As we approach the end of the Fringe Benefit Tax year for 2021/22, it is important for SME businesses to continue to maintain obligations ahead of the 31 March Year-End date.
Fringe Benefit Tax - or FBT - is a tax employers are obligated to pay on the taxable value of certain non-cash payments given to employees where the benefit is considered to be part of income earned.
Amongst the most commonly found benefits that can give rise to FBT, the following are some examples of liabilities:
- providing a car to an employee that can also be used for private purposes;
- providing your staff with "entertainment", such as meals, drinks, leisure, or sporting pursuits (e.g. tickets to sporting events/theatre tickets;
- providing free or subsidized car parking for your employees in a commercial carpark;
- reimbursing an employee for private expenses or payment directly to a third-party on their behalf (i.e. school fees, health insurance premiums, phone bills, etc);
- giving your employee a loan with no interest charges; or
- providing accomodation rent free or at a reduced rent
During this time many employers will be considering their FBT reporting obligations and potential strategies to minimise their liability, possible reducing Fringe Benefit disclosure which is levied at 47% - the top marginal tax rate.
We've outlined the key FBT changes/developments (which take into consideration the impact of the COVID-19 pandemic) and the spotlighted key audit targets by the Australian Tax Office.
Annual FBT Changes & Key Updates
There have been several significant developments for employers when determining their FBT liability for 2022 and beyond. We've outlined these below:
COVID-19 PCR and Rapid Antigen Tests
Under current rules, if your business regularly provides employees with Rapid Antigen Tests in order to conduct testing to ensure they can attend their regular place of work, a FBT liability may potentially rise.
However, it has been announced by the Federal Government that they will ensure that COVID-19 testing expenses are tax deductible for testing taken by individuals to attend a place of work and that Fringe Benefits Tax will not be incurred by employers if they provide the COVID-19 tests to their employees for the same purposes.
The option will also apply where individuals are working remotely.
Working from Home
The on-going COVID-19 pandemic has meant that some States (such as Queensland) have been subject to various temporary lockdowns throughout the FBT Year, resulting in office and site-closures and requiring many staff to work from home as a precaution.
As such, to assist with supporting employees with the transition to working from home, employers & workplaces have often provided staff with items and equipment (including computer monitors, printers, laptops, and mobile phones) to allow for continuation of work and 'business as usual' arrangements.
Where this has been the case and common work-related items have been provided to the team, it is unlikely that an FBT liability will occur. However, it is important to note that where the equipment has been used by staff outside of its primary work purpose - this can trigger an Fringe Benefit Tax obligation.
In the case where a benefit is valued as less than $300, employers may be able to claim a 'minor benefits exemption' - subject to the benefit being minor, infrequent, and irregular.
Car Fringe Benefits
The ATO has provided guidance on how COVID-19 will impact employer's obligations where driving patterns or usage has changed. In circumstance where a car is not being driven at all and garaged at an employee's home or only driven briefly for the purposes of maintaining the vehicle, it is considered not to be held for the purpose of providing Fringe Benefits to employees. In these situations, provided you elect to use the 'Operating Cost' method in writing and maintain odometer records (for the period the car is garaged at home), there will be nil taxable value for the car and no FBT liability.
Despite changes to driving patters due to COVID-19 and lockdowns, you can still rely on your previous logbook or can choose to keep a new logbook provided that the period is representative of your usage through the year.
ATO's FBT Focus for the Year Ahead
In entering the new 2022/23 FBT Year following 31st March, it is worth noting a number of the key audit areas the ATO will be focusing on for the next 12 months ahead.
These audit targets focus on areas that the Australian Tax Office believe an FBT liability should occur/not reported, commonly found non-reporting areas, reviews of past year returns, and industry comparisons.
We've highlighted these potential areas, ensuring your compliance obligations are kept and a tax audit is potentially avoided:
- Car Parking
This is a common area highlighted by the ATO year-on-year, with emphasis given to where small businesses claim the ‘FBT Car Parking Exemption’ in cases it does not apply.
The small business 'Car Parking Benefits' exemption applies if all the following conditions are satisfied:
- the parking is not provided in a commercial car park
- the employer is not a Government body, a listed public company, or a subsidiary of a listed public company
- in the last Income Year before the relevant FBT Year, either the employer's
- gross total income was less than $10 million
- turnover was less than $10 million or less than $50 million for benefits provided on or after 1 April 2021
- Purchase of Motor Vehicle
It is important to highlight that where you purchase a vehicle to be used for business purposes, this alone does not mean the asset is exempt from FBT liabilities.
In cases where the work-vehicle is used for private purposes, an FBT obligation is likely to apply.
- Mismatched information for Entertainment claimed as a Deduction and what is reported for FBT purposes
One of the most common areas that the ATO highlight on an audit pertains to mismatches involving entertainment expenditure.
It is often seen that employers make mistakes in claiming appropriate deductions for entertainment where these are not recognised as Fringe Benefits provided to employees. Such expenses related to entertainment (ie. meals in a restaurant) are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT.
- Business Assets personally used by employers and staff
Private use of business assets is an area that triggers various tax obligations across the areas of FBT, GST, Division 7A, and Income Tax.
In the case of FBT, it is important to ensure that any FBT from private use is determined and tax paid. Similarly, the obligation may also mean a contribution is made by the employee/associate to the value of the FBT benefit received.
- Not Lodging FBT Returns
It is often seen that employers believe they are not required to lodge an FBT Return, in the instance they determine themselves not to have such liabilities.
If your business employees staff 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.
Where the business provides cars, car spaces, reimburses private (not business expenses), provides entertainment (food & drink), employee discounts, etc. then you are likely to be providing a fringe benefit.
For More Information
For more information on managing your tax commitments at FBT Year-End, minimising future liabilities, and further details on the potential ATO audit targets for 2022 - please contact the adviser team at Archer Gowland Redshaw on (07) 3002 2699 or via 'email@example.com'.