Is your business in the hospital/non-profit sector? Do you use salary packaging for team members? Are you a small business, or provide team members with a gym or space to do yoga? If you answered yes to any of those, you need to be aware of these Fringe Benefits Tax (FBT) changes starting 1 April 2016, the new FBT year.
- Your business will pay more FBT
The FBT rate is currently 49%. The rate increased from 47% on 1 April 2015 in conjunction with the introduction of the 2% debt tax on high income earners (Temporary Budget Repair Levy). The FBT year that just ended is the first year at the higher tax rate, which means if your business has an FBT liability, it will pay more tax.
|FBT year||FBT rate||Type 1 gross up rate||Type 2 gross up rate|
|1 April 2015 to 31 March 2017||49%||2.1463||1.9608|
|1 April 2017 onwards||47%||2.0802||1.8868|
The FBT rate will stay at 49% until 31 March 2017 when the impact of the debt tax is scheduled to be removed.
- Meal entertainment crackdown – medical professionals beware
If your business is an FBT exempt entity (public and not-for-profit hospitals, public benevolent institutions, health promotion charities, public ambulance service) or qualifies for the FBT rebate, you need to be across these significant changes that come into play on 1 April 2016.
In the past, employees of FBT exempt and rebatable entities have been able to salary sacrifice an unlimited amount of meal entertainment expenses (eg, restaurant meals) with no impact on their existing annual caps. But, this changed on 1 April 2016. From this date, a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment benefits for employees of exempt and rebatable employers will apply.
What does this mean? Let’s look at the example of a doctor employed by a public hospital who salary sacrifices $32,000 of meal entertainment benefits. If the doctor salary sacrificed these benefits in the 2015-16 FBT year, the full $32,000 would be exempt from FBT and he has nothing to report in his tax return. If the doctor salary sacrifices these benefits in the 2016-17 FBT year, then only the first $5,000 will not count towards his annual exemption cap. However, the balance will be taken into account in determining whether he exceeds his annual exemption cap for the year. If this excess amount causes him to exceed his annual exemption cap, an FBT liability will arise. In addition, the entire amount (including the first $5,000) will also be included in his reportable fringe benefits amount for the year which could impact his ability to satisfy other income based tests within the tax system, as well as eligibility for certain benefits (eg, family assistance benefits) and certain liabilities (eg, child support payments).
As an employer, it will be essential to review the existing salary packages of team members affected by the changes. If your agreements don’t enable your business to recover the additional FBT liability from the employee then your business will be stuck with the additional cost as a result of the new cap.
- Salary sacrificing may not be worth it
By now you should have reviewed any salary sacrifice agreements to ensure that they are still viable at the higher 49% FBT rate. In some cases, salary sacrifice agreements may no longer achieve the intended goals and simply create an administrative burden.
For high income earners (above $180k) however, the difference in timing between the FBT year and the income year means that there will be a planning opportunity between 1 April 2017 when the FBT rate reduces back to 47% and 30 June 2017 when the 2% debt tax is removed.
With any salary sacrifice agreement just be aware that certain rules must be followed for the agreement to be effective. This means that the employee should agree in writing to forgo an amount of salary and wages before that entitlement has been earned. It is otherwise not valid. The business would also be liable for obligations such as PAYG withholding and superannuation guarantee amounts.
Be aware that the ATO is likely to pay close attention to the validity of salary sacrifice agreements over the next few years where the arrangements are being used to reduce the taxable income of high income earners below $180,000.
- Two laptops are better than one for small business
If your business is a small business (turnover under $2m), from 1 April 2016 the FBT exemption on portable electronic devices will be extended. From this date, your business can offer employees more than one work-related portable electronic device, such as a mobile phone, laptop and tablet and not have to pay FBT on it even if the device is the same or similar to other devices already provided in that same FBT year. All other businesses are limited to one device that is similar to another.
- Yoga or gym classes at the office?
Wondering what to do with that extra office space? Put in gym facilities for the team? Use a room for a yoga class or personal trainer perhaps? A recent ATO decision confirmed that the FBT implications of these two options are quite different. A “recreational facility” can be exempt from FBT if certain conditions can be met. A fitness class or a personal trainer is not a recreational facility and therefore, FBT would generally apply.
If you have further questions about FBT 2016, contact Leader Accountancy so we can assess your situation, or book your tax planning session with us now.