What You Can (And Definitely Can't) Put Through the Business

Mia: Welcome to the podcast, our newsletter made easy. Please note, this podcast features AI-generated voices for your hosts, Mia Taylor. Leo: And Leo Baker, bringing you expert insights from owner Ben De Rosa at Avam Accounting. Each week, we’re here to help you confidently navigate the ins and outs of Australian tax. Whether it’s for your individual finances or the complexities of your business. Mia: We’ll cut through the jargon to give you strategies for compliance, smart planning, and that ultimate peace of mind. Leo: So if you’re looking to understand your obligations, maximize your financial position, or simply gain clarity on your money matters, you’re in the right place. Let’s get started with our review of the week. This week we have a review from Nick Rosson. He writes, "The Avam team were very professional and also offered solutions to retaining more out of your tax, especially in areas that had been unexplored." Mia: Thank you for the amazing feedback, Nick. We love hearing from our clients, and a positive review gets our podcast started on the right foot. Today, we are starting part one of our three-part series on Fringe Benefits Tax. We are drawing a hard line in the sand about what you can and cannot put through your business without triggering the heat of the Australian Taxation Office. Leo: To help us lay down the law, we’ve brought back the man who doesn’t believe in gray areas, only black and white, and occasionally audit red. Welcome back, Harvey Green. Harvey: Good to be here, Leo. And yes, "everyone does it" is usually code for "everyone is waiting to get caught." Mia: Harvey, we want to start today by clearing up the biggest misconception in small business. A lot of owners think, "It’s my company, it’s my money, why can’t I spend it how I want?" Harvey: That’s the piggy bank mentality, Mia. They treat the business account like their personal wallet. But the ATO sees your company as a separate legal person. If that person buys you, the employee, a coffee, a car, or a holiday, that is a benefit. And in Australia, benefits are taxed. Leo: But Harvey, people claim things all the time. How do they get away with it? Harvey: They don’t get away with it. They just haven’t been audited yet. The ATO’s data matching is getting incredible. They can see vehicle registrations, property titles, and even lifestyle assets. If you’re earning $50,000 on paper but driving a $150,000 Land Cruiser and sending three kids to private school, the math doesn’t add up. Mia: So let’s stop the guessing. I want to play a game called "Can I Claim It?" I’m going to throw real-life expenses at you, Harvey. You tell us, is it a valid business deduction or is it an FBT trap? Harvey: I’m ready. Hit me with the pub advice. Leo: Item number one: the gym membership. I’m a tradie. I need to be fit to lift pipes. Can I put my Anytime Fitness membership through the business? Harvey: No, that is a private expense. The ATO says physical fitness is a personal requirement, not a business one. If the company pays for it, it is a fringe benefit. You will pay 47% tax on it. Mia: What if I’m a police officer or a firefighter? Harvey: Still no. Even for them, general fitness is private. The only tiny exception is for people like professional athletes where fitness is the entirety of the job. For a plumber, absolutely no. Leo: Item number two: the golf day. I take a client to the Joondalup Resort. We play 18 holes, have a few beers, and talk business for four hours. Surely that’s marketing. Harvey: It’s marketing in your head, Leo, but to the ATO it is entertainment. The minute you pick up a golf club, it’s recreation. Mia: So what happens if I put it on the company card? Harvey: It’s not a tax deduction for the business and you might trigger FBT. If you use the 50/50 method, you pay FBT on half the cost. So you’re paying tax to play golf. It’s an expensive round. Leo: Item number three: the airport lounge. I travel for work constantly. I need the Qantas Club membership to use the Wi-Fi and work between flights. Harvey: Yes, this is a win. Because you are traveling for work, the airport lounge membership is otherwise deductible. If you paid for it yourself, you could claim it. So if the business pays, there is zero FBT and the business gets the tax deduction. Claim it. Mia: Item number four: the spouse on the business trip. I’m going to a conference in Melbourne. My husband comes along. I pay for his flight on the company card. Harvey: Big no. Does your husband work for the company? Is he required to be at the conference? If the answer is no, then his flight is a private benefit. The company pays FBT on the full cost of his ticket. Leo: What if he just helps out at the booth for an hour? Harvey: Nice try. The ATO looks at the dominant purpose. If he’s there