Employer & Employee Solutions. Liability limited by a scheme approved under Professional Standards Legislation

Transcription

1 Employer & Employee Solutions

2 Preparing Your 2012 FBT Return Paul Mather

3 Our aim for today is to help you Manage your FBT Return obligations: Step by step Understand the alternate methodologies Understand documentation requirements Look for reductions Improve compliance Improvement of processes Highlight common mistakes Share experiences It s not what s in the return, it s what s not in the return! Brief update on Salary Packaging

4 Housekeeping Agenda Amenities Mobile phones please turn down / off 2012 FBT Return form Questions & when to park Case Study Solutions Feedback form Lucky door prizes

5 Contacts Name Paul Mather Ron Sergeant Ngoc Nguyen Michelle Arnold Title Founder & Director Tax Manager Senior Tax Consultant Payroll & Salary Packaging Specialist Fernyca (Monic) Meyriza Business & Tax Analyst Phone: Level 12, 95 Pitt Street, Sydney 2000

6 Agenda Welcome and Introduction Planning Year End Procedures Preparation Overview of FBT Cars Car Parking LAFHA, Expatriates and Relocations Entertainment Expense Payments Property Loans & Debt Waivers Housing & Board Airline Transport Residual & Exemptions Review Post Lodgement & Year End Tasks Wrap Up

7 Break times 10.15am 10.30am 12.30pm 1.15pm 3pm 3.15pm 4.30pm 4.45pm Morning Tea Lunch Afternoon Tea Wrap Up Starts Seminar Concludes

8 Questions Rule for today.. : All questions are good questions, but only if you ask them! Happy to receive questions post seminar!

9 Timeline Planning Preparation Post Lodgement & Year End Tasks Year End Review & Lodgement February March April May June July

10 Planning Multiple Information Sources Assemble the team / put people on notice Agree responsibilities & timeframe & document Confirm entities & key contact Confirm external requirements (Fleet managers, Car parking rates, Salary packaging reports, Advisory firm) Software Prior year issues & advice received Plan for contingencies Confirm Public Officer & availability The 80/20 rule Update key registers: LAFHA, Relocation & OCM Logbook

11 Year End Procedures Cars Existing or New Commitments Issue FBT Business Questionnaire Request data for 9, 10 or 11 months Analyse data for 9, 10 or 11 months Major events Sponsorships Expense claim analysis Issue employee declarations Car parking locations & rates Refresh LAFHA food rates for April 2012 Need to understand your employers policy on food allowance This will dictate the amounts to be provided to HR / Payroll

12 Preparation Review FBQ & clarify responses where necessary Analyse data for remaining months Allocate by benefit category Understand valuation choices Taxable value calculations Reductions, concessions, exemptions Supporting documentation

13 Overview of FBT Overview of FBT

14 Content Overview of FBT Types of benefits How to calculate FBT Administrative issues FBT / GST interaction Reportable fringe benefits New developments ATO focus

15 Our approach Is there a benefit? What type of benefit is it? Who is the provider / recipient/s of the benefit? Is it an exempt benefit? Can the taxable value be reduced? Is it a GST-creditable benefit? Is the benefit reportable?

16 Overview of FBT Tax imposed on employers in respect of non-cash fringe benefits and certain allowances provided to employees Introduced on 1 July 1986 Impose tax on the provision of benefits other than salary or wages Overcome the inability of the ATO to enforce the provisions of s26(e) of ITAA 1936

17 When does FBT apply? When a fringe benefit is provided to: employee / associate of employee by employer, associate of employer or 3rd party by arrangement in respect of employment of the employee benefit is not specifically excluded FBT liability is imposed on employer, not the provider of the benefit

18 Defining employer and employee A person will be an employer or an employee if that person is liable to pay, or is, entitled to receive, salary or wages Employer defined Current, future and former Related employer Employee defined Current, future and former Associate of employee: spouse, child, relative Deemed associate

19 Types of fringe benefits Fully taxable Health Insurance Gym Membership HECS / HELP repayments Concessionally taxed Cars Car parking Home Leave Exempt benefits LAFHA Relocation Airline Lounge Membership Salary Packaging involves rearranging an employee s remuneration entitlements to minimise tax and maximise take home pay. Packaging works best with exempt benefits and then concessionally taxed benefits

20 Fringe benefit categories 14 in total Car fringe benefits SFM Car fringe benefits OCM Debt waiver fringe benefits Loan fringe benefits Expense payment fringe benefits Housing fringe benefits Living Away From Home Allowance Airline transport fringe benefits Board fringe benefits Meal entertainment fringe benefits Tax exempt body entertainment Car parking fringe benefits Property fringe benefits Residual fringe benefits

21 Exclusions from FBT Salaries and wages Exempt benefits Employee share acquisition scheme benefits Superannuation benefits ETPs Deemed dividends

22 Employer types Taxable, or Income Tax Exempt Exempt up to $30,000 pa grossed up per employee PBI s & HPC Exempt up to $17,000 pa grossed up per employee Public and non-profit hospitals, and ambulance services Rebateable up to $30,000 pa grossed up per employee Non profits, includes sporting and cultural clubs and organisations 48% rebate applies No threshold for car parking, meal entertainment and entertainment facility leasing

23 How to calculate the FBT liability Taxable value Less: Reductions (e.g. otherwise deductible rule ) Less: Employee contribution After tax contribution GST inclusive contribution amount Grossed up taxable value (GUTV) Taxable value of Type 1 benefits Taxable value of Type 2 benefits FBT Payable = GUTV x 46.5%

24 Administration - Dates FBT year: 1 April to 31 March (366 days) Lodge 2012 FBT return by 21 May 2012 Pay 2012 FBT liability by 21 May 2012 Some extensions available for clients of tax agents 28 May 2012 (payment due date) Lodgement Monday 25 June Cannot amend prior years FBT in current year If amending, consider RFB amendment (usually other way around)

25 Administration - Instalments FBT liability > $3000 Instalments due on IAS/BAS: 1st 21 July / 28 July 2nd 21 October / 28 October 3rd 21 January / 28 February 4th 21 April / 28 April Some extension available for clients of tax agents

26 Administration - Records Record keeping requirements employers are required to keep records that identify and explain all transactions and acts that are relevant to establish their FBT liability Records must show taxable value of fringe benefits provided to each employee method of allocating the taxable value of a fringe benefit provided to two or more employees that 100% of taxable value of reportable benefits has been allocated to employees records must be kept for 5 years

27 Administration - Penalties Penalties Late payment penalties if instalments or final payments are paid late Penalty tax for incorrect FBT returns Amendments by ATO Within 3 years from lodgement date Non-disclosure 6 years Fraud or evasion no time limit ATO will not accept correcting past mistakes in current year FBT return Care when amending reportables / payment summary Public officer declaration I declare that the information in this return is true and correct

28 FBT compliance challenges Reportable fringe benefits regime 1 April 1999 Goods and Services Tax 1 July 2000 Two key concepts for all fringe benefits: GST inclusive taxable values Reportable benefits need an employee name / ID number

29 Type 1 benefits Benefits for which the benefit provider is entitled to claim GST input tax credits Type 1 gross-up rate of applies Taxable value is inclusive of GST

30 Type 2 benefits Benefits that are not GST-creditable benefits Benefits for which the benefit provider is denied entitled to claim GST input tax credits Where no GST has been charged Type 2 gross-up rate of applies Taxable value is inclusive of GST where GST has been charged

31 Fringe benefits Type 1 v Type 2 Type 1 benefits - examples GST charged and entitlement to claim exists Motor vehicle, entertainment, car parking Expense payment, property, residual Type 2 benefits - examples No GST charged or no entitlement to claim Debt waiver, loan LAFHA, housing (residential) Benefits provided overseas GST-free or input taxed

32 GST on employee contributions GST is payable on an after tax employee contribution for fringe benefit s that are GST taxable No GST liability in relation to employee contributions on GST-free or input taxed supplies (Type 2 benefits) The amount of GST payable is one eleventh of the contribution Only applies to cash contribution made to employer, not contribution made to a 3rd party Reduce taxable value by GST inclusive amount Ten elevenths treated as assessable income

33 Reportable benefits What is a reportable fringe benefit? Fringe benefits reported on PAYG payment summaries (group certificates) Why are reportable fringe benefits required? Growth in non-cash benefits Means of capturing total remuneration provided to employees Based upon the entity s FBT return Total taxable value must be > $2,000 for each employee Gross up factor is always regardless of whether underlying benefit is Type 1 or Type 2 Not optional / implications for the employer and employee Increasing no. of FBT amendments / shifting the burden

34 Reportable benefits exclusions All benefits are reportable, unless specifically excluded Excluded benefits Exempt benefits Meal entertainment Entertainment facility leasing Car parking Certain remote area benefits Certain defence force benefits Personal security services Pooled or shared cars DECLARATION FROM EMPLOYEES Importantly: Excluded benefits are still subject to FBT (unless they are exempt benefits)

35 Reportable benefits What are the reportable benefits used for? Liability to the Medicare levy surcharge Child support payments and benefits Recovery of HELP debt (previously known as HECS) Income tests for youth allowance, family tax benefit and child care benefit (non-grossed up taxable value) Personal and spouse s super contribution rebate RFB s can affect individual employees Therefore, need to get them right!

