It is the end of 2014 Fringe Benefit Tax year on 31 March 2014.

As an employer, you must understand your FBT obligations to avoid significant penalties from the Australian Taxation Office.

FBT is a tax paid by employers, separate from income tax, and based on the taxable value of non-tax benefits provided to your employees or associates, Fringe benefits include cars, loans, payment of expenses , car parking etc. The most common fringe benefits are car benefits and meal entertainments.

The statutory due date for lodgement and payment is 21 May 2014. If the FBT client is appointed to an tax agent by 21 May 2014, the due dates for FBT return lodgement are:

  • 25 June 2014 if the return is lodged electronically;
  • 21 May 2014 if the return is lodged by paper

Please note the due date for payment under the lodgment program remains as 28 May 2014.

CAR BENEFITS

This arise where an employer’s car is used by an employee for private purposes or is available for private use, regardless the car is actually owned or leased by the employer or an associates.

There are two ways to calculate the car benefits: Operating Cost Method and Statutory Formulate Method. Employer can choose either method each year for each car giving rise to a car fringe benefit. If not, statutory formula method automatically applies.

Calculation Method Taxable Value Calculation Formula Details
Statutory Formula Method Apply a statutory fraction to a specially determined value of the car.  (A x B x C)/D – EWhere:A is the base value of the carB is the statutory fractionC is the no. of days during the year on which a car fringe benefit was provided in relation to the carD is the number of days during the yearE is the amount of any ‘recipient’s payment’ For vehicles where the contract was entered before 7.30pm on 10 May 2011, the statutory fraction varies according to the number of kilometres travelled by the car during the year.The more you travelled, the lower the statutory fraction which directly reduce the taxable value.For new vehicle contracts entered into after 7.30pm(AEST) on 10 May 2011, the existing statutory fractions will phased out and replaced y a flat rate of 20% over the next four years (s 9). The 20% rate will apply from 1 April 2014 regardless of the distance travelled during the year.
Operating Cost Method Based on the operating cost of the car during the period over which the benefit arises [C x (100% – BP)] – RWhere:C is the operating cost of the car during the holding periodBP is the business use percentage applicable to the car for the holding periodR is the amount of any recipient’s payment attributable to the holding period. As the operating cost is apportioned between the business use and non-business use during the holding period, the portion which related to non-business use is the taxable value.For car with higher business use percentage, operating cost method is the preferred method for most cases.A valid log book is required to be kept for a consecutive period of minimum 12 weeks for each car if the employer elects this method. Once a log book is kept and no substantial change in the business use, this log book can be used for 5 years.

 


 

NEW DEVELOPMENT IN 2014: Employee use of certain commercial vehicles will be an exempt benefit where the only private use, apart from minor, infrequent and irregular use by an employee or an associate of an employee, is for ‘work-related’ travel by the employee. Work-related travel is home/work travel by an employee, or travel by an employee that is incidental to travel in the course of preforming employment duties. A list of eligible FBT exempt vehicles can be found on the ATO website here.

If you are providing car fringe benefit to your employee(s) or associate(s), please remember to record the odometer reading as at 31 March 2014 for each car and submit to our office for our FBT record.

MEAL ENTERTAINMENT

An employer provides ‘meal entertainment’ (ME) where they provide meal entertainment or reimburses meal entertainment expenses incurred by an employee (including any associated accommodation or travel) S.37AD

In TR 97/17, ATO accepts that provision of food and drink will not always result in the provision of meal entertainment. Thus, it is very important to identify each particular expense if there is an element of entertainment present.

We have listed four factors (Why, What, When & Where the food or drink is being provided) as stated in TR 97/17 to determine if the expense should be considered as ME or not ME in the following table:

Factors Details
Why For the purpose of refreshment or sustenance (e.g. sandwiches and juice at a board meeting or seminar) – Not considered as MEFor employees to enjoy themselves in a social situation (e.g. a dinner, evening drinks or a staff function like Christmas party) – ME
What Provision of morning/afternoon tea (e.g. tea, coffee, cakes or biscuits) or light meals (e.g. sandwiches, finger food, fresh fruits, soft drinks) – Not MEProvision of three course meal – more likely ME** No alcohol is provided – tend to be not ME
When Provided during the work time (or overtime) or provided while travelling overnight on work – less likely MEProvided outside work time – more likely ME
Where Provided on employer’s business premises – less likely MEProvided off the employer’s business premises (e.g. in a function room or restaurant) – more likely ME

 

There are some FBT exemptions in respect of meal entertainments but they are only available where the employer use the Actual Method to value their meal entertainment expenditure. They are NOT available for employer who chooses to use 50/50 split method (or the 12 week register method).

