FBT trap for employers on bushfire donations

Employers of staff who want to make donations to bushfire appeals through salary deductions may be hit with a substantial FBT bill on those donations.

Gary Matthews, a senior tax manager from Pitcher Partners, says arrangements for employees to make donations through pre-tax salary sacrifice arrangements are subject to fringe benefits tax.

The FBT applies even though the recipient is a deductible gift recipient and the employee would have been entitled to a tax deduction if they had made the donation from their after-tax income, he says.

The legislation considers that a benefit has been provided on behalf of the employee and “there is no specific exemption in the act for donations to deductible gift recipients such as charities”, he adds.

Matthews says there is an alternative arrangement called the “workplace giving programs” that are relatively easy to adapt. However many employers are unaware of this.

“We have had four clients interested in setting up donations for the bushfires through salary deductions, and were going to do it in the way that would put them at risk of future fringe benefits tax assessments. They could then end up with a substantial bill.”

Matthews says the easiest thing to do would be to amend the FBT legislation to make it clear that donations to charities made by employers on behalf of employees do not attract FBT.

Such an amendment would not cost the Government anything by way of reduced tax collections and would enable more businesses to encourage employees to make donations through salary sacrificing, he says. 

Individuals, businesses and organisations wishing to make a donation to the State Government’s Victorian Bushfire Appeal Fund can go to www.redcross.org.au or call the toll free number 1800 811 700