36 FBT Update 2012 Key Changes to LAFHA No impact on 2012 FBT Return

37 ATO focus on LAFHA in April 2011 Significant growth in reported LAFHA s (paid by way of allowance) Understated due to non reporting & not required to be reported on FBT return or in the ATO review questionnaire 50 employers targeted, further investigations underway Letters sent to another 770 employers Salary packaging companies and labour hire firms also targeted Heavily weighted LAFHA, some exceeding 90% of salary and individually involving millions of dollars Further compliance strategies to be developed Potential law changes flagged Understanding FBT

38 LAFHA reviews Written requests 3 Year timeframe Information requested: Employee names TFNs Copies of signed LAFH declarations Address of home location Jobsite Annual gross salary LAFHA components (accommodation and / or food) Understanding FBT

39 LAFHA audits commence mid Do you have a Living Away From Home policy? 2. Who is responsible for the Living Away From Home policy in your organisation? 3. Who in your organisation decides if an employee is eligible for Living Away From Home Allowance? 4. Who in your organisation determines the amount of Living Away From Home Allowance? 5. Who in your organisation determines the accommodation and food components? 6. Who in your organisation calculates the exempt component? Understanding FBT

40 LAFHA audits commence mid What records are maintained to substantiate the Living Away From Home Allowance being paid? 8. What responsibility, if any, does the employee in receipt of the Living Away From Home Allowance have? 9. Do you undertake regular reviews of each employee s Living Away From Home status? Understanding FBT

41 Mini Budget - Proposed LAFHA changes Revenue risk Concerns in the growth rate over last 5 years Rorting, Abuse, Exploitation, Tax Dodging, Community Concerns Reported LAFHA s grown from $200m to $800m Likely to be only a fraction of the actual amounts, as excludes: LAFH benefits by way of reimbursements accommodation leased or owned by employer failure to report Understanding FBT

42 Proposed LAFHA changes Current Status The proposed changes are not law. The final impact cannot be ascertained until the new law / revised law is released. This is likely to be in a month or two. The proposed start date is 1 July 2012 and at this stage little in the way of transitional concessions are expected. Difficult to understand how the law will be amended The door has not closed on LAFHA audits

43 Proposed LAFHA changes What we know 1. We may not have law in place by 1 July From 1 July 2012, very difficult for employers of temporary visitors to access LAFHA concessions 3. For employer to access the concessions (temporary visitor or permanent resident) will be necessary to maintain two homes, usual place of residence & LAFH residence 4. LAFH allowance to be treated like salary & wages 5. Employee can apply to ATO for a variation 6. Likely to be little or no transition

44 Proposed LAFH changes Temporary residents who do not maintain a home in Australia Description Income Tax Treatment FBT Treatment Employer pays a LAFH allowance. Reimbursement by employer of housing and food costs or payment directly to a third party or employer provided. Allowance paid via payroll. Included in employee s assessable income. No deduction for employee for accommodation and food. Not applicable. Not applicable, subject to income tax. Subject to FBT and likely to be a reportable fringe benefit.

45 Proposed LAFH changes Permanent and temporary residents who do maintain a home Description Income Tax Treatment FBT Treatment Employer pays a LAFH allowance. Reimbursement by employer of housing and food costs or payment directly to a third party or employer provided. Allowance paid via payroll. Included in employee s assessable income. Employee can claim a deduction in their personal income tax return for accommodation and food (above the statutory amount this has yet to be determined). Not applicable. Not applicable, subject to income tax. Exempt accommodation and food costs above the statutory amount

46 Impact for the employer Recruitment / retention issues Increased administration On-costs to rise - salary, super, payroll tax, workcover, FBT What proof will be required? Declaration still required? What s in the contract for current LAFH receipients? Employer may be required to continue to pay grossed up amount, bear the tax, etc

47 Impact for the employee Lose LAFHA Decrease in take home pay Variation application a possibility (allowance) Format of variation Proof of LAFH status ATO scrutiny at variation time or upon lodgement of personal income tax return Record keeping LAFH proof? Declaration still required?

48 Proposed LAFHA changes - Employer Here are some key steps to start working on: 1. Highlight the key aspects of the reforms to the people in your organisation who manage LAFH arrangements 2. Inform your offshore related entities 3. Draw up a list of current employees who are recipients of LAFH benefits 4. Start to manage any prospective LAFH arrangements before employment contracts / lease agreements are signed 5. Work on a communication strategy to employee s 6. Consider what impacts the reforms will have on individual employee s. This will depend on the particular agreements each employee has 7. Quantify anticipated additional costs

49 Affect on other LAFHA concessions? Children s education costs Home leave Leasing of household goods Relocation costs

50 The new mindset Living at Home! Previously fixated with the concept of temporary and intention to return home Permanence now may not be a bad thing Perhaps personal scrutiny will now be welcomed De facto relationship Above the table PR application House sale / purchase

51 LAFHA trend to PR / Citizenship High proportion of LAFHA recipient's apply for PR / change intention / purchase a property Reasons for losing LAFHA 1. Change of intention 2. De facto relationship with local 3. Sell house / buy house 4. Permanent role

52 Post LAFHA - 3 Steps to Relocation New situations 3 steps in the timeline Step 1 - Relocation costs Step 2 - Temporary accommodation Step 3 - Sale of former residence / purchase new residence

53 Relocation benefits - exemption Benefit type Temporary relocation Permanent relocation Removal and storage of goods due to relocation Connection or re-connection of certain utilities due to relocation Relocation transport including look-see trips Relocation consultant

54 Temporary Accommodation Concession 4 months No employee declaration required 6 months Employee Declaration required Trying to find suitable long term accommodation 12 months Employee Declaration required Owned home at former location Sold home within 6 months Efforts to buy home in new location

55 Sale and Purchase of Residence Exemption for incidental costs in the Sale and Purchase of an employee s home: STAMP DUTY Legal Costs Expenses of borrowing Telephone, gas and electricity connection costs Advertising Agent s commission Discharge of mortgage costs Sell home within 2 years (6 months re Temp Accom concession) & buy within 4 years

56 FBT Update 2012 ATO Focus

57 ATO Focus Exempt Benefits Areas of focus: 1. In house recreational facilities 2. Taxi travei 3. Bus travel Questions: Are the above salary packaged? Number of employees / value of benefits? Details of estimates used (if any)? 3 week turn around required by ATO Understanding FBT

58 ATO Focus In-House Benefits Areas of focus (Valuation & $1,000 reduction): 1. Goods 2. Services Questions: Details of types of goods or services? Number of employees / value of benefits? Salary packaged amounts? Amount of FBT (if any) paid 3 week turn around required by ATO Understanding FBT

59 ATO Focus Exempt Cars Areas of focus: 1. Utility vehicles 2. Vans 3. Other commercial vehicles Questions: Number of employees / value of benefits? Salary packaged vehicles? 3 week turn around required by ATO Understanding FBT

60 ATO Focus continues on Cars Cars Log books Luxury cars Exempt cars Major concern Eliminate all private use to claim exemption Employee Contribution Method Understanding FBT

61 ATO Resources Employer obligations workforce ATO team 2,000 strong / historical focus on PAYG & SG Now also focus on FBT Renewed brief Key FBT questions Strategic FBT activities being conducted by the specialist FBT risk group at ATO Understanding FBT

62 Questions Questions

63 Cars Cars

64 Content What is a car fringe benefit? How is the fringe benefits tax calculated? Statutory fraction method Operating cost method Use of ECM Gross up rates Case Studies

65 When is a car subject to FBT? The vehicle must be a car for FBT purposes The car must be: held by an employer or associate owned or leased by them provided to an employee or associate at any time on a day in respect of employment The car must be available for private use by the employee / associate What s available for private use?

