Are you part of a not-for-profit (NFP) health organisation that offers benefits to its workers in exchange for lower wages? If so, you need to know that the Federal Government has introduced changes to fringe benefit rules from April 1.
In particular, salary-sacrificed meal entertainment benefits in FBT exempt or rebatable organisations will be capped at $5,000, and will also become PAYG-reportable at tax time.
Given that some qualifying NFP employers may offer meal benefits to their workers in exchange for reduced wages (and lower tax liabilities), the changes mean that many employers in these organisations may need to review their salary arrangements, and reconsider whether salary sacrificing will still be beneficial to their organisation and their employees.
The meal entertainment benefits include meal expenses and event catering – including dining out, holiday meals, and catering services. The changes will affect public benevolent societies, health promotion charities, public hospitals, NFP hospitals, and public ambulance services that are FBT- exempt or that qualify for FBT rebates.
The rules up until now
Under the pre-April 2016 rules, there is an overall cap of $31,177 on packaged salary-sacrificed benefits in public benevolent societies and health promotion charities, and $17,667 for public and NFP hospitals and public ambulance services.
Up until now, meal entertainment expense benefits have been uncapped and have had no bearing on the overall cap.
So let’s say a health worker in one of these organisations had salary sacrificed $20,000 per annum in exchange for reduced wages and meal benefits. Prior to the changes, this would have been FBT-exempt and non-reportable, and would have not been taken into account when determining whether the cap (of either $31,177 or $17,667) had been exceeded.
How this will be different
However, all this is about to change. The government has introduced a separate grossed-up cap on meal entertainment benefits in a salary-sacrificed arrangement of $5,000.
So, in our example, the first $5,000 of meal benefits would not be taken into account when determining whether the overall cap had been exceeded, but the remaining $15,000 may be. The total $20,000 of meal benefits – which includes the $5,000 – also needs to be reported on the PAYG summary for the employee.
Here is an overall summary of the changes:
- A separate grossed-up value of $5,000 for salary-sacrificed meal entertainment benefits for NFP entities that are FBT-exempt or able to access FBT rebates.
- Meal entertainment benefits exceeding the $5,000 grossed-up cap will count towards an employee’s existing FBT exemption or rebate cap.
- Removal of access to elective valuation rules when valuing meal entertainment benefits.
- All meal entertainment benefits to become PAYG reportable fringe benefits.
It’s vitally important for employers to be aware that the changes have now come into effect, to avoid the risk of not complying with the new rule.
We are here to help
If you have any questions, please contact Domenic De Marco, Accountant at RSM Australia, on 02 6217 0356 or [email protected].