to see the sights and have a nice dinner, it’s private. Don’t mix family holidays with business trips unless you want a 47% bill. Leo: Item number five: school fees. Can my company pay my kid's tuition? Harvey: This is the holy grail of bad advice. No. Education for your children is a private domestic expense. If the company pays it, it is a type two fringe benefit. Mia: Let’s break down the math on that one, Harvey, because I think people need to hear how expensive this is. Harvey: Okay. Let’s say the school fees are $20,000. Because there is no GST on school fees, we use the type two gross-up rate of roughly 1.88. So the taxable value becomes $37,600. And the FBT rate is 47%. So the company has to pay the school $20,000 and pay the ATO about $17,600 in tax. Leo: So that $20,000 fee actually cost the business $37,600? Harvey: Correct. You would have been far better off taking the money as a salary, paying your marginal tax, and paying the fees yourself. Do not put school fees through the business unless you are an expat with very specific relocation clauses. Mia: Okay, Harvey, that’s a pretty clear "no" list. But there is a confusing concept we touched on. FBT is tax-deductible. How can a tax be tax-deductible? Harvey: This is the silver lining I mentioned. FBT is a tax incurred in the running of a business. Therefore, the FBT itself is a tax deduction for the company. Leo: Walk us through the flow of money. Harvey: Sure. Let’s go back to that golf day. You spend $1,000 on golf. You pay, let’s say, $800 in FBT to the ATO. Your total cash out is $1,800. However, at the end of the year, when Ben does your company tax return, he claims a deduction for the $1,000 golf and the $800 FBT. Mia: So the company reduces its taxable profit by $1,800? Harvey: Exactly. If your company tax rate is 25%, you get back 25% of that $1,800. So you get a refund of $450. And so the net cost wasn’t $1,800. It was $1,350. Leo: It softens the blow, but you’re still paying more than if you just didn’t play golf. Harvey: Precisely. It’s a cushion, not a loophole. The government allows the deduction so that you aren’t taxed twice on the same money, but they still want to make sure it’s expensive enough to discourage you from disguising salary as golf. Mia: Let’s move to the most popular vehicle in Australia: the ute. We have so many tradie listeners. They all think their ute is FBT-free. Harvey: And for many of them, it is, but only if they follow the golden rule: minor, infrequent, and irregular. Mia: Define that for us, because "infrequent" to a surfer might mean "I only go to the beach three times a week." Harvey: To the ATO, "infrequent" means almost never. Here is the strict definition for an exempt vehicle like a ute or a van: travel between home and work, allowed; travel purely for business, allowed; non-business travel that is minor, allowed. Mia: Give us examples of minor. Harvey: Stopping at the shops to buy milk on the way home, allowed. Taking a detour to drop the kids at school on the way to the site, generally allowed. Driving three hours south to Margaret River for a camping trip with the jet ski on the back, not allowed. Leo: That’s the kicker, the weekend trip. Harvey: That is the FBT trigger. As soon as you take that work ute on a private holiday, you have breached the exemption. Technically, that one trip could taint the vehicle for the year. Mia: And what about dual-cab utes versus SUVs? This catches people out. Harvey: Huge trap. To be an exempt vehicle, it must be designed to carry a load of one ton or more, or carry fewer than nine passengers. But the real test for dual cabs is the payload capacity. If the car can carry 999 kilograms, it’s a car; it attracts FBT. If it can carry 1,001 kilograms, it’s a commercial vehicle; it might be exempt. Leo: And people ruin this by adding accessories, right? Harvey: Yes. They buy a ute with a 1,050-kilogram payload. Great. Then they add a bull bar, a tow bar, a heavy canopy, and a winch. Suddenly the payload drops to 800 kilograms. Congratulations, you just turned your tax-exempt workhorse into a luxury passenger car in the eyes of the ATO. You now owe FBT. Mia: That is a specific detail Ben checks for every client. He weighs the vehicle on paper. Leo: Okay, let’s talk about the Christmas party. We’re getting close to that time of year. Can I put on a bar tab for the staff? Harvey: You can, but you need to count heads. This is where the $300 minor benefit rule is your best friend. Mia: The magic number. Harvey: If you hold the party on your business premises on a working day and provide light food and drink, no alcohol, it’s usually exempt entertainment. But if you go offsite to a restaurant or bar, you need to keep the cost under $300 per head. Leo: So if the bill is $290 per person, it’s FBT-free? Harvey: Yes. But if the bill is $305 per person, the