66 What is a car? A motor vehicle (i.e. a motor powered road vehicle including a 4 wheel drive) designed to carry: < 1 tonne; and < 9 passengers Includes hire cars where the hire period > 12 continuous weeks Motor cycles and vehicles that carry > 1 tonne or > 8 passengers are NOT car fringe benefits But may fall under the residual benefit provisions

67 Are there any exemptions? A panel van or utility truck designed to carry a load of < 1 tonne, or Any other road vehicle designed to carry a load of < 1 tonne and not principally designed to carry passengers is an exempt car IF: private use is limited to home to work travel, and other private travel is minor, infrequent or irregular. Once private travel is more than minor, infrequent or irregular, the car is subject to FBT in the usual way ATO take a very narrow view on the definition of minor, infrequent or irregular, consider a logbook

68 When is a car available for private use? When the car is: applied to private use by an employee / associate, or deemed to be available for the private use of an employee / associate. That is, the car is: garaged at or near the employee s place of residence; or not on the employer s business premises, and the employee / associate has the use, custody and control of the car

69 Valuation of benefits Cars Statutory formula method; or Operating cost method (election) Non cars (cents per km or log book) cc 46 cents Over 2500 cc 55 cents Motorcycle 14 cents

70 Statutory Formula Method Statutory formula method

71 Statutory formula (ABC D) - E A = Base value of the car B = Statutory fraction C = Number of days a benefit is provided D = 366 E = Recipient s contribution Ignore operating expenses - exempt

72 Statutory formula base value Inclusions Purchase cost, GST, dealer delivery, fleet discounts Non business accessories (e.g., alarm, stereo) - must be paid for by the employer Employee trade-ins or contributions direct to the dealer ATO ruling Exclusions Stamp duty Registration One third reduction Held for more than four FBT years at beginning of FBT year, therefore, before 1 April 2007 for 2012 FBT year The cost of non business accessories added later cannot be reduced

73 Statutory formula annualised kilometres Business versus private travel - not relevant Gross-up for actual days held in year Where: A x B C A = actual kms travelled; B = days in year; and C = actual days car held in FBT year. Do NOT gross up for days which the car was not available for private use

74 FBT Update 2012 Key Changes to Cars Think of this year and next

75 Statutory Fractions Thresholds Existing New rates after 10 May 2011 FBT Year ,000 kms 26% 20% 20% 20% 20% 15,000 25,000 kms 20% 20% 20% 20% 20% 25,000 40,000 kms 11% 14% 17% 20% 20% More than 40,000 kms 7% 10% 13% 17% 20% Understanding FBT

76 Budget 2011 changes to SFM rules Most important change to car FBT rules since introduction in 1986 Climate change influence Increase in salary packaging & ECM and logbooks Key questions to consider Impact Costs Opportunities Unresolved issues Understanding FBT

77 Cars SFM - The Changes Single 20% flat rate Applies to all new car fringe benefits after Budget night 10 May 2011, unless there is a pre-existing commitment Not applicable to arrangements existing prior to Budget night 10 May 2011 unless there is a new commitment post Budget (and even then, new rates only apply from 1 April 2012) Phased introduction until 1 April 2014 for FBT 2015 Employer has the option to skip transition & elect in from 11 May. Employee consent required if at a financial disadvantage No more annualising of km s Understanding FBT

78 Cars SFM - The Commitments Pre-existing commitment prior to 10 May 2011 Financially binding Example: Delay in delivery Then old rates apply for 2012 (can t assume new rates apply) New commitment after 10 May 2011 (or new car after 10 May 2011) Examples - Altering duration of a contract / Re-financing Then old rates apply for 2012 and new rates apply from 1 April 2012 (for FBT 2013) New employment after 10 May 2011 (even group transfer) New rates apply from employment start date Understanding FBT

79 Everybody makes savings? Gillard Government savings of $970 million over 5 years Employers / employees Most employee s drive less than 25,000km Those under 15,000km reduced FBT, increased after tax savings 15,000 25,000km no change in FBT rate Over 25,000 km additional FBT, decreased after tax savings when salary packaging. Many will move to logbooks Understanding FBT

80 Case Study Example: SFM Car first provided on 1 July 2009 Car Lease agreement signed on 1 July 2009 Car travelled 12,000 kilometres in 2012 FBT year What statutory fraction applies for 2012 FBT? 26% What if car travelled 42,000 kilometres, what statutory fraction applies for 2012 FBT? 7%

81 Case Study 1: SFM Car first provided on 1 July 2011 Car Lease agreement signed on 1 May 2011 Travelled 12,000 kilometres What statutory fraction applies for 2012 FBT? 1. 20% 2. 26% 3. 7% 4. 11%

82 Case Study 1: SFM Solution Car first provided on 1 July 2011 Car Lease agreement signed on 1 May 2011 Travelled 12,000 kilometres What statutory fraction applies for 2012 FBT? 1. 20% 2. 26% 3. 7% 4. 11%

83 Case Study 2: SFM Car Lease started on 1 March 2010 Car Lease agreement extended on 1 May 2011 Travelled 41,000 kilometres What statutory fraction applies for 2012 FBT? 1. 20% 2. 26% 3. 7% 4. 11%

84 Case Study 2: SFM Solution Car Lease started on 1 March 2010 Car Lease agreement extended on 1 May 2011 Travelled 41,000 kilometres What statutory fraction applies for 2012 FBT? 1. 20% 2. 26% 3. 7% 4. 11%

85 Case Study 3: SFM Car Lease started on 1 March 2010 Car Lease agreement extended on 1 June 2011 Travelled 41,000 kilometres What statutory fraction applies for 2012 FBT? 1. 20% 2. 26% 3. 7% 4. 11%

86 Case Study 3: SFM Solution Car Lease started on 1 March 2010 Car Lease agreement extended on 1 June 2011 Travelled 41,000 kilometres What statutory fraction applies for 2012 FBT? 1. 20% 2. 26% 3. 7% 4. 11%

87 Case Study 4: SFM Car Lease started on 1 March 2010 Car Lease agreement extended on 1 June 2011 Travelled 41,000 kilometres in 2013 FBT year What statutory fraction applies for 2013 FBT? 1. 20% 2. 17% 3. 13% 4. 7%

88 Case Study 4: SFM Solution Car Lease started on 1 March 2010 Car Lease agreement extended on 1 June 2011 Travelled 41,000 kilometres in 2013 FBT year What statutory fraction applies for 2013 FBT? 1. 20% 2. 17% 3. 13% 4. 7% Rate for 2012 will remain at 7%

89 Statutory formula days benefit provided Includes (actual and deemed): garaged at or near employee s home garaged at business premises and used for private purposes garaged elsewhere and no prohibition on private use associate business or private use Excludes: garaged at commercial storage facility and employee does not have custody and control and there is a prohibition on private use services / repairs car impounded at business premises and not used for private purposes Must be full 24 hour day

90 Statutory formula employee contribution Employee pays for car expenses including: fuel and oil - reasonable estimate, invoices, declaration rego, insurance, r & m, car wash, non fuel card - document showing: name of supplier amount of expense nature of goods/services acquired date expenses were incurred date of invoice GST inclusive value of above expenses should be included After tax cash contribution subject to GST & Income Tax

91 Statutory formula common questions Is the base value of a car limited to the luxury car limit? What is the base value of a car where a novated lease is transferred between two unrelated employers? What is the base value of a car where a novated lease is transferred between two related employers? Should the number of kilometres be annualised where the car is held for the full FBT year, but was not available for private use for 6 weeks during the year? Does FBT apply if the car lease is in the name of the employee?

