The end of the FBT year is fast approaching! As the 2023 FBT year ends on the 31st March 2023, it’s a good time to start thinking about your FBT obligations in order for our office to provide guidance and to ensure you have all appropriate records in place to complete your FBT return.
There are specific behaviours and characteristics of FBT that attract the ATO’s attention, these include:
- Use of Motor Vehicles
- Car Parking
- Exempt Benefits
- Minor Fringe Benefits
- In House Benefits Exemption
- Entertainment Provision
- Expense Payment benefit
- Property Benefits
- The otherwise deductible rule
- Reduction to taxable values
- Private use of business assets
- Private costs paid by business
Please note that HTA will send out FBT logbook and odometer reading declarations to FBT registered clients from the 17th March 2023.
Fringe Benefits Tax Explained
Employers are liable for Fringe Benefits Tax (FBT) if they provide certain benefits to their employees or associates throughout the FBT year, 1 April to 31 March. The FBT rate is 47% and is levied on the taxable value of fringe benefits. It is not only companies that are liable to pay FBT, but also sole traders, partnerships and trusts.
Generally only benefits provided to employees under formal employment – including current, future and former employees, can constitute a fringe benefit. Benefits provided to volunteers and contractors are not liable for FBT.
Fringe benefits can either be provided by an employer, its associates, or by a third party under an arrangement with an employer.
Benefits or Payments exempt from FBT include:
- payments of salaries or wages
- shares issued under approved employee share acquisition schemes.
- employer contributions to complying super funds
- employment termination payments
- certain dividends
- capital compensation for personal injury or restraint of trade
- minor benefits valued at less than $300
- work related items that are required by an employee for the day to day running of the business, such as a phone, certain computer software, protective clothing or tools
Fringe Benefits Categories
Fringe benefits can be provided in various forms, such as rights, privileges, and services.
Car Fringe Benefits
Car fringe benefits arise when an employer provides a car for the private use of an employee or related associate. Generally speaking, the vehicle is deemed to be for private use whenever it is under an employee’s custody and control, such as travelling to and from work.
The following vehicles are classified as a car for FBT purpose:
- motor cars, station wagons, panel vans and utilities
- any goods carrying vehicles designed to carry less than one tonne
- any passenger carrying vehicles designed to carry fewer than nine occupants
An employee’s use of a taxi, a vehicle designed to carry a load of one tonne or more, or any other commercial vehicle will be exempt from car fringe benefits tax.
Record-Keeping for Car Fringe Benefits
There is a requirement to maintain and manage specific records throughout the FBT year in order to substantiate a car fringe benefits liability.
- Logbooks – During the year, ensure that all logbooks for all company vehicles are up-to-date and completed per ATO requirements. On 31 March, when the employees have finished their travel for the day, request that they each take a photo of their vehicle odometer readings using their phones and email the photo to you, or to a nominated person in your business to collate them all for you. Having these vehicle odometer readings for all business vehicles is vital in being able to determine if your FBT can be reduced by using the ‘operating cost’ method instead of the ‘statutory formula’ method.
- Private Use – Carefully manage the private use of business cars, including the travel between home and work. The ATO is conducting a data matching program aimed at motor vehicles to capture benefits that aren’t currently being reported through FBT. If significant variances are identified a full ATO audit may follow.
FBT Exemption for Electric Cars – New in 2022/23 FBT Year
The ATO has introduced FBT exemptions such that from 1 July 2022, employers will not pay FBT on benefits provided for eligible electric cars and associated car expenses such as registration, insurance, repairs, maintenance and fuel or electricity costs for charging.
Whilst there is no FBT payable, employers must still include the value of these exempt car fringe benefits in the calculation of an employee’s reportable fringe benefits amount and employees must also include the reportable FBT amount on their individual tax return.
Such criteria include:
- The car needs to be a zero or low-emissions vehicle – full-electric, hydrogen fuel-cell, or plug-in hybrid drivetrain and it must be designed to carry a load less than one tonne.
- Cars need to be under the luxury car tax (LCT) threshold for fuel-efficient vehicles, which is $84,916 (GST inclusive) for the 2022/23 financial year.
- An electric car must be used for the first time on or after 1 July 2022 – even if it is held before this date. This time stamp is based on when the car was first used, so if you buy a used electric car after 1 July 2022, even if it is your first time ‘using’ it, the car is already deemed ‘used’ by the ATO, and is not eligible for the FBT rebate.
- The car is used by a current employee or their associates (such as family members)
Benefits provided under a salary packaging arrangement are included in the exemption. The Government is expected to complete a review into this exemption by mid-2027 to consider electric car take-up.
Entertainment Fringe Benefits
An entertainment fringe benefit is when an employee is entertained by the way of food, drink or recreation, then is reimbursed by their employer. Some examples of this could be the reimbursement for the cost of theatre tickets, facility leasing or accommodation/transport in relation to entertainment.
Common problem areas include:
Entertainment deductions with no corresponding fringe benefit – A simple way for the ATO to pick up on a problem is when an employer claims a deduction for expensive entertainment expenses – meals out, tickets to cricket matches, etc., – but there is not a corresponding recognition of the fringe benefit. Entertainment expenses are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT.
