2017 FBT UPDATE. MKT Taxation Advisors

Transcription

1 2017 FBT UPDATE MKT Taxation Advisors Disclaimer: This material should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests. F:\Knowledge\Tax Workpapers & Templates\FBT\FBT 2017\FBT 2017 Update Paper.Docx

2 CONTENTS 1 INTRODUCTION Recent Developments ATO AUDIT FOCUS IN Car Fringe Benefits The ATO data matching program for motor vehicles Provision of Car Fringe Benefits Employee Contributions Living Away from Home Allowance (LAFHA) Eligibility for the Concessional FBT Treatment for LAFHA Declaration Requirement Substantiation Requirement Employee Reward Programs Housing Benefits Relocation Costs Taxable Value of Housing Benefits Benefits provided to Directors of Private Companies OTHER RECENT DEVELOPMENTS New Reporting Requirements for Meal Entertainment Fringe Benefits and Entertainment Facility Leasing Expenses ( EFLE ) Fleet Cars and Simplified Record Keeping Uber services are not taxis - no section 58Z exemption allowed KEY DATES AND FBT RATES FBT Lodgement Due Date FBT Rate for Other Rates and Thresholds

3 4.3.1 Motor vehicle (other than a car) cents per km rate Car Parking Threshold Statutory/benchmark interest rate Record keeping exemption threshold Housing indexation figures Deemed depreciation rate cars Reportable fringe benefits Reasonable food and drink amounts for employees living away from home in Australia Reasonable food and drink amounts for employees living away from home overseas 17 3

4 1 INTRODUCTION Fringe Benefits Tax ( FBT ) is a federal tax payable by an employer that provides fringe benefits to its employees in respect of their employment. A fringe benefit will exist if the conditions in the definition in section 136(1) of the Fringe Benefits Assessment Act 1986 ( FBTAA ) are met. These requirements are: there is a benefit; it is provided at some point during the year, or in relation to the relevant year of tax; it is given to an employee or an associate of the employee; it is given by the employer, an associate of the employer, or by another party (an arranger) under an arrangement with the employer or an associate of the employer; and it is in relation to the employment of the employee. A benefit is widely defined and includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under: (a) an arrangement for or in relation to: (i) the performance of work (including work of a professional nature), whether with or without the provision of property; (ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or (iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; (b) a contract of insurance; or (c) an arrangement for or in relation to the lending of money. 1 FBT is payable by the employer at a flat rate of 49% (for the 2017 FBT year) on the grossedup taxable value of fringe benefits provided to employees (and/or their associates). 1.1 Recent Developments In this paper, we will discuss the recent developments in the area. In the next section, we will discuss the Australian Taxation Office s ( ATO ) audit focus for the 2017 FBT year. We then discuss the recent legislative changes in the area and close off with the key dates and rates for FBT purposes. 1 s. 136(1) of FBTAA 4

5 2 ATO AUDIT FOCUS IN Car Fringe Benefits This has always been the audit focus of the ATO in the past and will be the focus again in the 2017 FBT year. This is not surprising considering that the car fringe benefits generate the highest amount of FBT compared to other fringe benefits. In particular, the ATO is undertaking reviews of employers who have purchased cars, but not disclosed car fringe benefits in their FBT return, or appropriate employee contributions in their income tax return The ATO data matching program for motor vehicles As a first step, the ATO could use its internal data-matching program to check the consistency of information provided by employers in their income tax returns. For example, under the current tax return for Companies and Trusts, taxpayers are required to report any motor vehicles expenses, contractor expenses and fringe benefit employee contributions, to name a few labels. In addition, the ATO under its external data-matching program will be able to acquire details of entities from State and Territory motor vehicle registries. In particular, the ATO will be able to obtain data from the motor vehicle registries where motor vehicles were sold/transferred or newly registered and the transfer and/or market value is $10,000 or greater. We are also aware that the ATO intended to obtain details of the purchasers, sellers, licenced dealer, fleet manager, leasing company (or the representative of any of these) and the registering person for an unincorporated body. The ATO will also obtain transaction details, such as transaction date, sale price, the vehicle's garage address, and whether there was a stamp duty exemption. The information will be used to identify and deal with those taxpayers who may not have met their obligations with regards to GST, FBT, luxury car tax, fuel schemes and income tax Provision of Car Fringe Benefits It is a common misconception that as long as employees do not actually use the company cars for private purposes, there would be no FBT consequences to the employers. A car benefit also arises when a car is taken to be available for the private use of the employee or associate. A car is taken to be available for private use if it is garaged or kept at or near a place of residence of the employee or of an associate of the employee at any time on a day. A car is also taken to be available for private use where it is not at the employer s business premises and any of the following conditions are satisfied 2 : the employee is entitled to apply the car to a private use, the employee is not performing the duties of their employment and has custody or control of the car, and 2 ss. 7(3) of FBTAA 5

