Fringe Benefits Tax - Tricks and Traps
The Fringe Benefits Tax (FBT) year concluded on 31 March 2014. Being aware of some of the common tricks and traps may help you complete your FBT return and reduce the amount of FBT you pay.
Employee contributions are amounts contributed to the cost of the benefit by an employee from their after-tax income. This reduces the taxable value of a benefit, and thereby the amount of tax payable. Employee contributions are often used to reduce the taxable value of a car fringe benefit.
The provision of exempt benefits to employees is a good method to reward employees without having to pay FBT. Certain work related items are exempt from FBT where they are used “primarily for use in the employee’s employment.” Items such as portable electronic devices (laptops etc), a brief case, protective clothing and a tool of trade meet the conditions of this exemption, as long as only one item with substantially identical functionality is provided in any FBT year.
The 50/50 method can save significant time in record keeping, however, it means you cannot access the minor benefits exemption (refer below), and may also mean you are paying too much FBT if your employees would not usually make up at least half of your entertainment costs.
A minor benefit is provided where the GST inclusive cost is less than $300, and is provided on an infrequent and irregular basis. However where the $300 threshold is exceeded, or a benefit is provided regularly to an employee, the full value is subject to FBT. Employers utilising the minor benefits exemption are not entitled to claim an input tax credit or a tax deduction for the cost of the benefit.
The transitional phasing toward a single statutory fraction continued in the 2014 FBT year, with only two different fractions in place: 20% for those travelling less than 40,000kms and 17% for those exceeding that amount. This may result in significantly higher FBT liabilities arising when compared to that arising under the old rules. Accordingly, you may wish to consider requiring your employees to keep log books and utilise the operating cost method to keep FBT costs at a minimum.
Another trap associated with the statutory formula is the 1/3 reduction in the base value of the vehicle, available for cars that are more than four years old. In order to qualify for this exemption, you need to have held the car for four full FBT years, meaning it is usually not until the fifth FBT return prepared for the vehicle in which the reduction is available.
Consideration should also be given to any car parking benefits provided, noting the proximity of commercial parking stations.
The ATO have indicated they will be placing a larger focus on FBT non-compliance and with data matching solutions becoming more reliable, businesses need to make sure they are meeting their FBT obligations. In addition, it is likely that the ATO will be utilising the statutory fraction rates as a way of commencing FBT returns reviews. Given this increased ATO activity, it is worth ensuring all benefits provided are appropriately disclosed and calculated.
Should you have any questions relating to the above or your FBT obligations in general, please contact your ESV Engagement Partner on 02 9283 1666.
Article by Geoff Tierney