Important considerations as the Fringe Benefits Tax (FBT) year comes to a close
Fringe Benefits Tax has seen some changes since this time last year so if it’s applicable to you or your employees we’ve highlighted a summary of both the new and remaining rules to help you get the most out of an FBT return this year.
We’ll start with the new
Multiple work-related electronic devices – new rule
A small business employer can now provide more than one ‘FBT exempt’ portable electronic device even if they have similar functionalities. The devices must be provided to employees principally to enable the employees to do their job and the ‘work-related use test’ must be satisfied for each device provided.
FBT meal entertainment benefit changes – new limits
The Government has introduced a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses for employees of FBT-rebatable employers. The ‘Actual Method’ must be used for valuing salary packaged meal entertainment. This change is relevant when dealing with not-for-profit organisations.
Use of UBER not the same as TAXI
Currently taxi travel of an employee beginning or ending at the employee’s place of work is exempt from FBT. While UBER (ride sharing) is now considered to be a taxi for GST purposes, it currently does not fall under the definition of taxi for FBT purposes.
While the Australian Taxation Office (ATO) is consulting on this matter and has released a discussion paper, currently the use of UBER between home and work is generally not an exempt benefit.
Continuing FBT rules for your attention
FBT rates for 31 March 2018 consistent with last year
The FBT rate has reduced from 49% to 47% for the 2018 FBT year. The FBT gross up rates to be applied to Type 1 & Type 2 benefits in 2018 have changed due to the temporary budget repair levy of 2% being removed. The below table summarises the comparative years.
|Type 1 benefits||2.1463||2.0802|
|Type 2 benefits||1.9608||1.8868|
Employers should take FBT rates into account when:
- implementing new salary packaging arrangements with employees
- 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.
FBT nil: To lodge or not to lodge?
The ATO requires employers to lodge a FBT return in any year where there is a ‘fringe benefits taxable amount’ (tax payable). However, whilst the ATO now accepts that employers that have no FBT liability do not need to lodge an FBT return, it is still 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.
A tax audit can lead to substantial administration time and costs to deal with the ATO, so lodging a $nil FBT return could save you time and money.
Cars – methods available to minimise your FBT liability
An FBT exposure is created when any car (owned or leased) is given to employees for private purposes, including travelling between home and work. To minimise your FBT liability consider:
- whether ‘after-tax employee contributions’ could provide a better outcome for both employee and employer;
- applying the 1/3 reduction to the cost base if you use the statutory method and the vehicle has been held for more than four FBT years; and
- the operating cost method versus the statutory formula based on current vehicle use.
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 2018 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 Friday 31 March 2018.
Please ask your Hanrick Curran adviser for a complying log book to record your business usage.
Is that really subject to FBT…?
We often find that employers provide benefits to employees without realising there may be an FBT exposure. A fringe benefit is any non-cash benefit provided to an employee, (incl. past or future) unless it falls within a list of exceptions.
Such benefits that often get overlooked can include:
- interest Free loans;
- tickets to restaurants or sporting events,
- reimbursement of expenses without the correct declaration
- car parking
- uber travel to employees home
- private travel expenses even when connected with business trips
Often these benefits may be excluded under the ‘minor and infrequent exemption’, but nevertheless need to be considered.
Should you have any doubts about whether a ‘benefit’ should be included, please ask your Hanrick Curran advisor.
Key next steps
Speak with your Hanrick Curran adviser regarding new or varied fringe benefit arrangements for the 31 March 2018 year and agree the best approach to minimise your liability.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.