6 an associate of the employee is entitled to use, or has custody or control of the car. There are some steps that an employer can take to mitigate this. For example, to decrease FBT liabilities, travelling employees should be advised to leave both the keys and the vehicle at the employer s premises. In addition, a car is not available for private use if it is garaged for repairs. Where an employer prohibition on the use of the car for private purposes is not consistently enforced, the person shall be deemed to be entitled to apply the car for private purposes Employee Contributions The taxable value of a car fringe benefit can be reduced by an employee contribution. The contributions can be made by the employee in the following ways: a) by personally paying the car expenses, such as fuel, registration, insurance and repairs, b) by making after-tax cash contributions to the employer, and/or c) by way of a journal entry in the employer s account provided all of the following d) conditions are met: the employee has an obligation to make a contribution to the employer towards a fringe benefit; the employer has an obligation to make a payment to the employee; and the employer and employee agree to set-off the employee's obligation to the employer against the employer's obligation to the employee 3. Where the total employee contributions for the FBT year exceed the taxable value of the car fringe benefits, the excess amount can be carried forward to the next FBT year and offset against the taxable value of the car fringe benefits in the next FBT year. Employee contributions are assessable income to the employer and are subject to GST if input tax credits were previously claimed for the purchase costs and on-going expenses. However, a common mistake is that the contributions are not reported in the income tax return. As mentioned above, The ATO is currently targeting this. Any fringe benefit employee contributions are required to be reported in the income tax returns. For a company, the applicable label is Item 6 Label C for the 2016 Tax Return. 2.2 Living Away from Home Allowance (LAFHA) According to the ATO, common errors in relation to LAFHA include claiming reductions for ineligible employees, failing to obtain required declarations from employees and failing to substantiate expenses. 3 Taxation Ruling MT

7 2.2.1 Eligibility for the Concessional FBT Treatment for LAFHA The payments of LAFHA are exempt from FBT for a maximum of 12 months if all of the following requirements are satisfied: an employee whose duties of employment require them to live away from their normal residence; and the employee maintains a home in Australia at which they usually reside. Normal residence is defined as: the employee s usual place of residence if that is in Australia; or if the employee s usual place of residence is not in Australia, either the employee s usual place of residence or the place in Australia where the employee usually resides while in Australia. To maintain a home in Australia, the employee, or their spouse, must have an ownership interest in a unit of accommodation and that home must be available for their immediate use and enjoyment at all times while they are living away from it. It must also be reasonable to expect that the employee will resume living at that home when they are no longer living away from home for the purposes of their employment. This means the home cannot be rented out or sub-let while they are living away from it. If an individual has a boarder or tenant staying with them in their normal residence, the employee can still be considered to be maintaining the home for their own use and enjoyment provided the boarder s stay does not impinge on the availability of the residence for the individual s immediate and reasonable use and enjoyment. A common mistake made by employers is to treat the overseas residence of employees that are temporary residents or foreign residents as satisfying the requirement. The residence must be in Australia and therefore to satisfy the requirement, such employees must have Australianbased residence where are then required to live away from Declaration Requirement Employees must provide their employer with a signed declaration, in a form approved by the Commissioner, setting out the following details: the address of the place in Australia where the employee usually resides when in Australia, has an ownership interest, and that the residence continues to be available for immediate use and that it is where the employee expects to return; and the address of each place where the employee actually resided during the period to which the benefit relates. A LAFHA declaration is required to be completed for each FBT year. 7

