefits that are exempt from FBT so that is why it is worth spending the time to determine if you are required to pay FBT or not.
FBT is a self-assessment system, hence why some businesses may not appreciate the necessity of complying. I recently read of a business which was notified of a Fringe Benefits Tax audit for the previous five years. They faced over $100,000 in tax bills and penalties. What triggered this audit? They had registered two vehicles in the company’s name, but had not filed FBT returns to declare the car benefits.
Don’t Get Caught Out
This is not to put the fear of the ATO into you as business owners. But it is an excellent time of the year to assess how you are reporting all your entertainment, gifts etc within your business. If you are unsure you can call me and we can go through the ATO’s checklist and tools to determine if you will be liable to record and pay FBT and take the stress out of worrying if you are compliant or not.
Call me on 0402 819 611 or email me at firstname.lastname@example.org