An employer decides to provide each of their employees with a 3-month membership at the local gym. The cost of each membership is less than $300 per employee. Paying for employees to have membership of a gym is providing recreational entertainment.
You use the 3 steps to determine whether the FBT exempt minor benefit applies to the gym membership.
Step 1: Is the notional taxable value of the benefit less than $300?
The value of each membership is below the minor benefits threshold so it’s necessary to consider the 5 criteria to determine if it would be unreasonable to treat the minor benefit as a fringe benefit.
Step 2: Consider the 5 criteria for minor exempt benefits.
1. The frequency or regularity of the benefits.
How frequently and regularly do you provide the minor benefit to your employee, and is the benefit identical or similar to other benefits you provide?
The gym memberships given to the employees is a one-off benefit, so would be considered to be provided on an irregular and infrequent basis.
2. The total notional taxable value of the benefit and similar benefits.
How much does the minor benefit cost (notional taxable value) and is the benefit identical or similar to the other benefits you provide?
Even though the total value of the memberships provided to all of the employees might be substantial, the individual value of the benefit to each employee is not substantial (being a one-off benefit).
3. The total notional taxable value of other connected (other associated) benefits.
Are benefits connected to the minor benefit you’re providing and, if so, what is the total cost (notional taxable value) of these connected benefits?
There aren’t any other connected benefits to the gym membership.
4. Difficulties working out the values of the benefits.
Is it difficult for you to determine the value of the minor benefit and any associated benefits and how hard is it for you to keep records of this?
The employer has no difficulty evaluating the gym memberships because the value is clear.
5. The circumstances in which the benefits are provided.
What is the reason you’re providing the minor benefit or any associated benefits to the employee?
The circumstances in which the benefit, and any associated benefits were provided, show the benefit is not wholly or principally a reward for services.
Step 3: Determine if the exempt minor benefit applies.
Having considered the 5 criteria, the employer decides it’s unreasonable to treat the benefit as a fringe benefit. Instead, they treat the gym membership provided to the employees as an exempt minor benefit and no FBT applies.