92 Operating Cost Method Operating cost method

93 Operating cost method (C x (100% - BP)) - R Where C = operating costs of the car BP = the business percentage for the car R = recipient s contribution

94 Operating costs Actual expenses (employer or employee) Lease payments (only if leased, includes luxury car lease) Registration Insurance Repairs, auto club, car washes Fuel and oil Deemed car must be owned Depreciation Interest

95 Operating costs Operating costs (leased or owned) exclude: Bridge and road tolls Car parking Repairs paid by insurance company Personal purchases

96 Operating cost business use percentage Log book must be maintained to use this method Log book requirements: date journey began and finished odometer readings at start and finish kilometres travelled (do not annualise) purpose of the journey (1 entry per day) estimate business use based on log book (consider variations) log book once every 5 years log book may overlap 2 FBT years

97 Logbook: Business v Private Examples of a business journey for Logbook purposes: Travel from the employee s home to client s premises Travel from the client s premises to employee s home Travel from client s premises to client s premise Travel from client s premises to employer s premise Travel from employer s premise to client s premises Travel to undertake work shopping (eg Bunnings) Not considered to be a business journey for Logbook purposes: Travel from employee s home to employer s premises Travel from employer s premises to employee s home

98 Operating cost deemed depreciation ABC D Where A = depreciable cost of the car B = 25% (if acquired after 9 May 2006) 18.75% (if acquired after 1 July 2002) 22.5% (if acquired before 1 July 2002) C = number of days car was held D = 366 Tax depreciation limit ($57,466) is not relevant

99 Operating cost deemed interest ABC D Where A = depreciated value of the car B = statutory interest rate for relevant year 7.8% for 2012 FBT year C = number of days the car was owned D = 366

100 Common errors Classification of travel business vs private Excessive private use of exempt vehicles Calculation of base value GST exclusive, luxury limit Incorrectly annualising kilometers Invalid or no log books Two cars in one calculation Incorrect calculation of shared cars Reportable exclusion, not FBT exclusion

101 Case Study: Statutory Formula Method Car costing $30,000 Travelled 20,000 kilometres Days in the 2012 FBT year = 366 Days unavailable = 25 Recipient payments = $1,200 Please calculate: 1. Taxable value 2. FBT liability 3. Reportable Fringe Benefit amount (RFB)

102 Solution: Statutory Formula Method Car costing $30,000 Travelled 20,000 kilometres Days in the 2012 FBT year = 366 Days unavailable = 25 Recipient payments = $1,200 Taxable Value = ( $30000 x 20% x 341 days ) / 366 days $1,200 = $4,390 FBT Liability = $4,390 x x 46.5% = $4,215 RFB = $4,390 x = $8,206

103 Case Study: Operating Cost Method Car costing $30,000 Running costs $3,500 Lease payments $12,000 Days in the 2012 FBT year = 366 Log book = 89% business use Recipient payments = 0 Please calculate: 1. Total Operating Costs 2. Taxable value 3. FBT liability 4. Reportable Fringe Benefit amount (RFB)

104 Solution: Operating Cost Method Car costing $30,000 Running costs $3,500 Lease payments $12,000 Days in the 2012 FBT year = 366 Log book = 89% business use Recipient payments = 0 Please calculate: Total Operating Costs = $3,500 + $12,000 = $15,500 Taxable Value = $15,500 x (1-89%) = $1,705 FBT Liability = $1,705 x x 46.5% = $1,637 RFB = $1,705 x = $3,187

105 Questions Questions

106 Car Parking Car Parking

107 Content What is a car parking fringe benefit? What is a taxable car parking benefit? What is a commercial parking station? Exceptions/Exemptions Calculating the taxable value Calculating the number of benefits Calculating the value of each benefit Case study

108 What is a car parking fringe benefit? Car parking facilities provided by employers to employees Reimbursements of car parking costs paid by employees treated as expense payment fringe benefits and not car parking benefits and ARE REPORTABLE IF SUBJECT TO FBT Car parking fringe benefits are NOT REPORTABLE

109 Taxable car parking benefit Conditions Car is parked at premises that are owned, leased or otherwise under the control of the provider (usually the employer) Commercial Parking Station that charges more than the annual threshold ($7.71 for 2012) for all day parking is located within 1 km of the parking facility on the first day of the FBT Year (All day parking refers to a continuous period of at least 6 hours between the hours of 7am and 7pm)

110 Taxable car parking benefit Conditions Car is parked for a total aggregate period of more than 4 hours between 7am and 7pm on any day Car benefit, car owned or leased by employee, car made available by another person (not associated with the employer) such as friend or family member In respect of employment of employee Employee has a primary place of employment

111 Taxable car parking benefit Conditions Car parked in the vicinity of primary place of employment The car travels between the employee s home and primary place of employment on that day (Only a 1 way trip is required to satisfy this test)

112 What is a commercial parking station? A commercial parking station is a permanent facility where: any or all of the car parking spaces are available in the ordinary course of business to members of the public for all day parking on that day on payment of a fee

113 What is not a commercial parking station? A commercial parking station is not one that includes: a station that charges penalty rates for short term shoppers hotel guests a car park for special functions (e.g. set up specifically for an event and charges an excessive rate) kerb-side parking meters (even though may be able to purchase a four-hour voucher)

114 The 1km radius Measuring 1km radius: shortest practicable direct route by foot, car, boat etc 1 km measured from car entry point of the business premises/parking facility to the car entry point of the commercial parking station

115 Car Parking is FBT payable? ($7.71 CPT) $13 $25 $15 Parking fee per day $6 $2 Understanding FBT

116 Car Parking is FBT payable? ($7.71 CPT) $13 $5 $7 Parking fee per day $6 $12 Understanding FBT

117 Exceptions/Exemptions Motor vehicle is not a car Parking provided for a motor cycle is exempt Parking provided to exempt cars are subject to FBT Non-profit scientific, religious, charitable or a public educational institution Car parking space dedicated for use by disabled persons (person holds official disabled parking permit) Small business exemption - income < $10m & car parking not at a commercial parking station

118 Taxable value Taxable value = (Number of car parking benefits multiplied by value of benefits) less recipient contribution

119 Calculation flowchart Is there a car parking fringe benefit? YES Calculate the number of benefits: Has an election been made? NO YES ACTUAL STATUTORY FORMULA OR 12 WEEK REGISTER Calculate the value of each benefit: Has an election been made? NO YES COMMERCIAL PARKING STATION METHOD AVERAGE COST OR MARKET VALUE

120 Determining the number of benefits Due to otherwise onerous record keeping requirements, the FBTAA allows an employer to calculate the number of benefits provided using: an actual record of benefits provided (the actual method) a statutory formula method a 12-week register (similar to car log book) Employer must elect to use either of the two concessional calculation methods

121 No. of benefits statutory formula method Minimal record keeping required Benefits are deemed to arise on 228 days (or pro-rate for part year) in the FBT year number of spaces x 228 days always use 366 days as numerator for full year Example calculations Full Daily 366 Number of x 228 x x Year Rate 366 Spaces Part* Daily 91 Number of x 228 x x Year Rate 366 Spaces (* e.g. 1 Jan start)

122 No. of benefits actual method The employer must maintain suitable comprehensive records to accurately determine when a car parking fringe benefit arose, for example, must be able to show which car was parked in which space and for how long. Onerous record keeping requirements May be beneficial where few car parking benefits are provided to employees during the FBT year

123 No. of benefits 12-week register method Like the actual method but for 12 continuous weeks then valid for that year and next four years unless 10% increase in benefits This method is rarely used, but often should be Travel / leave Less than 4 hours 24 hour parking Sick Work from home

124 Determining the value of benefits Due to otherwise onerous record keeping requirements, the FBTAA allows an employer to calculate the value of benefits provided using: a commercial parking station (CPS) comparison method; or an average cost method (ACM); or a market value method Employer must elect to use either of the two concessional calculation methods CPS or ACM

125 Value of benefits commercial parking station method The value of each employer-provided benefit/space is determined by looking at: the lowest (GST incl) fee charged for all day parking to members of the public at a commercial parking station located within a 1km radius of where the employer-provided parking is located for all-day parking (i.e. minimum of 6 daylight hours) Corporate rate not acceptable must be a rate available to the general public

126 Commercial parking station method calculating the lowest fee The lowest (GST incl) fee charged to members of the general public for all-day parking can be a daily rate equivalent An employer can convert a weekly, monthly or yearly fee into a daily rate equivalent by reference to the number of business days within the period total fee business days in period (excluding weekends and public holidays not 228 days) An early bird rate can be used provided it is available to the public

