Metcash hoses down tax timebomb talk

Madeleine Heffernan
March 31, 2015
The Age
Metcash has hosed down suggestions it owes money to the tax office for failing to pay fringe benefits tax on the “overseas study tours” taken by its employees.
An insider said Metcash’s tax experts had estimated the grocery wholesaler and operator of IGA stores owes $100 million, including fines, for a long-running failure to pay FBT on the trips. “It’s a sleeper issue,” one said.
The insider said it was unclear why Metcash had allegedly not paid FBT on the trips, but suggested the company had formed a view it was too late to confess to the tax office without paying a big penalty.
“If you’ve been cheating on your wife for years, it gets harder and harder to admit.”
Another source confirmed there was no provision set aside for FBT at a national level, although it is unclear whether this was the case at a state level.
But a Metcash spokesman said the company was aware of and complied with its obligations under tax law.
FBT is a tax employers pay on certain benefits they provide to their employees, including their employees’ family or other associates, and is taxed at 49 per cent. It is an area of focus for the Australian Taxation Office.
Fairfax Media recently revealed Metcash’s long-running “overseas study tours” – sold to suppliers – included this month a 9-day trip to New York that includes visits to basketball games and Broadway priced at about $100,000 for two people. Another trip this month was a four-day trip to Vietnam that includes a visit to the War Remnants Museum.
The trips are known as “over and aboves”, or ways of generating sales over and above normal levels.
Insiders and suppliers have said suppliers are pressured into attending the expensive trips, from which Metcash profits. But Metcash has denied suppliers are pressured to attend, and says the packages are genuine.
Paul Hockridge, partner at Deloitte Private, said the FBT issue for Metcash related to the extent to which there is an entertainment element for its employees.
“The extent to which there’s an entertainment element – that could include airfares, accommodation, food and drinks, things like floor shows – Metcash then has a choice as to whether to pay FBT on the entertainment portion or whether to apply the 50:50 rule,” he said.
If Metcash applies the 50:50 rule, half of the entertainment costs for everyone, including suppliers, becomes non-deductible and FBT is payable on the other 50 per cent, he said.