8 2.2.3 Substantiation Requirement Employers and employees must be able to substantiate expenses incurred on accommodation, and food or drink beyond the Commissioner s reasonable amount. Where the food amount does not exceed the Commissioner s reasonable amounts, there is no requirement to substantiate the expenses. 2.3 Employee Reward Programs It is common for employers to reimburse travel and other expenses incurred by the employees where the employees accumulate points and then redeem them in return for various benefits. For example, the Qantas frequent flyer program and the reward points facilitated by many credit card providers. Often, the potential FBT implications for such practices have been conveniently ignored by employers. This is partly due to the difficulties facing employers in identifying the benefits provided, the timing of the benefits provided and the valuation of the benefits. Against this background, the ATO has now taken some action and is currently undertaking pilot strategies reviewing employee reward programs, where employees are provided with points or something similar as a reward or as an incentive (rather than money or a non cash benefit), which can be accumulated and converted into money or another item 4. It is, therefore, important to find out what the ATO s view is in this area. In the Practice Statement Law Administration PS LA 2004/4 (GA), the ATO states that a reward received by an employee under a consumer loyalty program may be a fringe benefit for FBT purposes where the facts demonstrate that there is an arrangement between the employee and employer so that the provision of the reward has a sufficient and material connection to employment. While the ATO did not elaborate the view further, the ATO provided an example where there is no FBT consequence to the arrangement: Example 1 Paula frequently travels interstate on business. Her employer has provided her with a corporate credit card so that she can pay for her business-related accommodation - meals, taxis, hire cars, etc. There is a fee for operating the corporate card but the savings in administration costs far outweigh the fee charged. The credit card company has a loyalty program and Paula joins. The credit card arrangement exists primarily because it delivers administrative benefits to Paula's employer, not to her. Accordingly, it is unlikely that a sufficiently material connection exists with her personally for any loyalty rewards to be in respect to her employment. As a result, this arrangement will not be reviewed further by an ATO officer. 4 Minute to the FBT States and Territories Industry Partnership - 28 April

9 On the hand, the following example provided in the Practice Statement indicates that the arrangement is likely to attract the ATO s attention: Example 2 John is an employee of XYZ Company. He uses his personal credit card for private expenditure. Under an arrangement (which can be explicit or tacit) between John's employer and John, John is able to place all the company's business expenditure on his personal credit card. The company reimburses him for the expenditure he has paid on its behalf. Under this arrangement, John acquires points from the business expenditure exceeding 250,000 points per annum. FBT may apply in this case. Any reward that arises from redeeming these points will relate directly to the significant business expenditure. The reward may have been provided under an arrangement and may be in respect of employment. Given the ATO s wide power to gather information from credit card providers and the big airlines, it is advised that employers should review their current policy and practice in this area and seek advice to minimise the risk of having inadvertent FBT liabilities. 2.4 Housing Benefits The ATO is also undertaking pilot strategies reviewing housing fringe benefits, where employees are being provided with housing as part of their employment in non-remote areas, but no housing fringe benefits are being reported 5. A housing fringe benefit arises where an employer grants an employee a right to occupy a unit of accommodation as their usual place of residence 6. The taxable value of a non-remote housing fringe benefit depends on the type of accommodation and whether it is provided by the employer or another entity. Where the remote area FBT concessions are not available to employers, there may be other exemptions available under other provisions within the FBTAA. For example, an exemption may be available if the requirements under the LAFH benefits and the relocation costs are satisfied. The requirements for the LAFH benefits have been discussed above Relocation Costs Where an employee is required to change their usual place of residence in order to perform the duties of their employment (i.e., the employee is required to relocate), an FBT exemption may 5 Minute to the FBT States and Territories Industry Partnership - 28 April s. 25 of FBTAA 9