127 Value of benefits average cost method The value of each space is the average of the lowest (GST inclusive) fee (by reference to a commercial parking station) on the first and last days of the period (i.e. 1 April 2011 and 31 March 2012 if facility available for entire 2012 FBT year) The fees used must be representative of the whole year (anti avoidance provision)

128 Value of benefits market value method Value of each employer-provided space is determined annually by suitably qualified valuer The valuation before declaration date (i.e. date of FBT return lodgement) Beneficial if the employer provided parking is of substandard quality (e.g. gravel car park versus under cover parking in commercial parking station) Often used where parking is at or near airport

129 Impact of GST Employee contributions are the GST inclusive amounts TYPE 1: Where the employer-provided facility is leased and the lease is subject to GST employer entitled to ITC full or partial entitlement Type 1 benefit gross-up rate = TYPE 2: Where the employer-provided facility is owned or leased and is not subject to GST employer not entitled to ITC Type 2 benefit Gross-up rate =

130 Common errors FBT levied against the actual cost or amount paid by the employer for their parking space Taxable value is not the amount paid for each space under a lease or terms of a building lease Calculations and terminology can be complex resulting in incorrect FBT calculations Measuring of 1 km where multiple employer provided parking sites Lease in employee name will constitute an expense payment fringe benefit Car parking is not a reportable fringe benefit Not undertaking a survey

131 Questions Questions

132 Case Study: Car Parking SFM Lowest daily rate at 1 April 2011 $4.50 Lowest daily rate at 31 March 2012 $5.50 Car parking provided for whole year 15 spaces Please calculate: 1. Taxable value 2. FBT liability 3. Reportable Fringe Benefit amount (RFB)

133 Solution: Car Parking SFM Lowest daily rate at 1 April 2011 $4.50 Lowest daily rate at 31 March 2012 $5.50 Car parking provided for whole year 15 spaces 1. Taxable value = $5.00 x 228 days x 366 / 366 days x 15 spaces = $17, FBT liability = $17,100 x x 46.5% = $16, Reportable Fringe Benefit amount (RFB) = Nil

134 LAFHAs, expatriates & relocations LAFHAs, expatriates & relocations

135 Content LAFHAs What are the benefits of Living Away From Home? Who is eligible? Living Away From Home definition Documentation Expatriates Common benefits Gross up factor Frequent errors Relocation benefits

136 LAFHAs LAFHAs Subject to Reform from 1 July 2012

137 What is a LAFHA? LAFHA = Living Away from Home Allowance LAFH = Living Away From Home, a person who is living away from home may be entitled to receive a LAFHA A LAFHA is the only true allowance subject to FBT LAFHA = an allowance paid by employer for additional non-deductible costs, or additional costs plus disadvantages suffered because employee must live away from home for work

138 What are the benefits of LAFH? If an individual is regarded as living away from home (LAFH), special FBT exemptions and concessions apply Significant tax savings for both the employer and the employee Mainly relevant for expats and domestically Exemption for food and accommodation components.

139 Who is eligible? Individuals must be Living Away From Home (LAFH) There are a number of factors which need to be reviewed before a determination can be made as to whether an individual is LAFH ATO rule of thumb is that an employee is considered LAFH if greater than 21 days, otherwise just business travel MT 2030 is primary ATO authority for LAFH status

140 Living Away From Home Employee is required to live away from their usual place of residence in order to perform employment duties Temporary vs. permanent relocation, specific project or task, specified period of time Generally not an open-ended time frame Critical factor - Employee has an intention to return to their former place of residence Best if employee can demonstrate (ongoing) ties to the former location i.e. property, family etc

141 Living Away From Home Rule of thumb timelines: international assignments up to four years domestic assignments up to two years Each person must be assessed on a case by case basis Assessment up front and ongoing Level of comfort

142 Documentation requirements LAFHA Fringe Benefits Tax Return disclosure, even if fully exempt (unlike other exempt benefits) LAFH Declarations to be completed and signed by employees, and retained by the employer Employment contract should include employment period, repatriation clause and LAFHA components Temporary nature of job / assignment Annual (or as required) review of employees eligibility as LAFH e.g. current work visa

143 LAFHA - accommodation Option 1 Exempt housing allowance An allowance which compensates the employee for additional expenses that might reasonably be expected to be incurred in relation to a lease or licence for accommodation The employer provides the employee with a cash sum for accommodation costs Exempt from FBT if reasonable and signed declaration received prior to lodgment of FBT return

144 LAFHA - accommodation Option 2 - Expense reimbursement The company reimburses the employee for rent paid or pays the landlord directly The exempt accommodation expense is a payment to cover accommodation costs incurred as a direct result of the employee being required to LAFH The employee must give the employer a signed declaration in an approved format No need to determine what is reasonable

145 LAFHA - accommodation Option 3 - Provided directly by employer The accommodation provided to the employee is either owned/leased / rented in the name of the employer The employee must give the employer a signed declaration in an approved format Is a residual benefit

146 LAFHA - food This is the component of the LAFHA intended to compensate an employee and/or eligible family members for the increased cost of food/meals above the statutory food amounts Statutory food amounts are: $42 per week for adults $21 per week for children under 12 year at 1 April 2011 TD 2011/4 outlines reasonable food component for expatriates working in Australia If only the additional food is paid entire amount is exempt

147 LAFHA food for FBT year ended 31 March 2012 SEE FBT RATES & THRESHOLDS HANDOUT

148 Expatriates Expatriates

149 Expatriates other common benefits Children s education costs Home leave Payment of tax assessments Health insurance

150 Expatriates - Children s education costs Expense payment fringe benefit where the recipients expenditure is in respect of full time education of a child (under the age of 25) of the employee Full time education is defined as: an educational institution by a tutor all or part of the fulltime education must be undertaken by the child when the employee is overseas employee Definition of in respect of is quite broad

151 Expatriates - Children s education costs Not necessary for the education facility to be located in Australia or employee s home country Overseas employee = employee from overseas who is LAFH Additional condition customary in industry, or industrial agreement Note - cash allowance subject to PAYG W/H

152 Expatriates - Home Leave The employer can pay for holiday transport costs for an overseas employee and his or her family, and reduce the taxable value of one trip per year per person by 50% if the travel is to the employee s home country Where the travel is not to the employee s home country, the taxable value of one trip per year is reduced by the lesser of 50% of the cost of the travel and 50% of the cost of economy travel to the home country Not available to domestic employees

153 Expatriates - GST & gross-up factors A LAFH fringe benefit is generally a Type 2 benefit therefore gross-up at Other benefits may fall under a number of categories e.g. expense payment, property or residual fringe benefits need to look at the GST treatment of these benefits and then apply relevant gross-up factor

154 Expatriates - challenges Can be difficult to determine employee s status Need a great deal of personal information LAFHA calculations can be over complicated, particularly the exempt food component calculation Must have LAFH declaration before lodging FBT return Omitting offshore benefits / tax payments Incorrect treatment of home leave

155 Case Study: LAFHA Jimmy relocates temporarily from Scotland for two years on 1 July 2011 to undertake work with Haggis Australia Pty Limited, a subsidiary of Haggis plc based in Scotland Jimmy is provided with an accommodation allowance of $1,000 per week and an allowance for additional food costs of $350 per week Jimmy s spouse and two children (4 & 6) accompany Jimmy Jimmy completes a LAFH declaration Reasonable food allowance is $419 per week Assume 39 weeks for the calculation Please calculate the FBT liability, if any?

