As we approach the end of the Fringe Benefit Tax year for 2023/24, 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 that 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 common benefits that can give rise to FBT, the following are 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 subsidised car parking for your employees in a commercial carpark;
- reimbursing an employee for private expenses or payment directly to a third-party on the employee’s behalf (i.e. school fees, health insurance premiums, phone bills, etc);
- giving your employee a loan with no interest charges; or
- providing accommodation rent free or at a reduced rent
During this time of year, many employers will be considering their FBT reporting obligations and potential strategies to minimise their liability, possibly reducing Fringe Benefit disclosure which is levied at 47% - the top marginal tax rate for an individual.
We have 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 2024 and beyond. We have outlined these below:
Car Fringe Benefits
There have been changes to the FBT legislation for electrical vehicles that are provided to employees in the course of their employment. The amendments to the act have provided an FBT exemption for electric vehicles if they meet the following criteria:
- The vehicle must meet the definition of a car under FBT legislation.
- The car must be battery electric, hydrogen fuel cell or plug-in hybrid
- The car must be first held on or after 1 July 2022
- The original retail sale price must be below the luxury car tax threshold of $89,332
To utilise the operating cost method for calculation of FBT, there will need to be a logbook kept for a continuous 12 week period that accurately represents the travel patterns of the employee.
ATO's FBT Focus for the Year Ahead
In entering the new 2023/24 FBT Year following 31st March, it is worth noting several 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.
Employers providing utes, dual cabs, etc.
There is an exemption for employers that provide Utes and/or dual cabs to employees to meet their obligations within their employment. However, to satisfy this exemption the private use of the vehicle must be limited to work-related travel and other private use is ‘minor, infrequent and irregular’. The ATO expects employers to maintain adequate records to show that the exemption applies.
Employee Business Travel
One area for scrutiny for the ATO this FBT year will be employee business travel that is provided for by the employer. It is important that an employer receives written evidence from the employee to substantiate the claim, however, any purchases under $10 that do not exceed $200 across the year are not required to have written evidence. If the business travel contains a private component, the otherwise deductible rules does not apply to the extent of the private component. If there is a private portion of the required travel and any travel longer then 5 nights will require a travel diary to be kept.
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 employs staff and is not registered for FBT, it is 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 potentially providing a fringe benefit.
For More information
For more information on the above FBT audit targets and how you can further minimise your FBT liabilities, please feel free to contact your Archer Gowland Redshaw adviser on (07) 3002 2699 | info@agredshaw.com.au
