Budget to tighten charities’ FBT cap

CHARITY workers will no longer be able to salary sacrifice entertainment like meals, ­alcohol, cruises, holidays overseas and birthday parties.

A TAX loophole that allows workers employed by not-for-profit organisations to salary sacrifice meals and entertainment will be tightened in next week’s budget.

The federal government will impose a fringe benefits tax cap of $5000 on the expenses, The Australian reported on Thursday.

Charities and other like groups are given FBT concessions to allow them to compete against the private sector for quality employees.

The change was recommended by a Productivity Commission inquiry in 2013, which cited the case of ‘Jane’, a not-for-profit worker who decided to salary package her $40,000 wedding.

“Jane has a $90,000 salary. By packaging the wedding, Jane reduces her tax payable from $23,000 to $9050. Effectively the taxpayer has contributed $13,950 to Jane’s wedding,’’ the commission found.

Writing in The Australian today, Assistant Treasurer Josh Frydenberg said each year the government provided billions of dollars to support the charitable and not-for-profit sector in the form of various tax concessions.

“These concessions cost the budget more than $2.6 billion in forgone revenue in 2013-14,” he wrote. “In addition to their $17,000 or $30,000 cap, an employee will also be entitled to spend an unlimited amount on food and entertainment benefits without being subject to FBT. These uncapped benefits can include meals, ­alcohol, cruises, holidays overseas and birthday parties.

“Some companies that specialise in salary sacrificing advertise ‘tax-free holiday accommodation’ and ‘tax-free dining’, while others encourage people to ‘venue hire for a special event’, boasting that it ‘does not have to be business ­related’ and that this ‘is ­almost as exciting as the occasion itself’.

“Such use of these concessions may not be in breach of the letter of the law but it certainly was not the intention for which the ­concession was established.”

Originally published as Budget to tighten charities’ FBT cap