As the world continues to spin, there are many commitments that still need to be adhered to, regardless of what the rest of the world is focussed on.
This may be the timely reminder you need to get back on top of your Fringe Benefits Tax requirements.
First off, it’s important to note that the FBT year runs differently to the standard financial year, being March 31, and April 1.
Without the right systems, or the right team in place, it can be difficult to ensure the required records are maintained in relation to fringe benefits – especially as this may depend on employees producing records at a certain time.
If you’re ready to lodge, have some questions or would like further information on Fringe Benefits Tax – then get in touch at 07 3265 6740 or [email protected]
What is Fringe Benefits Tax?
To give you a refresher, Fringe Benefits Tax (FBT) is the tax payable by employers for benefits paid to an employee in place of salary or wages, such as salary sacrifice schemes and fuel tax credits.
FBT is paid by employers on certain benefits they provide to their employees or their employees’ family or other associates. If you have employees (including Directors of a company) then it’s possible your business needs to register for FBT.
So, if you provide cars, car spaces, reimburse private (not business) expenses, provide entertainment (food and drink), employee discounts, then you are likely to be providing a fringe benefit.
A few important notes to consider;
- Fringe Benefits Tax is separate to income tax and is calculated on the taxable value of the fringe benefit.
- Employers must self-assess their FBT liability for the FBT year (that is, 1 April to 31 March) and lodge an FBT return.
- Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay.
- Employers can also generally claim GST credits for items provided as fringe benefits.
- There is a list of exemptions that are considered exempt from FBT, such as portable electronic devices like laptops and iPads, protective clothing, tools of trade etc.
- If your business only provides these exempt items or items that are infrequent and valued under $300, then you are unlikely to have to worry about FBT.
If you haven’t heard from your accountant, or are lacking confidence in lodging an FBT return accurately, then get in touch with us so we can ensure you are putting yourself in the best possible position to be compliant.
Considerations with Motor Vehicles
As one of the more common Fringe Benefits, and one of the easiest to be abused, the private use of work vehicles is being closely monitored by the ATO, and must be heavily considered when making decisions about motor vehicles.
Just because your business buys a motor vehicle and it is used almost exclusively as a work vehicle, that alone does not mean that the car is exempt from Fringe Benefits Tax.
If the car is used for private purposes, such as picking the kids up from school, grocery shopping, weekend trips, and letting your spouse take it for running errands, then Fringe Benefits Tax is likely to apply.
While you don’t have the ATO parking themselves on your driveway, and peeking through your windows, rest assured, there are red flags that they’re looking for to have a reason to investigate further.
Private use is when you use a car provided by your employer (this includes directors) outside of simply travelling for work-related purposes, and finding out that a car is not being used for commercial purposes is not that difficult for the ATO to ascertain.
Often, the odometer readings don’t match the work schedule of the business. These are areas that the Tax Office are actively searching for.
If your business has cars, you must record odometer readings on the first and last days of the FBT year; for best practices, get your team members to take photos on their phone and email it through to an agreed contact person, so all records are kept in a central location.
It’s important to note that if a work vehicle is garaged at or near your home, even if only for security reasons, it is taken to be available for private use regardless of whether or not you have permission to use the car privately.
Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.
Commercial Vehicles & Utes
When an employer provides an employee with the use of a car or other vehicle then this would generally be treated as a car fringe benefit or residual fringe benefit and could potentially trigger an FBT liability.
However, the FBT Act contains some exemptions which can apply in situations where commercial vehicles and utes are provided and the private use of the vehicles is limited to work-related travel and other private use that is ‘minor, infrequent and irregular’.
One of the practical challenges when applying the exemption is how to determine if private use has been minor, infrequent and irregular.
The ATO recently released a compliance guide that spells out what the regulator will look for when reviewing the use of the exemption.
The ATO has indicated that in general, private use by an employee will qualify for the exemption where:
- The employer provides an eligible vehicle to the employee to perform their work duties. An eligible vehicle is generally a commercial vehicle or one that is not designed mainly for carrying passengers. The requirements are very strict and guidance on this is published on the ATO website.
- The employer has a policy in place which limits private use and obtains assurance from the employee that the vehicle has only been used for certain purposes.
- The value of the vehicle when it was acquired was less than the luxury car tax threshold ($75,526 for fuel-efficient vehicles in 2018-19 and $66,331 for other vehicles).
- The vehicle is not provided as part of a salary sacrifice arrangement; and
- The employee uses the vehicle to travel between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip
- Some private travel is allowed, but the total private travel in the FBT year must not exceed 1000 km and, no single, return journey for a wholly private purpose must exceed 200 km.
If all of these specifications are met, the ATO has stated that it will not investigate the use of the FBT exemption further.
However, the employer will still need to keep records to prove that the conditions above have been satisfied and to show that private use is restricted and monitored.
If these conditions are not met then this doesn’t necessarily prevent the exemption from applying, but you can expect that the ATO would devote more time and resources in checking whether the conditions have actually been met.
Employers who do not take active steps to check the way commercial vehicles are being used are at high risk of significant FBT liabilities. There are some practical steps that can be taken to reduce risk in this area.
Commercial carparks are expensive, however, there has been many instances recorded where the car parking benefits provided are significantly less than what is being declared, or reasonably expected to be paid.
This is an area that is riddled with common, but avoidable, errors.
- Market valuations that are significantly less than the fees charged for parking within a one-kilometre radius of the premises on which the car is parked;
- Using parking rates or facilities not readily identifiable as a commercial parking station;
- Rates charged for monthly parking on properties purchased for future development that do not have any car parking infrastructure; and
- Insufficient evidence to support the rates used as the lowest fee charged for all-day parking by a commercial parking station.
At Level Up, we look at more than just your accounts, we look at the big picture.
When it comes to managing your business accounts, our approach is fresh. We’ll create a plan, not just for today, but for tomorrow and we won’t just hang around at tax time.
Our team are with you all year round to make sure there are no nasty surprises when June 30 rolls around, (or March 31), for Fringe Benefits Tax.
Planning is key and our team of creative accountants are here to put in the hard yards.
Our team is ready to take all areas of your business to the next level. We’ll work with you to create effective strategies when it comes to:
- Fringe benefit tax return preparation and lodgement;
- Financial reporting
- Income tax return preparation and lodgement (companies, trusts, individuals, deceased estates);
- Establishment, planning and execution of tax minimisation strategies and structures;
- Indirect tax return preparation and lodgement (GST, PAYGW);
- ATO disputes and penalty reduction & negation;
- ATO audit attendance;
- Capital gains tax planning, reduction, and calculation;
- Business income tax and capital gains tax concessions;
- Application for private rulings;
- Business and investment purchase structuring for income tax minimisation;
- Statutory minutes and reporting.
There’s nothing that strikes fear into the hearts of thousands of business owners than getting directives from the ATO at tax time, or failing to be compliant due to simple oversights.
It doesn’t have to be this way…
… and it shouldnt be – that’s why we have your back, and tax time is sorted.
Our team knows a thing or two about tax and we’re ready to pass on our secrets. We want to safeguard your business – and not just for tax time, but we want to leverage every sector of your business and make sure it’s working at 100% as we look to create a better future for your business.
Our team of innovators will make sure your business has the tools to run ahead of the pack.
We’ll take you a level above the rest.
We’ll build your map for success so all you’ll need to do is follow.
Our team isn’t about the short game – we’re here to stay. We know the lingo so you don’t have to. Our team will review the success of your project continuously whether that’s through agile retrospectives or communicating continuously throughout the process – we are continuously considering ways to make things better!
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