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Monthly Tax Tip – Correctly applying the $300 minor benefit exemption

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    Monthly Tax Tip – Correctly applying the $300 minor benefit exemption

    With the festive season over, understanding the various FBT exemptions can help reduce the cost for employers who played Santa.

    Arguably the minor benefit exemption is the most valuable FBT exemption and broadly applies if:

    • the ‘notional taxable value’ of the benefit is under $300; and
    • having regard to certain criteria such as frequency, regularity, associated benefits and valuation issues, it would be unreasonable to treat the benefit as a fringe benefit.

    Where the minor benefit exemption applies, no FBT is payable in respect of the benefit provided. 

    Consequently, no tax deduction and no GST input tax credits can be claimed for the cost of the benefit if that benefit constitutes the provision of entertainment.

    For many employers, however, avoiding a 47% FBT liability will outweigh the forgone tax deductions and GST credits.

    Unfortunately, the application of the minor benefit exemption is often misunderstood. 

    Notably, it can only apply if the actual method is used. 

    That is, the exemption cannot apply if either the 50/50 split or 12-week register methods are used to value meal entertainment benefits.

    Furthermore, there is no safe harbour or guidance on the number of times benefits can be provided for the exemption to apply.

    One the plus side, the $300 threshold is applied per person, per benefit which means that multiple benefits provided to an employee (e.g., a gift

    voucher and Christmas lunch) are not added together in determining if the $300 is exceeded. 

    However, a word of caution!  If the less than $300 threshold is exceeded

    for an expensive festive season!

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