Financial planners need to keep their workforce engaged and also ensure their clients keep coming back.
One of the ways in which this can be done is by providing some benefits to staff and clients in the form of meals on and off site, but this has been cumbersome because of the way the tax system treats meals and entertainment.
Meals and entertainment are non-deductible expenses for both clients and employees at the present time.
The only time meals and entertainment are deductible is where an employer pays fringe benefits tax (FBT) at the highest marginal rate of 47 per cent on meals provided to employees off site.
It discourages people from taking employees out for lunch or organising off site meetings with clients.
A recent proposal from the Coalition would make it easier for partners or owners of professional practices that are small businesses as defined for tax purposes – an entity with a turnover of up to $10 million – to claim costs incurred for meals off site in a similar fashion to the way they would if food is consumed at the workplace.
This means amounts spent on meals – the food and not alcohol – up to a cap of $20,000 would be deductible for a small business.
It would mean an amount spent on food would be treated in the same manner as another other amount spent on an item or service associated with earning an income.
Let’s take the example of a $1000 spend on meals for a staff function off site.
The practice would simply need to pay that amount and then claim back the goods and services tax on the spend when it does its next business activity statement, and then seek a deduction for the $1000 in the next income tax return.
No fringe benefits tax would be applied.
Assume the entity is a company and has an effective tax rate of 25 per cent – the amount a practice can expect as a tax saving is $250 on that $1000 spend.
Sounds simple? It should be when compared with the labyrinthine mess of tax laws that Perigee Advisers principal Lisa Greig says is designed to stop people from doing things.
“FBT is a stick tax, it is not designed to add to consolidated revenue, but it is designed to stop employers giving employees non–cash amounts where it is hard to tax,” Greig says.
“FBT is very complex and it is very badly understood by business, especially at the small business end where they have little in house finance expertise.”
Greig says the biggest FBT exposure comes from cars and utes used for private purpose, usually for travelling from home to work. “This is a big ticket item,” she says.
“The next FBT exposure is meal entertainment – which a much smaller exposure as it only comes to a few thousand [dollars] a year at best for the small businesses.”
Greig said there are carve outs in the fringe benefits rules that allow for deductions for small amounts for meals, for example, where the benefit is minor and infrequent. The proposal from the coalition would eliminate the need for financial planners to think about that element of compliance.
Any financial planning practice will need to keep good track of the invoices to ensure that it can substantiate claims made for meals if the policy comes into play at the next federal election.
