The end of March marks the end of the 2016 FBT year. As part of the 2014-15 Federal Budget the FBT rate changed from 47% to 49% effective 1 April 2015. This time of year should trigger a few actions by employers.
- Consider using a Motor Vehicle log book to apply the Operating Cost method of calculating its taxable value.
The Operating Cost method can be more beneficial than the more commonly used Statutory Formula method where the business usage of motor vehicle is very high or in some instances where the purchase cost of the vehicle is high and the operating costs are low.
To use the Operating Cost method you must have a Log Book for the vehicle that has been kept for a period of 12 continuous weeks which reasonably represents the car’s business use. A log book can be used in future years so long as the pattern of business usage has not changed. In order to use your log book records for the 2016 FBT year, you will need to commence the log book immediately and maintain it for 12 consecutive weeks so the FBT rate can be determined before the cut-off date for electronic FBT tax return lodgements. Please ensure you record the odometer reading as at close of business Thursday 31 March 2016.
If you think you may benefit from using the Operating Cost method please contact your Hanrick Curran adviser and request a complying log book to record your business usage.
- Consider the employer costs of maintaining employee salary packaged arrangements
The FBT rate increase to 49% in 2016 also results in change to the FBT gross up rates to be applied to respective Type 1 & Type 2 benefits. The below table summaries these changes as well as illustrating that these rates will revert back to the current (2016 FBT year) rates for the 2018 FBT year (as at 1 April 2017):
|New FBT Rates||2016||2017||2018|
|Type 1 benefits||2.1463||2.1463||2.0802|
|Type 2 benefits||1.9608||1.9608||1.8868|
Employers need to take these new rates into account:
- When implementing new salary packaging arrangements with employees
- When maintaining current salary packaging arrangements for current employees
The FBT payable is part of a Total Cost of Employment and should be taken into consideration when setting and reviewing employee remuneration package arrangements.
The employer cost for a $10,000 type 1 benefit with a taxable value of $10,000 has increased from 2015 to 2016 as follows:
|2015 FBT Year||2016 FBT Year|
|Multiplied by Gross-up rate:||X 2.0802||X 2.1463|
|Grossed-up Taxable Value||$20,802||$21,463|
An employer may elect to absorb or pass on these changes, however it is worth considering how that message is communicated to employees in salary sacrifice arrangements. Should you require assistance in determining or communicating these FBT changes, please contact your Hanrick Curran Adviser.
- FBT returns - $Nil liability returns should still be lodged, even where benefits are ‘cashed out’.
The ATO requires employers to lodge a FBT return in any year where there is a ‘fringe benefits taxable amount’ (tax payable). However, in years where there is no tax payable because employees have made ‘recipients contributions’ to reduce the FBT amount to $nil, it is recommended a $nil return be lodged.
We have seen instances under ATO audit where ATO officers have wanted to review records for some years back even when there is no liability. If no return is lodged, then the ATO have an unlimited time period to review an employer’s FBT records and calculations. However, if a $nil return is lodged showing benefits reduced to $nil by employee contributions, this will:
- Reduce the ATO’s period of review to 3 years; and
- Reduce the likelihood of audit.
The ATO data match potential benefits with sources such as State Government car registration records, so if a car is owned by an employer and no FBT return is lodged, the data matching may trigger an audit. Accordingly, by lodging a return showing benefits reduced to $nil by employee recipient contributions, then the risk of audit is reduced.
Recent press on FBT
FBT free bus travel has been topical again in the press recently. In short, the opportunity of salary packaging bus fares has got some renewed attention as the state government is due to release their public transport fare review. Back in 2009 Hanrick Curran released FBT Free Bus Travel Alert detailing how employers can leverage the Australian Tax Office (ATO) decision on salary packaging bus travel costs. Back then, the salary packaging opportunity only related to bus fares, unfortunately, 6 years later, that is still the case.
If you require assistance in making the most of salary sacrificing options for your staff or need to discuss whether you should be lodging an FBT return, please contact your usual Hanrick Curran adviser or call Jamie Towers on 07 3218 3900.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.