10 be available where the employer provides temporary accommodation at former or new location of employment Temporary accommodation at former location The concession applies to temporary accommodation at the employee s former location only if the temporary accommodation is necessary because the former home is unavailable or unsuitable for occupancy because of the relocation (for example, furniture removal). In that case, the concession applies to the temporary accommodation for a maximum 21-day period ending on the day the employee starts work at the new location Temporary accommodation at new location Where the temporary accommodation is at the new location, the employee must start to make sustained and reasonable efforts to buy or lease suitable long-term accommodation as soon as reasonably practicable after starting work at the new location. The concession is limited to an occupancy period that begins seven days before the day the employee starts work at the new location and ends when the employee could reasonably be expected to occupy the home after it has been purchased or leased. The concession is ordinarily limited to a maximum occupancy period of four months. However, it may apply for a maximum of 12 months, as follows. Where the employee gives you a declaration outlining their efforts to find suitable long-term accommodation, the concession may apply for a maximum of six months. Where the employee: owned a home at the former location but sold it within six months of starting work at the new location and, during that period, attempted to buy a home at the new location, and gives you a signed declaration in an approved form outlining their efforts to find suitable long-term accommodation. In either case, the concession will end before the four months, six months or 12 months elapse if the employee stops making reasonable and sustained efforts to buy or lease suitable longterm accommodation Taxable Value of Housing Benefits Where none of the potential exemptions or concessions is available, employers are then required to calculate the taxable value of the housing benefits provided. The calculation can be complicated as it requires the market value of the housing right and different rules apply to different circumstances. Where the accommodation is located outside Australia or in an external Australian Territory (other than Christmas Island and the Cocos - Keeling - Islands), the taxable value is the market rental value of the right to use the accommodation, reduced by any rental payments made by the employee. Where the accommodation is located in Australia in the form of a caravan or mobile home, or is in a hotel, motel, hostel, guesthouse or similar type and is provided by an employer that is in 10

11 the business providing such accommodation, the taxable value is 75% of the market rental value, less the amount of any rental payments. For all other Australian accommodation, the taxable value is calculated in accordance with the formula: A B C - R where: A is the statutory annual value of the recipients current housing right; B is the number of whole days in the tenancy period; and C is the number of days in the year of tax; and R is the recipients rent. 2.5 Benefits provided to Directors of Private Companies Directors of private companies may satisfy the definition of an employee for FBT purposes. However, it is often that the directors of the companies are also the shareholders of the companies. In this case, a distinction should be made as to whether the benefits are provided to the director in their capacity as an employee of the company or in their capacity as a shareholder of the company. In the Taxation Ruling MT 2019, the ATO states that a benefit is provided in respect of the person's employment where it is provided in connection with the performance of his or her duties as an employee rather than in his or her capacity as a shareholder. For example, where a company car is used by a shareholder/employee in the course of his or her employment by the company, it is considered that any use, or availability for use, of the car by the employee (or an associate) for private purposes is a benefit provided in respect of his or her employment. Therefore, any private use (or deemed private use) of the car will be subject to FBT. 3 OTHER RECENT DEVELOPMENTS 3.1 New Reporting Requirements for Meal Entertainment Fringe Benefits and Entertainment Facility Leasing Expenses ( EFLE ) The changes were introduced by the Government mainly to fix the perceived rort of the system by salary packaging the meal entertainment and EFLE fringe benefits. For the 2016 FBT year and earlier years, it was possible to salary sacrifice certain private expenses and use the concessions available under the FBT regime to increase an employee s net disposable income. 11

