Budget introduces NFP tax caps

Following the release of the Federal Budget, the previously uncapped exemption to the fringe benefits tax (FBT) of meals and entertainment expenses for employees will now be subject to a cap of $5,000 per annum from 1 July 2016.

Paul Murnane FAICD, chair of the Australian Scholarships Foundation said that most NFPs already had a cap written into the relevant employment contracts and that in his experience these caps were “quite small.”

He said that all the NFP directors he knew had been aware of the issue of such allowances and most had treated them very conservatively as not doing so would open up an organisation to “reputational risk.” He further stated that for this reason, some NFPs did not salary package at all.

Andrea Staines FAICD, a director of Goodstart Early Learning confirmed that Goodstart did not use the practice at all. Consequently she said that such a budget move would be “no issue”.

Anecdotal examples of use of the loophole by senior executives of public benevolent institutions (PBIs) and senior medical staff of public hospitals have generally been cited as technically within the law but contrary to its intent. Some directors we spoke to agreed that they had heard rumours of such practices and that such a practice would place the organisation, and hence the board, at considerable reputational risk. The Budget move to cap this practice should reduce this risk for directors.

In further tightening the area, an employee that exceeds the $5,000 meal and entertainment cap will have the excess amount used in the calculation of the existing FBT exemption or rebate (either $17,000 or $30,000 depending on the type of NFP).

In an interesting move the meal entertainment expenses will now be reportable. This will allow the Australian Taxation Office (ATO) to determine the exact value of such benefits provided. In the Re:Think tax paper it stated that the ATO found it difficult to determine the value of rebates and exemptions provided to the NFP sector due to limited reporting requirements for the sector. This increased reporting may be a sign of a future trend.

Community awareness of the practice is currently very low but increased reporting of the benefit in coming years may also result in a raised profile.