156 Solution: LAFHA Accommodation allowance of $1,000 per week - EXEMPT Additional food costs of $350 per week 39 weeks Two adults and two children Reasonable food allowance is $419 per week Deduct statutory food amounts of $126 per week ($42 x 2 and $21 x 2) Exempt food component = $419 - $126 = $293 per week Therefore, taxable amount = $350 - $293 = $57 per week FBT = $57 x 39 weeks x x 46.5% = $1,932.18

157 Relocation Benefits Relocation Benefits

158 Relocation benefits - exemption Benefit type Temporary relocation Permanent relocation Removal and storage of goods due to relocation Sale or acquisition of a dwelling due to relocation Connection or re-connection of certain utilities due to relocation Relocation transport Temporary accommodation as a result of relocation Leasing of household goods Relocation consultant

159 Relocation benefits Removal and storage of household goods will be exempt where removal/storage takes place within 12 months after the employee commences employment duties Sale and / or acquisition of principal residence must be a principal residence sale of original residence must occur within two years purchase of new residence must occur within four years must sell to get purchase exemption Exemption applies to legals, advertising, fees & stamp duty

160 Relocation benefits Connection of certain utilities the connection or re-connection of telephone, gas and electricity can be made FBT free utility costs are subject to FBT Relocation transport costs including accommodation and meals en route

161 Relocation benefits Temporary accommodation The taxable value of temporary accommodation for an employee required to change his or her usual place of residence may be reduced The maximum period is 21 days before the employee s start date at their new place of employment and 12 months after that date Note - Certain conditions need to be satisfied in order to qualify for this concessionally taxed relocation benefit Can t be cash allowance, otherwise PAYG W/H applies For temporary relocations, temporary accommodation falls under LAFH exemptions

162 Leasing household goods The leasing of household goods provided in respect of an employee who is living away from home will be exempt where: the employer pays the lease costs of household goods, or purchases the goods and allows the employee and his or her family to use them primarily for domestic purposes the ownership of the furniture does NOT subsequently pass to the employee the employee gives the employer a signed declaration in an approved format accommodation is provided under option 2 or 3 of LAFHA Note - a cash allowance will NOT be considered exempt from FBT under this category

163 Relocation benefits Relocation Consultant Applies from 1 April 2006 Relocation consultant someone who assists employee/family to move and settle into new location Accommodation, schools, travel etc.

164 Relocation common errors Some common relocation errors Temporary accommodation v rental leases Purchasing furniture from relocation allowance or in lieu of leasing (it s cheaper / can keep furniture afterwards) Defining home leave arrangements Multiple home leave trips Contract is unclear on temporary v permanent

165 Questions Questions

166 Entertainment Entertainment

167 Content Meal entertainment Taxation Ruling 97/17 Valuation Entertainment facility leasing Recreational entertainment Seminars / conferences GST interaction Classification / reportable Questions

168 Entertainment Benefit Type Meal Entertainment Entertainment Facility Leasing Other Recreational Entertainment Tax Exempt Body Entertainment Actual Method 50/50 Split Method Actual Method 12 week register or 50/50, then classify as Meal Entertainment 50/50 Split Method Actual Method 12 Week Register Method

169 Meal Entertainment Meal Entertainment

170 What is meal entertainment? Provision of: entertainment by way of food or drink accommodation or travel in connection with, or for the purpose of facilitating, entertainment by way of food or drink or payment or reimbursement of expenses incurred on above Irrelevant if involved business discussions, work related or in connection with performance of duties Note: specifically excludes facility leasing and recreational Non reportable

171 Taxation Ruling 97/17 Entertainment by way of food or drink Why is it provided? What is provided? When is it provided? Where is it provided? 1 and 2 strongest factors

172 TR 97/17 - Why is it provided? The purpose test Refreshment and sustenance Light meal at meeting Overtime meal Social situation and enjoyment Celebration Reward

173 TR 97/17 - What is provided? The taste test Is there a benefit? Morning and afternoon teas Light meals Fruit bowls & snacks More elaborate meals Three course meals

174 TR 97/17 - When is it provided? The time test During work time Overtime Travelling Outside normal work time Expected outcome important

175 TR 97/17 - Where is it provided? The location test Employer s premises Sustenance Off site Hotel, coffee shop, restaurant Consumed with other entertainment Team lunch / light meal

176 Meal entertainment - valuation Options to calculate taxable value of meal entertainment: Actual records basis; 50/50 method; or 12-week register method Can change valuation from one FBT year to the next Must have consistency with GST and income tax For tax exempt entities report as tax-exempt body entertainment fringe benefits. Section 38 will override all other benefit categories in the FBTAA unless electing 50/50 or 12 week for meals.

177 Meal entertainment - actual method Actual apportionment between employees / associates and non-employees (i.e. on a per head basis) Don t need to dissect expenditure for each benefit (not important who ate or drank what) Best practice / Good records required Creates a valuation choice at end of FBT year May be beneficial where few benefits are provided to employees during the FBT year Tax Exempt employers - additional conditions apply when claiming in house property or minor benefits exemptions

178 Meal entertainment - actual method When to use actual method? All costs and data available How confident are you? Hidden costs? Project codes Non FBT sensitive accounts Can t use a hybrid claim exemptions and 50/50 the rest! Employee meals < 50% Significant employee food and drink on premises Take advantage of exemptions

179 Tax Exempt Body Entertainment Restrictions on claiming in house property & minor benefit exemptions as follows: 1. Incidental to the provision of entertainment to outsiders, and neither consists of, nor is provided in connection with, the provision of a meal (other than a meal consisting of light refreshments) to the employee; or 2. On premises of the employer, and solely as a means of recognising the special achievements of the employee in a matter relating to the employment of the employee. If these facts are present, then the minor benefit exemption would apply Don t fill out the label unless you are a tax exempt employer

180 Meal entertainment - actual method Minor Benefit Exemption Can only claim under actual method or 12 week register method Less than $300 including GST Ruling extends to spouse / family Ruling allows for benefit separation Christmas Party / one-off events Sales & marketing personnel / Executives Be careful with similar benefits Consider deductibility and entitlement to GST claim

181 Meal entertainment - actual method In-house Property Exemption Can only claim under actual method Ignore sustenance Exemption applies to: Food or drink consumed on business premises; By current employees only; and On a working day Examples - Friday night drinks, Christmas parties, functions FBT applies to associates Consider deductibility and entitlement to GST claim

182 Meal entertainment - 50/50 split 50% of all meal entertainment is subject to FBT Entertainment provided to employees / associates Entertainment provided to non-employees No additional exemptions or concessions are available under this method e.g. no minor benefit exemption, no inhouse meals property exemption Only non-meal entertainment is excluded e.g. sustenance This method is a significant reduction in compliance, but may result in more FBT being paid and can lead to lack of accounting control

183 Meal entertainment - 50/50 split Taxable Value Employer must elect to use method Determine total amount of meal entertainment for Employees and associates Non-employees i.e. clients, customers 50% of expense is subject to FBT Entitled to 50% of input tax credit 50% deductible for income tax

184 Meal entertainment - 12 week register Required to keep comprehensive records for 12 weeks must be representative of the full FBT year The register percentage is then applied to all meal entertainment for the FBT year During the 12-week register period, only entertainment provided to employee / associates is subject to FBT Register is valid for current year and next four (4) A new register is required after the fifth (5) year or in year following a 20% increase in expenditure

185 Meal entertainment - common errors Including sustenance Deposits / advance payments Including all entertainment Not identifying all meal entertainment under 50/50 Overseas meal entertainment Incorrectly claiming exemptions Failure to reconcile GST Not completing election notice Lack of upfront planning

186 Entertainment Facility Leasing Entertainment Facility Leasing

187 What is entertainment facility leasing? Hiring or leasing Corporate box Boats or planes Golf day Other premises or facilities Must have exclusive use For the provision of entertainment

188 Entertainment facility leasing - valuation Exclude costs relating to: meal entertainment; or Giveaways advertising (5% TD92/162) more than 5%, must justify Can use 50/50 split method Election required If using 50/50 must exclude meal entertainment and advertising Treat as residual on FBT return Non reportable

189 Entertainment facility leasing - common errors Including meals and other benefits Failure to consider alternate valuation Misclassification Failure to reconcile GST Not considering advertising portion Not completing election notice

190 Recreational Entertainment Recreational Entertainment

191 What is recreational entertainment? Theatre tickets DJ Football / cricket matches Sponsorship tickets Band Sightseeing tours Bridge Climb Golf

192 Recreational entertainment - valuation Steps to calculating taxable value: What was provided To whom was it provided Value Reportable

193 Recreational entertainment common errors Failure to identify Use of 50/50 Lack of records to identify benefit recipients Liberal use of minor benefit exemption Misclassification Failure to reconcile GST

194 Seminars / Conferences Seminars / Conferences

195 Seminars / Conferences What is reasonably incidental? The Commissioner of taxation has stated in Taxation Determination TD 93/195 that food and drink would be reasonably incidental to a seminar if it: is provided for sustenance because of the duration, time of day, or location of the seminar is provided immediately before, during or following working sessions of the seminar is available to all seminar participants Gala Dinners employee food & drink deductible & no FBT if incidental to attending an eligible seminar or conference see para 119 of TR97/17