12 For example, an employee may salary sacrifice private holiday accommodation expenses, wedding expenses and other similar expenses. As the benefits constitute EFLE fringe benefits, the split method was available for the employer to calculate the FBT liabilities. There generally is a net saving in tax paid by salary sacrificing rather than funding the said private expenses using after-tax money where the employee is at the highest marginal tax rate. The tax savings were even more pronounced with certain exempt and rebatable employers. From 1 April 2016, there will be limits on the use of salary-packaged meal entertainment and EFLE fringe benefits. In particular, the split method and 12-week register method are no longer available to calculate the taxable value of the fringe benefits. Further, for taxable employers, the salary-packaged meal entertainment and EFLE fringe benefits are no longer excluded fringe benefits and therefore the whole of the grossed up value must be reported in the employee s annual Payment Summary as reportable fringe benefits. 3.2 Fleet Cars and Simplified Record Keeping In the Practical Compliance Guideline PCG 2016/10, the ATO provides a simplified approach for calculating car fringe benefits that is expected to reduce the record-keeping burden on employers with large fleets. The concession is available if an employer meets the following criteria: It has a fleet of 20 or more cars; the cars are "tool of trade" cars; the employees are mandated to maintain log books in a log book year; the employer holds valid log books for at least 75% of the cars in the log book year; the cars are of a make and model chosen by the employer, rather than the employee; each car in the fleet had a GST inclusive value less than the luxury car limit applicable at the time the car was acquired; and the cars are not provided as part of an employee's remuneration package (eg under a salary packaging arrangement), and employees cannot elect to receive additional remuneration in lieu of the use of the cars. If the above requirements are satisfied, the employers can rely on a representative average business use percentage to calculate car fringe benefits for the fleet under the operating cost method. The simplified approach can be applied for a period of 5 years in respect of the fleet (including replacement and new cars) provided the fleet remains at 20 cars or more, and subject to there being no material and substantial changes in circumstances. An example of a substantial change would be a change in location of the employer's depot that would substantially alter the business use percentage of the fleet. 12

13 3.3 Uber services are not taxis - no section 58Z exemption allowed In essence, in order to obtain the exemption under section 58Z, the taxi travel must be a single trip beginning and ending at the employee s place of work. Under the definition of taxi, the FBT Act states that a taxi is a vehicle that is licensed to operate as a taxi. It is our understanding that no State or Territories in Australia have licensed Uber drivers to operate as a taxi. Therefore until this changes, or there is a change in the current definition of taxi, the section 58Z exemption above will not apply to Uber services. However, an employer may still be able to argue that the taxable value of the uber travel is reduced by virtue of the exemption under section 58P (where the travel is minor, infrequent and irregular) or by virtue of the otherwise deductible rule. As a side note, the case of Uber X drivers in Uber B.V v FCT held that Uber X drivers were supplying taxi travel as defined in the GST legislation and therefore should be charged GST on Uber travel. Therefore there is an obvious disconnect - for FBT purposes, an Uber service is not considered to be taxi travel but for GST purposes such travel is considered to be taxi travel. We await news as to whether Uber will appeal this decision. 4 KEY DATES AND FBT RATES 4.1 FBT Lodgement Due Date The lodgement and payment due date for the 2017 FBT return is 21 May However, where the returns are lodged electronically through a tax agent, the lodgement due date for the 2017 FBT return is 25 June Tax agents must be appointed as the FBT clients' registered tax agent and have the clients added to the client list by 21 May 2017 to ensure they are covered by the agent's lodgement program for their 2017 FBT return. However, if an employer is in a payable position, the due date for payment is 28 May 2017 regardless of the return not being due until 25 June FBT Rate for 2017 The FBT rate for the 2017 FBT year is still 49%. However, the FBT rate will reduce to 47% from 1 April 2017 in line with the discontinuance of the Budget Repair Levy of 2%. The change in the FBT rate will directly impact both the Type 1 and Type 2 gross-up factors as follows: 13

14 Gross-up Factors Type Type Other Rates and Thresholds Motor vehicle (other than a car) cents per km rate FBT Year Ending 0-2,500cc Over 2,500cc Motor cycles 31 March c 63c 16c 31 March c 61c 15c 31 March c 60c 15c Car Parking Threshold FBT year ending: - 31 March 2017: $ March 2016: $ March 2015: $ Statutory/benchmark interest rate FBT year ending: - 31 March 2017: 5.65% March 2016: 5.65% March 2015: 5.95% 15 7 Taxation Determination TD 2016/3 8 Taxation Determination TD 2015/6 9 Taxation Determination TD 2014/6 10 Taxation Determination TD 2016/7 11 Taxation Determination TD 2015/11 12 Taxation Determination TD 2014/11 13 Taxation Determination TD 2016/5 14 Taxation Determination TD 2015/8 15 Taxation Determination TD 2014/5 14

