As an employer, you must understand and your Fringe Benefit Tax (FBT) obligations to avoid significant penalties from the Australian Taxation Office (ATO).
FBT is a tax paid by employers and it is separate from income tax. It is based on the taxable value of non-tax benefits provided to your employees or associates. If you are a director and conduct your business through a company or a trust, you may be an employee of the company or trust. In this case, you will need to account for and pay FBT on any fringe benefits you provide to yourself.
Cars are the most common type of fringe benefit provided to employees. There are two ways to calculate car benefits:
- Statutory Formula Method – best choice when the car is primarily for personal use
- Operating Cost Method – best choice when the car is used mainly for business purposes
Note: the more valuable the car is, the more likely it is that the Operating Cost method will produce a better FBT outcome.
The following tables compare both methods of calculating FBT payable for car benefits provided to an employee (assuming the car was provided after 7.30pm on 10 May 2011 and it is a Type 1 benefit 1):
Statutory Formula Method
|Employee||Car Details||Statutory Formula Method||Taxable Value||Gross-up rate(2.0802) Type 1||Amount of FBT Tax Payable Rate (47%)|
|Jack Daniel||Lexus with a base value of $54,000||(20%2 x $54,000 x (365/365)) – $0||$10,800||$22,466||$10,559|
1 Type 1 benefit is where the benefit provider (e.g. the employer) is entitled to claim any input tax credit in respect of the provisions of a benefit.
2 20% rate applies for the 2015 year unless the car is provided under a ‘pre-existing agreement’ entered into after 7.30pm on 10 May 2011. Under a ‘pre-existing agreement’ entered before 7.30pm on 10 May 2011 are generally valued under the ‘old Statutory Formula Method’ rules.
Operating Cost method
|Employee||Car Details||Operating Cost Method (with Business Use Percentage under log book of 70%)||Assumed Total Operating Expenses (including deemed depreciation & interest)||Less: Business use reduction(70% x $21,140)||Taxable Value of Car Fringe Benefit||Gross-up rate(2.0802) Type 1||Amount of Tax Payable Rate (47%)|
|Jack Daniel||Lexus with a base value of $54,000||70% 3||$21,140||$14,798||$6,342||$13,192||$6,200|
3 A valid log book is required to be kept for a consecutive period of minimum 12 weeks for each car if the employer elects the Operating Cost method. Once a log book is kept and there is no substantial change in the business use, this log book can be used for 5 years.
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 performing employment duties.
A list of eligible FBT exempt vehicles can be found on the ATO website under https://www.ato.gov.au/General/Fringe-benefits-tax-%28fbt%29/In-detail/Exemptions-and-concessions/FBT—exempt-motor-vehicles/
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.
The following are some examples of situations where the provision of food and drink is considered to have the character of meal entertainment.
|Type of food and drink/situation||Meal Entertainment||Not Meal Entertainment|
|· Coffee/tea provided on business premises for employees and visitors||X|
|· Sandwiches, muffins, fruit & juice consumed during work training session or work meeting on business premises||X|
|· Light meal (e.g. sandwiches, take away food, pizza) and soft drink consumed on business premises while working overtime||X|
|· A light meal and drink consumed at a cafe by an employee during a meal break on a work day||X|
|· Breakfast, lunch or dinner at a restaurant for a business networking meeting||X|
|· Business lunch at a cafe or restaurant||X|
|· Friday night drinks at the office (including finger food & etc)||X|
|· Food and drink consumed at a social function on or off the business premises (e.g. Christmas party)||X|
In the following table, 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:
|Why||1) For the purpose of refreshment or sustenance (e.g. sandwiches and juice at a board meeting or seminar) – less likely to be ME or2) For employees to enjoy themselves in a social situation (e.g. a dinner, evening drinks or a staff function like Christmas party) – more likely to be ME|
|What||1) Provision of morning/afternoon tea (e.g. tea, coffee, cakes or biscuits) or light meals (e.g. sandwiches, finger food, fresh fruits, soft drinks) – less likely to be ME2) Provision of three course meal – more likely to be ME|
|When||1) Provided during the work time (or overtime) or provided while travelling overnight on work – less likely to be ME2) Provided outside of work time – more likely to be ME|
|Where||1) Provided on employer’s business premises – less likely to be ME2) Provided off the employer’s business premises (e.g. in a function room or restaurant) – more likely to be ME|
There are some FBT exemptions in respect of meal entertainments but they are only available where an employer uses the Actual Method to value their meal entertainment expenditure. They are NOT available for an 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 arrangement e.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 work e.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 (incl GST), and having regard to various criteria it would be unreasonable to treat the benefit as fringe benefit e.g. A Christmas party function costing $120 per head).|
Travelling, Living Away From Home (LAFH) or relocating
Often many employers will incur expenditure with respect to employees who are travelling, living-away-from-home (LAFH) or relocating with respect to their employment duties. It is important to correctly classify the travel status of an employee and the following is a summary of the FBT implications for employees travelling for employment purposes..
