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Careful consideration of how the Coalition’s proposed $20,000 business deduction interacts with fringe benefits tax and other tax laws will be crucial if the policy proceeds, BDO has said.
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FBT, GST complexities flagged with $20k deduction proposal
22 January 2025
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BDO executive director of tax, Judy White, says while the proposal by the opposition to introduce a capped tax deduction of $20,000 for business-related entertainment expenses would be a potential win for small businesses, potential complexities that could arise.
Opposition leader Peter Dutton announced the tax deduction in a statement released on Sunday, stating that the deduction would help cut red tape and support the hospitality industry.
The tax measure applies to small businesses with a turnover of up to $10 million and will be exempt from fringe benefits tax.
Speaking to Accountants Daily, White said that if the Coalition does win the election and implement the tax deduction, then considering how the policy intersects with the fringe benefits tax (FBT) and other areas of tax law such as GST would be crucial.
One of the issues that will need to be considered with the tax deduction is the fact that the tax year ends on 30 June, while the FBT year ends on 31 March, White said.
This could create challenges for record keeping for tax professionals, depending on the policy design of the new deduction.
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"We have to track the FBT treatment up to 31 March, but then we have the issue of the income year continuing for another few months," White said.
While there's little policy detail about the deduction, one potential solution would be to align the deduction with the FBT year, she said.
Given the actual method of valuing FBT only applies to employees, White said tracking the new proposed capped FBT exemption would likely require apportionment of expenditure between clients vendors and employees.
"Tracking will also be required to exclude alcohol," she said.
The proposed deduction may also offer potential benefits on the GST front.
For entertainment expenses, where those expenses are not tax deductible, there's no GST claim.
"This proposal is to make entertainment deductible, so the question is whether that then makes GST claimable, which would be another win," White said.
White said the implementation of the tax deduction would require three pieces of legislation to be amended, including the Income Tax Assessment Act, the FBT Act, and the GST Act.
"If those amendments weren't made, then you'd have those taxes out of line with each other," she said.
Institute of Public Accountants general manager of technical policy Tony Greco has similarly highlighted some of the complexities that could arise with the proposed deduction.
“Whilst the announcement sounds good, it creates another exception to the myriad of rules already existing,” Greco said.
“It’s just not just about FBT as you need to understand the interaction of the FBT rules with income tax and GST. There are long winded tables showing when meal entertainment is subject to FBT and whether it is deductible and when a GST input tax is allowable.”
“It’s a dog’s breakfast of interactions which can trip even the most seasoned practitioner trying to comply with the rules.”
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