196 Seminars / Conferences - recreation Seminar / conference: why, what, who, where? Review agendas Review detailed costings Internal marketing material Review for recreation components Meal entertainment for FBT purposes excludes recreation

197 Seminars / Conferences - common errors It was a business conference / promotion It was all work related Lack of upfront planning Assessing the implications well after the event Lack of information Failure to reconcile GST Not capturing reportable components

198 Other entertainment sources Team building events Social Club Sponsorships Corporate events / Corporate challenge / Amazing race / City to Surf etc. Corporate Marquee Wellbeing

199 Reconciliation and Reporting Reconciliation and Reporting

200 Classification on FBT return Meal entertainment 50/50 entertainment Actual expense, property or residual Recreational entertainment Expense, property or residual Entertainment facility leasing expenses Actual or 50/50 always classify as residual Tax exempt body entertainment Valuing meals under 50/50 or 12 week classify as meal entertainment

201 Reportable fringe benefits Reportable Recreational Not reportable Meal Entertainment Entertainment facility leasing expenses Events, conferences and promotions likely to have a combination of benefits

202 Questions Questions

203 Expense Payment Fringe Benefits Expense Payment Fringe Benefits

204 Expense Payment Fringe Benefits Benefit arises where: Employer either: (a) reimburses employee; or (b) releases an employee from an obligation to pay a third party for expense incurred by employee Taxable value = amount reimbursed / paid

205 Expense Payment Fringe Benefits Important to distinguish between an allowance and a reimbursement An allowance is generally treated as salary and wages and subject to PAYG rules A reimbursement is generally to reimburse for specific items of expenditure, vouched with invoices and receipts. Reimbursements are subject to the FBT rules If an employee is granted an allowance amount (or advance) to cover future costs, then as long as the employee submits a claim at a future date, then the PAYG rules will not apply

206 Otherwise Deductible Rule (ODR) An otherwise deductible expense, is where the employee would have been entitled to claim a deduction in their personal income tax return had not they been paid or reimbursed by the employer Example: Ralph, an Architect, has his membership of the Institute of Architects paid by his employer, Big Plans Architects (BPA). If the membership had not been paid by BPA, Ralph could have claimed a deduction in his personal income tax return Hence the term otherwise deductible has been coined. Such expenses not subject to FBT

207 Expense Payments, some examples Health insurance Gym memberships HECS Petrol - attached to car fringe benefit, exempt Petrol reimbursement only declaration required and partial FBT will apply Cash benefit awards, subject to PAYG withholding rules and taxable in the hands of the employee. FBT should not apply

208 Expense Payments, examples Loan repayments Interest only reimbursements Tolls / e-tags Home Phone / Internet Credit card payments Claiming or paying the amount due / balance whole amount is subject to FBT Claiming specific expenses FBT rules to be considered, reductions or exemptions may apply

209 Documentary evidence Substantiation requirements fall into three categories Documentary evidence such as receipts, invoices Travel diary (NEW ATO POSITION) Generally required where trip is greater than 5 nights Employee declarations Broadly required in all cases except: o incurred exclusively in the course of job; or o travel diary kept; or o recurring identical fringe benefit (usually 5 years / 10% rule)

210 Travel Diaries ATO Position Employer guide on ATO website amended The travel expense policy is subject to a consistently enforced prohibition on private use The requirement to obtain a travel diary will be waived Employer to complete an annual 'no private use declaration Such a declaration would state that the benefits were provided only for employment related purposes and that there was no private portion.

211 Property Fringe Benefits Property Fringe Benefits

212 Content When does a property fringe benefit arise? In-house & external Valuation methodologies Reductions Exemptions

213 External Property Fringe Benefits Benefit arises where: Property Title to property passes to employee Beneficial ownership passes to employee Taxable value based on GST inclusive amount or market value Property consumed on employer s premises is exempt

214 In-house Property Fringe Benefits Benefit arises where property: Title to property passes to employee Beneficial ownership passes to employee And: Employer is provider Provider is the employer, at or about the provision time, the employer is carrying on a business consisting of, or including, the provision of identical or similar property principally to outsiders; or Third party is provider Third party purchased the benefit from the employer, and at or about the provision time, both the employer and the third party, must be carrying on a business consisting of, or including, the provision of identical or similar property principally to outsiders

215 In-house Property Fringe Benefits - TV Taxable value is dependent upon which market the product is normally sold into: Wholesale Market The taxable value is the lowest price charged by the employer to a manufacturer, wholesaler or retailer for identical products under an arm s length transaction at about the time of the sale to the employee Retail Market The taxable value is 75% of the lowest price charged by the employer to members of the public for identical products under an arms length transaction at under an arm s length transaction at about the time of the sale to the employee If the employer sells via wholesale and retail, then the wholesale market valuation rules will prevail

216 In-house Property Fringe Benefits - FBT Calculation of FBT - example 1. Wholesale market FBT = Lowest price less amount paid by employee less in-house reduction FBT = $2,000 less $800 less $1,000 = $200 x x 46.5% = $ Retail market FBT = Lowest price x 75% less amount paid by employee less in-house reduction FBT = $2,500 x 75% less $800 less $1,000 = $75 x x 46.5% = $65.19 In-house reduction is $1,000 per employee per FBT year. Reduction applies to the aggregated value of in-house benefits per employee per year. Therefore, it is important to track all in-house benefits by employee

217 Gifts Property benefits Gifts for wedding, baby, farewell, sickness, etc Bottle of whiskey Wine Hampers Flowers Gift to a non employee No FBT Employees & associates - if per head cost less than $300 (incl. GST) and not provided regularly, then will be exempt as a minor benefit - no FBT, income tax deductible & GST claimable. If over $300, then subject to FBT and Reportable, income tax deductible & GST claimable

218 Loan & Debt Waiver Fringe Benefits Loan & Debt Waiver Fringe Benefits

219 Loans Loan to an employee Otherwise deductible rule may apply to interest, however, joint loans will only be ODR to the extent of the employee s interest or ownership in the loan Advance Provision of credit Can arise from an overpayment

220 Loans Statutory interest rate is set at 7.8% for the 2012 FBT year If a loan on which interest is deferred for more than 6 months (ie unpaid), then a new loan equal to the amount of the deferred interest is created Exemption applies to lenders where the interest rate applicable to the loan is not less than the rate on similar arm s length loans made to a member of the public in the ordinary course of business Declaration required to apply the ODR Application of minor benefit rule Always value as a Type 2 benefit Reportable fringe benefit

221 Debt Waivers Debt Waivers

222 Debt Waiver Debt waiver benefit arises where employee released from an obligation to repay an amount Examples: Loan forgiven Other debt written off Contract clawback waived Salary package adjustments waived Employee released from an obligation Commercial trade debtor not applicable

223 Debt Waiver Fringe Benefits Taxable value based on amount lent / waived ODR not applicable, irrelevant what the underlying benefit is No exemptions or concessions Always Type 2, no ITC available because no acquisition in respect of debt waiver Reportable

224 Housing Fringe Benefits Housing Fringe Benefits

225 Housing Fringe Benefits Benefit arises where: Employee provided with right to occupy; Home, house, unit of accommodation; Which is employee s usual place of residence Taxable value either dependent on where the accommodation is provided outside Australia or in Australia

226 Housing Fringe Benefits - TV Outside Australia: Market value of the accommodation for the time it is occupied during the year, less the employee s contribution Inside Australia: 1.Supplied by employer who is in the business of providing such accommodation, 75% of the market value or long stay rates or 15% of casual rates offered to the public; or 2.In all other cases, market value, with indexing for second and subsequent years up to 9 years 3.Less the employee contribution

227 Board Fringe Benefits Board Fringe Benefits

228 Board Fringe Benefits Benefit arises where: Employee entitled to have accommodation Entitlement under an industrial award or employment arrangement to be provided with 2 meals a day The meals are supplied by the employer The meals are cooked or prepared on employers premises The meals are supplied on employer premises

229 Board Fringe Benefits Examples: Meals provided in a dining facility located on a construction site, oil rig or ship Meals provided to a live-in housekeeper or to a resident teacher in a boarding school Taxable value: $2 per meal for adults $1 per meal for children (under 12 at 1 April 2011)