|Employees travelling on-work||Benefits provided to an employee travelling on work are not usually subject to FBT because the taxable value of these benefits is reduced by the “otherwise deductible” rule.|
|Employees living-away-from-home (LAFH)||Benefits provided to an employee who is LAFH for employment purposes can be subject to various FBT concessions (e.g. an allowance for food) and exemptions (e.g. reimbursing accommodation costs of an employee). 1|
|Employees who have relocated||Benefits provided to an employee who has relocated for employment purposes can be subject to various FBT exemptions and concessions (e.g. temporary accommodation and storage of household effects).|
1 It is important to note that in order for the LAFH concessions to apply, an employee must a home in Australia at which they usually reside and is available for their immediate use and enjoyment whilst they are LAFH. However, this requirement generally does not apply for employees who are working on a fly-in fly-out basis.
Generally, an employee who is LAFH for more than 12 months is unable to receive concessionally taxed fringe benefits from their employer beyond 12 months (the 12 month rule). However, the 12 month rule generally does not apply to employees who are working on a fly-in fly-out basis.
If you are providing these benefits, please contact our office for assistance.
2015 New FBT Rate & Thresholds
|Type of FBT Rates & Thresholds||Amount/Limit||Details|
|FBT rate||47%||The Medicare levy rise from 1.5% to 2% for 2015 (from 1 July 2014) and later income years. This has necessitated an increase in the prevailing FBT rate.|
|Type 1 Benefits (Gross-up rates)1||2.0802||New gross-up rates also apply to Type 1 Benefits from 1 April 2014 due to the increase in the FBT rate for the 2015 FBT year.|
|Type 2 Benefits (Gross-up rates)1||1.8868||New gross-up rates also apply to Type 2 Benefits from 1 April 2014 due to increase in the FBT rate for the 2015 FBT year.|
|Capping thresholds for:FBT-exempt employers· Hospitals (public and non-profit) and Public Ambulance Services· Public Benevolent Institutions (‘PBI’) and Health Promotion Charities
|Grossed-up taxable value per employee:$17,000
|The following benefits are not counted towards the $17,000 and $30,000 capping amounts:· Meal entertainment· Car parking benefits· Entertainment facility leasing expenses· 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 employee by an employer during the 2015 FBT year exceeds $2,000. If this is the case, the employee’s individual fringe benefit amount must be grossed up by 1.8868 and recorded on the employee’s payment summary for the 2015 income year.|
|Benchmark Interest Rate (IR)||5.95%||The rate of 5.95% is used to calculate the taxable value of:· Loan Fringe benefit – when an employer loans an employee money which is 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 uses the Operating Cost (or log book) method.|
|Car Parking Threshold||$8.26 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 these conditions is satisfied for the income year ending most recently before the start of the relevant FBT year:|
1 When you work out your FBT liability you must gross-up the taxable value of benefits you provide to reflect the gross salary employees would have to earn at the highest marginal tax rate (including Medicare levy to but the benefits after paying tax. Please refer to the following ATO website for more information.
Note: Under salary sacrifice arrangements, an employee’s salary sacrifice amount will need to be adjusted (upwards) from the 2014 FBT year to the 2015 FBT year to account for the additional FBT liability due to the increased of FBT rate in 2015.
Lodgement and payment dates
The statutory due date for lodgement and payment is 21 May 2015. If the FBT client appoints a tax agent by 21 May 2015, the due dates for FBT return lodgement are:
- 25 June 2015 if the return is lodged electronically
- 21 May 2015 if the return is lodged by paper.
Please note the due date for payment under the lodgement program remains as 28 May 2015.