15 4.3.4 Record keeping exemption threshold FBT year ending: - 31 March 2017: $8, March 2016: $8, March 2015: $7, Housing indexation figures Housing indexation by state and territory FBT Year Ending NSW VIC QLD SA WA TAS NT ACT 31 March March March Deemed depreciation rate cars These diminishing value depreciation rates are used for car fringe benefits valued under the operating cost method. Date car purchased Depreciation rate Up to and including 30 June % From 1 July 2002 to 9 May % On or after 10 May % Reportable fringe benefits If you provide certain fringe benefits with a total taxable value of more than $2,000 in the FBT year, you must report the grossed-up taxable value of the fringe benefits on the employee's payment summary for the corresponding income year. 16 Taxation Determination TD 2016/2 17 Taxation Determination TD 2015/5 18 Taxation Determination TD 2014/4 19 Taxation Determination TD 2016/1 20 Taxation Determination TD 2015/4 21 Taxation Determination TD 2014/3 15

16 Reportable fringe benefits are grossed-up using the lower gross-up rate, so if an employee receives certain fringe benefits with a total taxable value of more than $2,000 for the FBT year ending 31 March 2017, the reportable fringe benefits amount is $3,921. Reportable fringe benefits thresholds Threshold for reporting on payment summaries FBT Years Ending 31 March March March 2015 Taxable Value Exceeds $2,000 Exceeds $2,000 Exceeds $2,000 Grossed-up value $3,921 $3,921 $3, Reasonable food and drink amounts for employees living away from home in Australia The table below sets out the weekly amounts we consider to be reasonable food and drink amounts for a living-away-from-home allowance (LAFHA) paid to employees living away from home within Australia. These amounts are for the total of food or drink expenses and include any amounts that may have been allowed for home consumption. FBT Years Ending 31 March March March One adult $242 $241 $236 Two adults $363 $362 $354 Three adults $484 $483 $472 One adult and one child $303 $302 $295 Two adults and one child $424 $423 $413 Two adults and two children $485 $484 $472 Two adults and three $546 $545 $531 children Three adults and one child $545 $544 $531 Three adults and two $606 $605 $590 children Four adults $605 $604 $590 Each additional adult $121 $121 $118 Each additional child $61 $61 $59 22 Taxation Determination TD 2016/4 23 Taxation Determination TD 2015/7 24 Taxation Determination TD 2014/9 16

17 A person is considered an adult for this purpose if they were 12 years or older before the beginning of the FBT year Reasonable food and drink amounts for employees living away from home overseas The tables below set out the weekly amounts we consider to be reasonable food and drink amounts for a LAFHA paid to employees living away from home outside of Australia for the FBT year ending 31 March 2015 and 31 March 2016 as follows. - Table 1 sets out the reasonable food and drink amounts for each cost group. - Table 2 sets out the factors to apply if the employee is accompanied by other family members while overseas. You will need to obtain the cost group for the country from TD 2016/4 for the FBT year ended 31 March 2017, TD 2015/7 for the FBT year ended 31 March 2016 or TD 2014/9 for the FBT year ended 31 March For the amounts that apply to each cost group see Table 1 below. Table 1: Reasonable food and drink amounts by cost groups overseas Cost Group Food and drink for one adult (FBT Year Ending) 31 March March March $137 $137 $137 2 $201 $201 $201 3 $273 $273 $246 4 $310 $310 $310 5 $437 $437 $419 6 $537 $537 $492 Where the employee is accompanied by other family members while overseas, the reasonable food and drink amount per week for the family is worked out by multiplying the amount shown in Table 1 by the relevant factor in Table 2 below: 25 Taxation Determination TD 2016/4 26 Taxation Determination TD 2015/7 27 Taxation Determination TD 2014/9 17

18 Table 2: Factors to apply for family groups overseas Family Group Factor Two adults 1.5 Three adults 2.0 One adult and one child 1.25 Two adults and one child 1.75 Two adults and two children 2 Two adults and three children 2.25 Three adults and one child 2.25 Three adults and two children 2.5 Four adults 2.5 Each additional adult 50% of the relevant single adult rate in Table 1 Each additional child 25% of the relevant single adult rate in Table 1 18