If your business uses the ‘actual’ method for FBT purposes and the value of the benefits provided is less than $300 then there might not be any FBT implications. This is because benefits provided to a client are not subject to FBT and minor benefits provided to employees (i.e., value of less than $300) on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either.
If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the company would be able to claim 50% of the GST credits.
Employee contributions reduce fringe benefits tax but not recognised in income tax return – Where employee contributions reduce the amount of fringe benefits tax payable (for example where an employee makes a contribution relating to a car fringe benefit), a corresponding amount needs to be recognised in the income tax return of the employer.
Record-keeping for Entertainment Fringe Benefits – during the year, you should keep a logbook of all meal entertainment expenses provided to employees, associates and clients. Include details such as cost, who/how many people were present and the type of event.
Recreational entertainment
A common trap is where an employer has an employee who is considered a “frequent entertainer” for meal entertainment purposes and then is automatically considered a frequent entertainer for recreational entertainment, such that the minor benefits exemption doesn’t apply.
Accordingly, we recommend reassessing which employees should be eligible for the minor benefits exemption with respect to recreational entertainment.
Giving gifts
Gifts provided to employees, or their associates, will typically constitute a property fringe benefit and therefore be subject to FBT unless the minor benefits exemption applies.
Gifts, and indeed all benefits associated with the end-of-year function, should be considered separately to the party itself in light of the minor benefits exemption. For example, the cost of gifts such as vouchers, bottles of wine or hampers given at the function should be looked at separately to determine if the minor benefits exemption applies.
Gifts provided to clients are outside of the FBT rules, but may be deductible if they are being made for the purposes of producing future assessable income.
Minor benefits exemption
Some minor benefits you provide may be exempt from FBT under the minor benefits exemption rule. Generally speaking, if the taxable value is less than $300 then the minor benefits exemption applies.
Debt Waiver Fringe Benefits
A debt waiver fringe benefit arises when an employer waives or forgives part, or all, of an employee’s debt to the business. Any business that waives these debts will be liable for FBT. However, if an employee debt is written off because it is uncollectable, it does not qualify as a debt waiver fringe benefit.
Loan Fringe Benefits
A loan fringe benefit is when an employer provides a loan to an employee with no interest, or at an interest rate that is less than statutory interest (4.52% same as 2022).
Loan fringe benefits also arise when an employee is given time to repay an overpaid salary. The following loan benefits are exempt from FBT:
- fixed and variable loans to employees that are provided at the same rate, and with the same terms, which are offered to the public.
- short term (6 months) advances to employees in order to cover employment-related expenses.
- a temporary advance (12 months) to cover security deposits.
Living-away-from-home Allowance Benefit (LAFHA)
This arises where the employer pays an allowance to an employee as compensation of additional expenses incurred because they are required to live far away from their usual residence to perform their employment duty. A period of less than 21 days away is considered as travel.
Property Fringe Benefit
A Property Fringe Benefit may arise when an employer provides an employee with free or discounted property, either tangible or intangible, such as goods, shares, bonds or the rights to a property. However, property provided and consumed by an employee on working days and in the employer’s premises or related company is exempt from fringe benefit tax.
Taxable values of such benefits are affected by its nature in regards of in-house or external property fringe benefit. Generally, it is 75% of the amount of related goods or service charging to the public in the ordinary course of business.
Residual Benefits
Any benefit not covered previously would fall into the residual benefit category, excluding the following:
- Recreational or childcare facilities located on business premises.
- Motor vehicles not for private use
- Living away from home accommodation provided as a residual benefit.
- Use of property located on business premises principally connected with employment.
- Office equipment provided for temporary use and is expected to be returned back (e.g., desk, chair etc.)
- COVID-19 tests (PCR/RAT) provided to employees on the basis that it constitutes work-related preventive health care of the employees.
Keeping records for COVID-19 tests
You are required to keep accurate records in order to satisfy the requirements for FBT exemption on Covid-19 tests. Required records include:
- A record of the costs of COVID-19 tests you pay for your employees (including those you reimburse them for) and the dates you paid for them. This may include a receipt or invoice.
- A completed appropriate employer declaration or employee declaration.
What Records are Needed for FBT?
You must keep all adequate records to enable the fringe benefit tax liability to be assessed, including the working paper indicating how you worked out the taxable value of the benefits. The records need to be kept for five years from the date of the relevant transactions.
Should you be registered for FBT?
Generally, if you have employees (including Directors) and you provide them with cars, car parking, entertainment (food and drink), employee discounts, loans, or reimburse private expenses, then you are likely to be providing a fringe benefit and we will need to register your business for FBT.
Should you lodge an FBT Return even if no FBT is payable?
Where no FBT is payable there is legally no need to lodge an FBT return, but should you lodge one anyway? HTA’s recommendation to you is yes, you should lodge an FBT Return if you provide benefits to employees, even if no FBT is payable.
This restricts the ATO’s audit window to only 3 years from the date of lodgement. Otherwise, the ATO is entitled to go back an unlimited number of years and audit your business and possibly find areas where they will charge you FBT and penalties.
We advise that the date marking Fringe Benefits Tax year end is fast approaching being the 31st March 2023, and where employers provide benefits to their employees, they will be required to ascertain their FBT obligations.
If you have any FBT questions, please do not hesitate to contact our office.
