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Fringe Benefits Tax

March 27, 2020

Updates for employers

With all the COVID-19 stimulus packages being introduced by the government of late, including the concessions relating to tax obligations, it is easy to forget that the Fringe Benefits Tax (FBT) year is coming to an end, and businesses still need to take action to ensure they remain compliant.

Businesses will still be required to lodge their FBT returns in May 2020, however we can assist with applying to the ATO for FBT payment extensions where required. For all businesses, it is important that you work through the annual FBT checklists and gather all necessary information as at 31 March as usual.

The ATO has announced some high impact changes this year, which will affect a large proportion of businesses that provide benefits to employees. It is important to understand when FBT may apply so that benefits are recorded correctly and any resulting tax can be managed. With the right planning and record-keeping, some FBT obligations can be reduced or eliminated through the exemptions we will mention below.

We will briefly cover what FBT is, as well as some common FBT types and exemptions, before moving into the changes for this year and options for reducing your FBT liability.

What is FBT?

FBT is a tax paid on benefits provided to employees or associates and can be included in or as an addition to their ordinary income. The reporting year runs from 1 April to 31 March and is separate from income tax. FBT is calculated on the taxable value of the benefits provided.

Common FBT categories

The most common fringe benefit categories that we see applicable for small businesses are:

  • Car fringe benefits arising when employers provide a car which is available for private use by the employee;
  • Entertainment fringe benefits arising from the provision of recreation, food, and drinks (including associated travel costs); and
  • Expense payment fringe benefits arising when paying for an employee’s private expenses either by direct payment or by reimbursement.

Other categories of fringe benefits include car parking, loans, living away from home allowance, debt waivers, housing, and board.  In addition, a residual fringe benefit may arise if an employee is provided with any benefit that is not one of the specific fringe benefit categories.

Common FBT exemptions

Some benefits are exempt from FBT, or receive concessional treatment, however specific conditions often need to be satisfied.  Some examples of FBT exemptions include:

  • Work-related items (provided items are primarily used for employment);
  • Minor benefits (generally items less than $300 notional taxable value, excluding meal entertainment); and
  • Car parking for small businesses (subject to a number of conditions being satisfied).
  • Provision of portable devices (i.e. mobile phones, laptops, and iPads)

Other exemptions and concessions may apply to items such as taxi travel expenses and living away from home.

Reduction options

A number of fringe benefits attract concessional treatment however these benefits are usually obscure and uncommon. For employers looking to provide further incentives to employees by way of salary packing etc., there are a number of benefits that can be provided that attract little to no FBT, such as:

  • Only providing benefits that would be an income tax deduction if the employee had paid for the benefits themselves (e.g. reimburse for business use of mobile phone/home internet costs); or
  • Providing exempt fringe benefits like portable devices (laptops, iPad’s, etc.); or
  • If an employee is provided with a motor vehicle for use whilst at work and does not need to take the vehicle home, the vehicle should remain on the employer’s premises (including leaving the keys in the office). If a vehicle is only used for business travel and is not made available for private use by employees, there will be no FBT.
  • Ensuring that you keep clear records of who attended functions and a breakdown of the expenses incurred for each benefit such as alcohol and food. This will ensure that any amounts which are eligible, are excluded under the minor benefits exemption.

Significant Changes and Clarifications

The main changes for this FBT year are small but have wide-ranging consequences for employers as they affect the determination and calculation of some of the most common fringe benefits.

  1. Many employers provide car parking to their employees. In the past, the ATO has taken the view that when determining whether a car parking fringe benefit applies, parking stations that discourage all-day parking such as shopping centres, hospitals, universities, and sports stadiums would not be considered as commercial parking stations.

    For the year beginning 1 April 2020 however, they have reversed that interpretation, bringing these into the net when determining whether a car parking fringe benefit applies.

  1. It has become quite common for employees to receive benefits from third parties, such as clients, suppliers or contractors. These often centre on entertainment and can include benefits such as dinners or tickets to events.

    Many employers believe that in these circumstances, FBT does not apply, however it can – and does – if the employer was a party to the arrangement and/or participated in, promoted or facilitated the benefit. One example of this is choosing which employees receive free concert tickets given to the company by a client.

  1. This year the ATO has introduced an exemption for road and bridge tolls for workhorse vehicles provided they have limited private use.

    This means that if your employee takes home a work vehicle such as a panel van or ute then any tolls incurred in the use of that vehicles are exempt. The important aspect of this exemption is that it includes home to work travel as work-related, removing any tolls incurred in this travel from the FBT net.

Compliance requirements

If your business is providing fringe benefits, and if the employee does not reimburse the business for the taxable value of the fringe benefits provided, the business is required to register for fringe benefits tax, and lodge an FBT return.

The lodgement and payment due date is 21 May. However, if the return is lodged by a registered tax agent, the payment due date is extended to 28 May and the lodgement due date is extended to 25 June.

You are also required to record fringe benefits provided to employees in the employee’s payment summary where the individual’s fringe benefits amount exceeds $2,000.

What you need to do now

If your business is providing fringe benefits to employees, the following will assist you in getting ready for the end of the fringe benefits tax year:

  • Set a reminder for 31 March to record odometer readings of all motor vehicles provided to employees and subject to FBT;
  • Request details from employees of when these vehicles were not available for private use;
  • Review your files to identify any possible benefits provided to employees and their associates;
  • Review salary packages in place for any unspent amounts; and
  • Request receipts for any un-reimbursed expenditure from employees.

Remember – Directors of a company or trust may also be subject to FBT if they are receiving certain benefits.  Sole traders and partners in a partnership, however, are not employees, and are therefore not obligated to report fringe benefits.

We are here to help

The ATO has issued a number of tax rulings affecting 2019 FBT year. As such, it is important that employers understand their obligations. Please contact us should you wish to discuss your circumstances in further detail.