What are the fringe benefits tax (FBT) implications when businesses are facilitating contributions on behalf of their employees?
As the devastating bushfires have spread through our eastern and southern states, many Australians have responded with significant generosity, and Australian businesses have been no exception. Many businesses have pledged sizable donations directly to charities, funds, and government organisations, and there are questions concerning the various employment tax outcomes of giving time, money or other support to affected employees or organisations.
Guidance on fundraising mechanisms from the Australian Taxation Office (ATO) stresses the importance of determining that recipient organisations currently hold deductible gift recipient (DGR) status—that is, that they have the ability to receive tax-deductible donations, whether from individual employees or employers. While most charities hold DGR status, donations made to non-DGR organisations may result in unexpected tax outcomes which need to be understood prior to making a contribution.
Under workplace giving programs, employees can elect to donate a portion of their regular gross pay to their nominated DGR. Employers are given the choice either to reduce the amount of tax deducted from the employee pay each pay period to account for the donation (this must still be reported in the employees’ tax return), or to not adjust for the donation and allow the employees to claim the deduction in their own tax returns at the end of financial year. While generally workplace-giving programs are used for ongoing donations, they can be used for one-off special events, particularly when an employer wants to report on the charitable efforts of employees.
Employees may elect to donate a portion of their salary to a DGR in return for the employer providing the DGR with benefits of a similar value. That is, the employer pays a reduced salary and makes a donation to the DGR, for which the employer can claim an income tax deduction. The ATO has confirmed that a donation administered in this manner would not attract fringe benefits tax (FBT).
A bucket collection is essentially when an employer provides a mechanism for employees to collect and distribute funds to other affected employees (“pass a bucket around” to collect funds for a work colleague who lost a home in the fires over the summer). When an employer facilitates a bucket collection for affected employees, the ATO has indicated that FBT does not apply to funds that are ultimately distributed—because the distributed funds do not constitute a benefit that arises from the individual’s employment, but rather as a result of hardship faced by the employee.
Additionally, many employers have chosen to match their employees’ donations—this will not change the reason for the provision of the funds and donations would not be considered part of the recipient employee’s usual remuneration.
There are specific exemptions provided within the FBT rules when an employer provides “emergency assistance” to employees including emergency accommodation and other items. Employers may need to consider verifying that the planned program comes within the exemption to reduce any risk of an FBT exposure.
For more information, contact a KPMG tax professional in Australia:
Hayley Lock | +61 7 3434 9176 | firstname.lastname@example.org
Elizabeth Smith | +61 3 8626 0907 | email@example.com
Thomas Purnell | +61 3 8626 0987 | firstname.lastname@example.org
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