The Fringe Benefits Tax (FBT) year ends on 31 March. Here is some important information we want to share with you.
Should I be registered for FBT?
If you have employees (including Directors of a company) then it’s possible your business needs to register for FBT. Generally, your business needs to register for FBT if you are providing any benefits to employees that are not exempt from FBT. So, if you provide cars, car spaces, reimburse private (not business) expenses, provide entertainment (food and drink), employee discounts etc., then you are likely to be providing a fringe benefit.
There is a list of exemptions that are considered exempt from FBT, such as portable electronic devices like laptops and iPads (although there are rules around how many), 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.
Motor Vehicles – using the company car outside of work
Just because your business buys a motor vehicle and it is used as a work vehicle, that alone does not mean that the car is exempt from FBT. If you use the car for private purposes – pick the kids up from school, do the shopping, use it freely on weekends, garage it at home, your spouse uses it – FBT is likely to apply. While we’re sure the old, “what the Australian Tax Office (ATO) doesn’t know won’t hurt them” mentality often applies when the FBT returns are completed, it might not be enough. The private use of work vehicles is firmly in the sites of the ATO.
Private use is when you use a car provided by your employer (this includes directors) outside of simply travelling for work related purposes.
If the 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.
Finding out that a car has been used for non work-related purposes is not that difficult. Often, the odometer readings don’t match the work schedule of the business. These are areas the ATO will be looking at.
Utes and commercial vehicles – the new safe harbour to avoid FBT
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 certain vehicles (utes and other commercial vehicles for example) 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.
Employers who do not take active steps to check the way commercial vehicles are being used are at high risk of significant FBT liabilities.
Living away from home allowances
Living Away From Home Allowances (LAFHA) continue to cause confusion for both employers and employees.
A LAFHA is an allowance paid to an employee by their employer to compensate for additional non-deductible expenses they incur, and any disadvantages suffered, because the employee’s job requires them to live away from their normal residence.
As a starting point, FBT applies to the full amount of the allowance that has been paid. However, if certain strict conditions can be satisfied the taxable value of the LAFHA fringe benefit can be reduced by the exempt accommodation and/or food component.
If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car.
FBT rate change
The FBT rate decreased on 1 April 2017 when the 2% debt tax on high income earners ended on (Temporary Budget Repair Levy) 30 June 2017. The FBT rate was brought into line with the Debt Tax to discourage high income earners from using the FBT system to lower their taxable income.
Remember to review salary packaging arrangements to ensure they remain effective.
|FBT year||FBT Rate||Type 1 Gross Up rate||Type 2 Gross Up rate|
|1 April 2017 onwards||47%||2.0802||1.8868|