Meal Entertainment – FBT Exemptions Conditions
Property benefit exemption (S.41) Where the food and drink is provided to, and consumed by a current employee, on a working day, on the employer’s business premises, provided the expense is not subject to a salary packaging arrangementE.g. pizza and beers provided to employees on a Friday work night in the office boardroom
Taxi travel exemption (S.58Z) Taxi travel by an employee where it is a single trip beginning or ending at the employee’s place of workE.g. taxi travel from the office to the restaurant where the employee’s end of financial year function is being held
$300 minor benefit exemption (S.58P) Where the notional taxable value of the benefit is less than $300, and having regard to various criteria it would be unreasonable to treat the benefit as fringe benefitE.g. A Christmas party function costing $120 per head)

 

The table below shows FBT rates & thresholds for 2014 FBT year:

Type of FBT Rates & Thresholds Amount/Limit Details
FBT rate 46.5%
Capping thresholds for:FBT-exempt employers

  • Hospitals (public and non-profit) and Public Ambulance Services

 

  • Public Benevolent Institutions (‘PBI’) and Health Promotion Charities

 

FBT-rebatable employers

Grossed-up taxable value per employee:$17,000$30,000 

 

$30,000

The following benefits are not counted towards the $17,000 and $30,000 capping amounts:

  • Meal entertainment
  • Car parking benefits
  • Entertainment facility leasing expenses; and
  • Benefits which have no taxable value (e.g. benefits which are specifically exempt from FBT)
FBT Reportable benefits threshold $2,000 This will only apply where the total (non-grossed up) taxable value of reportable fringe benefits provided to an employer by an employer during the 2014 FBT year exceeds $2,000. If this is the case, the employee’s individual fringe benefit amount must be grossed up by 1.8692 and recorded on the employee’s payment summary for the 2014 income year.
Benchmark Interest Rate (IR) 6.45% The rate of 6.45% is used to calculate the taxable value of:

  • Loan Fringe benefit -when an employer lent an employee money which used solely for private purposes at a lower interest rate than current benchmark IR; and
  • Car Fringe benefit –when an employer owns or hire purchases the car and used the Operating Cost (or log book) method.
Car Parking Threshold $8.03 per day S.58G provides an FBT exemption for Car Parking Fringe Benefits (CPFB) provided by small business employers where the following conditions are met:(i) The car is not parked at a commercial car parking station; and(ii) The employer is not a public company (or a subsidiary of a public company) when the benefit is provided, and the employer is not a government body; and(iii) Either one of the conditions is satisfied for the income year ending most recently before the start of the relevant FBT year:

  • The employer’s ordinary and statutory income is less than $10 million; or
  • The employer is a ‘Small Business Entity’ (SBE) if it carries on business and has a grouped annual turnover of less than $2 million (S.328-110)

 

FBT Trap

It is very common for some organisations to employ specialist staff from overseas and then to pay for the overseas employees’ transport and relocation costs. One expense that is frequently paid/reimbursed by employers that bring overseas employees to Australia relates to visa and passport costs. These costs, often referred as ‘relocation expenses’, include accident insurance, departure tax, passenger movement charges, vaccination costs and costs associated with visas. These costs are generally incurred whilst the overseas employees is making their way to Australia to commence their employment.

In most cases, employers who pay/reimburse these relocation expenses generally avoid any FBT payable under FBT exemption S.58F. It also extends to relocation transport benefits that are provided to an employee to allow the employee to return back to their usual place of residence (i.e. returning back home).

Please note employers should avoid incurring costs associated with employees renewing or applying for a new visa for oversea employees because such expenses may create an FBT liability.

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