230 Airline Transport Fringe Benefits Airline Transport Fringe Benefits

231 Airline Transport Fringe Benefits Arises where employees (or their associates) of airlines or travel agents are provided with free or discounted air travel that is subject to the stand-by restrictions customarily applying to employees in the airline industry Free or discounted air travel that is not subject to such restrictions is a residual benefit Subject to annual $1,000 eligible in-house reduction per employee Don t fill out the label unless you are an employer in the airline or travel agent industries

232 Residual or Other Fringe Benefits Residual or Other Fringe Benefits

233 Residual or Other Benefits If a benefit does not fall within the criteria of one of the other thirteen benefit categories, then it will be a residual benefit In-house & external Valuation methodologies Free or discounted air travel that is not subject to such restrictions is a residual benefit Provision of services Electricity, water or gas Weekly / fortnightly massages

234 In-house Residual Benefits - TV In-house Provide the benefit and it is identical or similar to rights, services, facilities that are provided to the public in the ordinary course of business Taxable Value The taxable value is 75% of the lowest arms length price charged to the public at the time for identical benefits Identical benefits are the same in all respects except for any differences that are minimal or insignificant Annual $1,000 in-house reduction applies per employee

235 External Residual Benefits External Provide the benefit but the benefit is not of a kind provided to the public in the ordinary course of business For example, a hairdresser takes out health insurance cover for his employees or arranges for a solicitor to provide services to hairdressers employees Taxable Value The taxable value is the cost to the employer under an arms length transaction If the above rule does not apply, then the taxable value is the amount the employee could reasonably have been expected to pay to obtain the benefit under an arms length transaction

236 Exemptions Exemptions

237 Content Minor benefits Work Related Items Portable Electronic Devices Travel Facilities on Business Premises Remote area Safety awards Long Service Awards Work related - counselling, medical examinations, preventative health care (flu vaccinations) Property consumed on business premises on a working day

238 Minor Benefit Exemption Threshold < $300 including GST Scope to dissect benefits Threshold applies to employee & family separately If salary packaged then FBT applies Onerous conditions Practical guidelines 1. Frequency adhoc or up to 6 times per year? 2. Similar 3. Aggregate value per employee per FBT year

239 Work Related Items Portable Electronic Devices Includes laptops, Ipads, PDA s, mobile phones Limited to one type per FBT year per employee Primarily used for work purposes? More than 50% ATO reasonableness test Test is made at the time of provision Similar features To what use or purpose is the device applied? Can salary package

240 Travel Compassionate Travel Travel to attend medical appointment Taxi travel when employee is unwell

241 Facilities on business premises Recreational facilities exempt Childcare facilities - exempt

242 Remote area Subject to strict conditions 100% exempt where employer provides housing Employer rental 50% exempt Mortgage interest 50% exempt

243 Safety Awards $200 per employee per FBT year If threshold breached, then pay FBT in full

244 Long Service Awards $1,000 for 15 years service $100 for each subsequent year If threshold breached, full FBT applies

245 Work Related Health & Medical On premises medical or health facility Medical tests required for work Work related preventative health care Flu vaccination Work related counselling

246 Property consumed on premises Applies to employees only Consumed on employer premises On a working day

247 Review & Lodgement Review & Lodgement

248 Review: What s Important? Reviewer benefit checklists Process followed Comparative analysis Identification Type 1 v Type 2 classification Don t forget employer declarations and elections 50/50 for meal entertainment 50/50 for entertainment facility leasing Cars Operating Cost Method No private use No private use travel diaries Car parking

249 High level checklist Major issues from last year Compare to last year and prior Review certified agreements / enterprise bargaining agreements / Australian workplace agreements for potential benefits All benefits identified - How? All exemptions or concessions claimed Otherwise deductible Declarations Recipient contributions GST interaction / Type 2 benefits Retention of records Sanity check Levels of review HR, finance, pay-roll, tax SFM Cars satisfied that the rates are correct? OCM Cars sanity check on Op Cost amounts?

250 Lodgement Retain copies Filing Register of LAFHA, Relocations & Logbooks Document issues to be resolved Document issues to carry forward Follow up refund Set up issues register to track going forward Public Officer / Tax Agent declaration I declare that the information in this return is true and correct

251 Post Lodgement & Year End Tasks Post Lodgement & Year End Tasks

252 Post Lodgment Tasks - RFB s Reporting of reportable fringe benefits on payment summaries Less than $2,000 in RFB s for individual employee = no reporting required Main exclusions: meal entertainment car parking pooled or shared cars (2 or more employees), exempt benefits

253 Post Lodgment Tasks - RFB s Reconciliation Total Taxable Value of fringe benefits Less Taxable value of RFB s Non reportable = meals, EFLE, car parking, pooled cars Employees $2,000 or less in reportable benefits = Nil

254 Post Lodgment Tasks - Entertainment GST claimed on entertainment & other food and drink costs Basis on which GST has been claimed? 50/50, actual, hybrid? Entitled to claim GST to the extent it relates to employees and is deductible Adjustment required for minor benefits treated as nondeductible and other non-deductibles Watch out for deposits & prior year purchases Move to claiming real time?

255 Post Lodgment Tasks - GST & IT interaction GST liability on employee contributions 1/11 th of employee contributions = GST liability Cars, car parking, others? Timing of contribution Brought forward / carry forward Income Tax Deductibility adjustment required on entertainment Contributions (net of GST) are assessable income Separate label on ITR form Disclosed on FBT return ATO focus

256 Post Lodgment Tasks - Other Payroll tax reporting Value for FBT return, grossed up at Type 2 Exceptions for Queensland and Western Australia Workers Compensation Declaration Value for FBT return, grossed up at Type 2 Check rules in each State Salary packaging true-ups including cars Compare FBT liability v FBT estimated on novated lease cars (advise Fleet Manager/s) Understanding each individual arrangement

257 Post Lodgment Tasks - Other Recharging Entity Cost Centre Remuneration Reporting Requirements Accrual true-ups Information needed? Process Review Areas for improvement Technical uncertainties

258 2012 FBT Return wrap up 2012 FBT Return wrap up

259 Wrap Up Parked questions Post seminar Where to from here Return preparation or review assistance Lodgement Car Parking FBT Rates

260 Car Parking Salary Packaging 1. The cost of packaging in virtually all cases will result in increased take home pay for the employee. 2. For employees of exempt and concessional taxed employers, the savings will be even greater. 3. Small business exemption 4. Fly in / fly out exemption 5. Combine the packaging of a car and a car park FBT savings can be generated for both by recording "no benefit" days on the same documentation. 6. The employer claims the GST and only charges you the GST exclusive cost. Understanding FBT

261 Car Parking Salary Packaging 7. Car parking is a concessionally taxed fringe benefit. 8. If your employer provides the parking outside the vicinity of where you work, then the parking may be FBT free. 9. If where you work is outside the main CBD area, then the parking may be FBT free. 10.Use of the after tax contribution method will generally give rise to even greater employee savings. 11.The FBT law allows for a number of valuation methodologies choose the one that fits your work lifestyle. Understanding FBT

262 What else is HOT in Salary Packaging A. Laptops B. Ipads C. Motor Cycles (renewed interest) D. Taxis home to work / work to home E. Cars OCM & ECM F. Associate Leases G. Meals & Facility Leasing H. Relocation expenses I. Fly In Fly Out Car Parking Understanding FBT

263 What is NOT hot in Salary Packaging A. Lack of documentation B. Failing to reconcile packages C. Provision of property D. Minimal or no offering E. Packaging taxable relocation benefits F. Employee s leaving company G. No push bikes Understanding FBT

264 Questions Questions

265 What s coming up. Full day 2012 FBT Return Preparation Seminar Series Sydney 21 March Brisbane 27 March Car parking FBT rates for 2012 & retrospective Australia wide, representative, refunds, Tax Agent sign off FBT Returns and payments due 21 May or extension Understanding FBT & Salary Packaging Seminar Series Sydney, Perth, Melbourne & Brisbane Understanding FBT

266 Contacts Name Paul Mather Ron Sergeant Ngoc Nguyen Michelle Arnold Title Founder & Director Tax Manager Senior Tax Consultant Payroll & Salary Packaging Specialist Fernyca (Monic) Meyriza Business & Tax Analyst Phone: Level 12, 95 Pitt Street, Sydney 2000

267 Thank You for your Attendance and your Participation! Don t Forget the Feedback Form! (and Case Study