The Fringe Benefits Tax (FBT) year ends on 31 March. We’ve outlined the hot spots for employers and employees.
Motor Vehicle problem areas
Just because your business buys a motor vehicle and it is used almost exclusively as a work vehicle, that alone does not mean that the car is exempt from FBT. If you use the car for private purposes – pick the kids up from school, do the shopping, use it freely on weekends, garage it at home, your spouse uses it – FBT is likely to apply.
The private use of work vehicles is firmly in the sights of the ATO and has been for some time. Private use is when you use a car provided by your employer (this includes directors) outside of simply travelling for work related purposes.
While there are two methods to calculate the FBT liability on the private use of a car, the choice of method can result in very different FBT liabilities. Using the logbook method may provide a better result, especially this year if the work vehicle has not been used at all and garaged at or near the employee’s home.
This is because if your business keeps a valid logbook/odometer records and is eligible to use the logbook method, the ATO will accept that a FBT liability won’t arise if the car:
- Has not been driven at all during the period even if it has been garaged at home; or
- Has only been driven briefly to maintain the car.
Instead, by comparison, if the statutory method is used, the FBT liability could be much higher. This is because the FBT calculation under this method will include the days which the car has been garaged at home and is taken to be available for private use of the employee (regardless of whether or not the employee has permission to use the car privately). Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.
Exempt Motor Vehicle Benefits
There are some circumstances where the use of a motor vehicle is exempt from FBT. For example, an employee’s private use of a taxi, panel van or utility designed to carry less than one tonne is exempt from FBT if its private use is limited to:
- Travel between home and work
- Incidental travel in the course of performing employment-related travel
- Non-work related use that is minor, infrequent and irregular
Business assets personally used by owners and staff
Private use of business assets is an area that crosses across a whole series of tax areas: FBT, GST, Division 7A and income tax.
Take the ATO’s example of the property company that claimed deductions for a boat on the basis that it was used for marketing the company. Large deductions were claimed relating to running the boat. This attracted the ATO’s attention and a review was carried out. The ATO discovered the boat was used by the director and other employees for private trips, and to host parties for people who had paid to attend the company’s property seminars.
When looking at the overall business activities, the ATO determined the director had purchased the boat primarily for their own private use. As a result, they disallowed the deductions and the private use of the boat was a fringe benefit for the employees of the company. The company had to lodge an FBT return and pay the resulting FBT liability, as well as the income tax shortfall, interest and penalties.
Business assets personally used by owners and staff
Private use of business assets is an area that crosses across a whole series of tax areas: FBT, GST, Division 7A and income tax.
Take the ATO’s example of the property company that claimed deductions for a boat on the basis that it was used for marketing the company. Large deductions were claimed relating to running the boat. This attracted the ATO’s attention and a review was carried out. The ATO discovered the boat was used by the director and other employees for private trips, and to host parties for people who had paid to attend the company’s property seminars.
When looking at the overall business activities, the ATO determined the director had purchased the boat primarily for their own private use. As a result, they disallowed the deductions and the private use of the boat was a fringe benefit for the employees of the company. The company had to lodge an FBT return and pay the resulting FBT liability, as well as the income tax shortfall, interest and penalties.
Assistance and benefits provided due to COVID-19
Many businesses are likely to have provided different types of benefits and assistance to their employees due to COVID-19. It can be quite challenging to work out whether FBT should apply.
Just keep in mind that minor benefits should be FBT exempt where their individual cost is under $300 and it is reasonable to treat the benefit as minor (for example, provided infrequently).
Outside of this and in many cases, there are specific FBT concessions that could be available, but it is important to work through these concessions carefully.
Working from home
Office and site closures due to COVID-19 may mean that your employees worked from home for a portion of the FBT year. Many employers have provided their employees with work-related items to assist their employees during this period.
Portable electric devices such as laptops and mobile phones are commonly used for work. Providing such devices to your employees shouldn’t trigger a FBT liability, as long they are primarily used by your employees for work.
Protective equipment
Many businesses increased their workplace health and safety processes and infrastructure in response to COVID-19.
If your business provided protective equipment to allow your employees to safely continue to work, this benefit may be exempt from FBT. Unfortunately, this does not seem to be available for all employers.
Typically, an FBT exemption would be available if your employees are involved in cleaning premises or required to be in close proximity with customers or clients. For example, the ATO suggests that this should include hairdressers, cleaners and medical practitioners and hospitality workers.
Not lodging FBT returns
The ATO is concerned that some employers are not lodging FBT returns or lodging them late to avoid paying tax.
While we hope the ATO understands that this was a difficult year for many businesses, it’s likely the ATO will still pay close attention to any employer that:
- Is registered for FBT but lodges late. If your business is likely to face delays in lodging the FBT return, it’s usually a good idea to get in touch with the ATO early and ask for an extension request; or
- Is not registered for FBT. If your business employs staff (even closely held staff such as family members), and is not registered for FBT, it’s essential you have reviewed your position and are certain that you do not have an FBT liability. If the business provides cars, car spaces, reimburses private (not business) expenses, provides entertainment (food and drink), employee discounts etc., then you are likely to be providing a fringe benefit.
Housekeeping
It can be difficult to ensure the required records are maintained in relation to fringe benefits – especially as this may depend on employees producing records at a certain time. If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), remember to have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car, or missing records where employees forget.
Feel free to contact us or call 0403158481 if you would like any further advice in this area.