whole amount becomes subject to FBT. Not just the extra $5, the whole $305. Mia: That is a very expensive extra dessert. Harvey: It is. We tell clients if you’re close to $300, stop ordering drinks. Also remember that if you claim the FBT exemption because it’s under $300, you cannot claim the GST and you cannot claim the income tax deduction. Leo: Wait. So if it’s exempt from FBT, it’s also non-deductible? Harvey: Correct. It’s a trade-off. Option A: keep it under $300, pay no FBT, get no tax deduction. Option B: spend $500, pay 47% FBT, get a tax deduction for the whole lot. Option A is almost always cheaper. Mia: That is exactly the kind of "enough thinking" advice our listeners wanted. Just tell us the rules so we don’t step on a landmine. Leo: I want to circle back to something we touched on earlier, the "nexus." Harvey, Ben talks about the nexus all the time. What does he mean? Harvey: The nexus is the connection between the expense and earning your income. This is the filter you should run every single expense through before you even call Ben. Ask yourself, "Did spending this money directly help my business make money?" Mia: If the answer is "no," but it made me happy, it’s private. Harvey: Exactly. New tools for the plumber? Nexus, yes. New suit for the real estate agent? Nexus, no, as we learned in episode 26. Lunch alone? Nexus, no. Lunch with a client? Nexus, maybe, but likely entertainment. Leo: What about sponsorship? I sponsor my son's footy team. I put an Avam Accounting sticker on the goal post. Harvey: That’s a good one. Is there a genuine marketing benefit? Is the sticker visible? Is the amount you paid commercial? If you paid $500 for a sign, that’s advertising, deductible. If you paid $5,000 for a sign that is the size of a postage stamp and it happens to pay for your son's uniform and fees, the ATO will say there is no nexus to marketing. It’s a private gift disguised as sponsorship. Mia: It always comes back to the pub test, doesn’t it? If you explained it to a stranger at the pub, would they think it’s a legitimate business cost or would they wink and say, "good on you"? Harvey: If they wink, don’t claim it. Leo: Harvey, we have time for one more controversial one, the home office. We have business owners claiming a percentage of their mortgage interest because they check emails in bed. Harvey: The "checking emails in bed" deduction. Here is the rule: to claim occupancy costs like mortgage interest, rates, or land tax, your home must be a place of business, not just a place where you do some work. It means you have a dedicated area exclusively for business, signed clearly and crucially, clients come to visit you there. Mia: So a doctor running a clinic from a converted garage. Harvey: Yes, deductible. An architect with a home studio where clients meet? Yes. A plumber doing invoices at the kitchen table? No. You can claim the running costs—electricity, internet—but you cannot claim the mortgage. Leo: And if you do claim the mortgage, you lose the main residence exemption for capital gains tax, right? Harvey: Bingo. You save $2,000 in tax today and in 10 years when you sell the house, you get hit with a $50,000 capital gains tax bill because part of your home was a business. It’s often a terrible trade. Mia: This has been incredibly clarifying, Harvey. I feel like we’ve cleared the fog. Leo: We have. No more guessing, no more "everyone does it," just the hard rules. Harvey: That’s it. And remember, paying FBT isn’t the end of the world. Sometimes you want to give your staff a benefit because they’ve worked hard. Just do it with your eyes open. Know the cost. Don’t let it be a surprise 47% surcharge three years later. Mia: Perfectly said. Harvey Green, thank you for being the voice of reason and for keeping us out of jail. Harvey: Anytime, guys. Keep those logbooks up to date. Leo: That brings us to the end of this deep-dive episode. We hope this hard truth edition has given you the confidence to look at your expenses and know exactly where they belong. Mia: Please join us next week for part two to unpack the technical "why" and "how" so you, the listeners, understand the FBT mechanics. Leo: Before we go, the standard but crucial warning: the yes/no answers we gave today are general. There are exceptions to every rule in Australian tax law. For example, we said no gym memberships, but if you are a professional ballerina, the answer is yes. Context matters. Mia: Exactly. So before you delete your gym deduction or sell your ute, talk to Ben and the team at Avam Accounting. They can look at your specific situation, your nexus, and give you the final word. Leo: Visit us at avamaccounting.com.au. Subscribe if you want more hard truths and less fluff. Mia: Until next time, stay savvy, stay compliant, and stop listening to the guy at the pub. Goodbye for now. Leo: Goodbye.