Small- to medium-sized businesses can control company expenses and achieve real dollar savings if they can improve the way they manage and calculate meals and entertainment Fringe Benefits Tax (FBT). However, it can be incredibly challenging to find the best approach.
Matt Goss, managing director - Australia & New Zealand, Concur, said, “While many organisations can confidently identify where FBT is applicable or not, they often struggle to identify which method is best for their business and, as a result, pay more FBT than necessary.”
FBT for meals and entertainment is calculated on an annual basis via one of three methods: the 50/50, the 12-week register and the Actual.
Matt Goss, managing director - Australia & New Zealand, Concur, said, “In an economic climate where expenses are increasing and budgets are shrinking, you simply cannot afford to over-calculate your FBT obligations, nor choose the wrong method of calculation. In fact, the Australian Taxation Office (ATO) encourages businesses to select the method which results in the lowest FBT payment.
“Most SMB businesses use the 50/50 method as they don’t have the systems in place to analyse the most tax effective FBT calculation method.
“A better understanding of the three FBT calculation methods will help guide you in the right direction. However, the only way to confirm which method is best is to test them on a case-by-case basis and ensure you have the tools in place to optimise the calculation processes to start delivering real savings back to your business.”
Five FBT strategies for SMBs to get ahead
1. Automate the expense management process. Automating the process lets SMBs determine the lowest FBT liability automatically. It provides full visibility into expenses and enforces the travel and entertainment policy to optimise the expense management process. It also saves employees time.
2. Use clear descriptive definitions for meal and entertainment expenses. Over-complicating it will confuse employees and impact the quality of data from both a calculation and compliance perspective.
3. Train employees. Ensure employees understand the difference between the travelling and non-travelling employee status as this affects the FBT liability.
4. Use an employee master list to ensure data accuracy. Make it simple to search for employee data and avoid multiple versions of the same data.
5. Review the FBT reporting method annually. Don’t assume a specific calculation method will always equate to the lowest FBT liability. For example, leverage technology to establish benchmark testing annually against a 50/50 calculation.