2018 Fringe Benefits Tax (FBT) Update

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1 2018 Fringe Benefits Tax (FBT) Update As the end of the Fringe Benefits Tax (FBT) year approaches, there have been a few changes of note that impact an employer s current year FBT liability. In addition to updating you of the changes, we remind all business owners of the need to record odometer records for ALL vehicles (utes and sedans included) held by a business at 31 March 2018 (see below). What is new in 2018? 1. Current FBT rates - year ending 31 March 2018 With the removal of the Temporary Budget Repair levy, the current year FBT rates are as follows: FBT rate 47% Type 1 gross up GST included in benefits FBT rate 47% Type 2 gross up GST Free Benefits 2. Employee Gross Up rate for Reportable Fringe Benefits Regardless of whether Type 1 or Type 2 benefits are provided, where the Taxable Value (cost of benefits provided) for an individual employee exceeds $2,000, the Taxable Value must be grossed up and the resulting amount included on the employee s payment summary as a Reportable Fringe Benefit. The Gross Up rate for 2018 is: Changes to the FBT treatment of Travel Expenses the Otherwise Deductible rule When an employee is travelling on work, the otherwise deductible rule can be applied to exempt travel expenses from being included in the businesses annual FBT calculations. Costs are excluded from FBT where the employee is required to undertake travel for their work. Where private travel is given the appearance of a work trip, these costs will be included in the employers FBT Taxable Value calculation for the year. Otherwise deductible costs include the reimbursement or payment of transport costs, which include motor vehicle, airfares and other related travel costs; and accommodation and meal costs associated with the employees travel. The payments or reimbursement of these costs are more likely to attract the otherwise deductible rule for short term travel away from home, and more likely to incur FBT for extended periods of travel, or living away from home.

2 4. Extension to the FBT Exemption for Portable Electronic Devices for Small Businesses From 1 April 2016, small business employers have been able to supply more than one portable electronic device to employees, each year, without attracting an FBT liability on these items. Previously, only one device could be provided to an employee during a year. Items such as mobile phones, laptops, ipads etc, that are used primarily for the employees work can be provided under this exemption with no FBT obligation. Small business employers have a turnover of less than $10m for the 2018 FBT year. 5. ATO Guidance on Private Use of Utilities and Vans carrying > 1 Tonne Where a vehicle has a carrying capacity of greater than 1 tonne (typically a ute or van), and where private use is minor or infrequent, the vehicle may be exempt from FBT. The definition of minor or infrequent has lacked clarity, so the ATO have now issued guidelines in relation to this. On the basis that the vehicle is provided to an employee, and is not part of a salary packaging arrangement, where the vehicle travels a total of less than 750 private kilometres in a year (and less than 200 private kilometres in any single journey), then the travel may be deemed minor or infrequent. In addition to monitoring the above, employers are required to have a policy, that is enforced, that private travel is only to be minor or infrequent in work vehicles. 750 kilometres over a year is a very small amount of private travel for most people. To be able to access this concession, the employer must take all reasonable steps to limit private use of vehicles provided to employees for vehicles provided and used in the performance of their work duties. And a reminder from 2017 The ATO is targeting those employers who are not registered for FBT (either because they don t provide benefits or require employees (including themselves) to make contributions to reduce the value of the fringe benefits provided), but who report an employee contribution in the company, trust or partnership income tax returns. This is the majority of our clients. The ATO are requesting that all of these family and small/medium businesses register for FBT and show their employee contributions on the annual FBT return. For all businesses who provide car benefits, this is a timely opportunity to review the validity of log books (which have a 5 year maximum useful life) and declarations kept where benefits are reduced by contributions made by employees, or where there is a statutory method to reduce the value of the benefit. Reminder - Recording Odometer Readings at 31 March 2018 Attached please find our summary sheet for you to complete, detailing each vehicle owned by the enterprise with space for you to enter the closing odometer value. Please record all opening and closing odometer readings for every vehicle owned by the business and a copy to our office.

3 We have also attached the Expense Payment declaration, to be completed for items such as mobile phones and internet in the name of the employee that is paid for by the business please ensure that all are completed, signed and returned to us after 30 June 2018 with your taxation records for that year. Below are our 5 top tips for managing your FBT cost for 2018 for example, a small outlay of time in completing a log book can provide significant savings for the next 5 years. 5 Top Tips for Managing Your FBT cost (or exposure) 1. Keep a new log book (and all other FBT declarations) Motor vehicle benefits are the most common benefits provided to employees and associates (including directors, who are classed as employees, even if not on the payroll), so it pays to focus on this cost first. There are two methods for calculating FBT on car expenses the statutory method (20% of the GST inclusive cost of the car, where purchased after 11 May 2011) and the log book method. The more expensive the car, the more attractive the log book method becomes! A log book must be kept for a 12 week period that is representative of the vehicle s business use once completed, you don t need to keep another log book for a 5 year period, unless your business use changes significantly. This simple act could save thousands of dollars each year, for the 5 years that the log book applies (especially as the vehicle ages and repair costs increase). We have also attached common FBT declarations required for car and expense payments clients are responsible for having these signed, but we find sometime that employees who have left during the year have not completed and signed these. We suggest that you have employees sign these at the beginning of the FBT year based on the previous year business use and they can be updated at year end. 2. Buy a ute, panel van or vehicle designed to carry 1 tonne or more See our comments on page two of this newsletter regarding the limitations placed on private travel for those owning a vehicle designed to carry more than 1 tonne. For those who have use for a utility, dual cab or panel van, who travel mainly from home to work and have only minor or infrequent private use of this vehicle, this is a great way to reduce your FBT and exposure, as these vehicle can be exempt from FBT where the criteria are met. While this vehicle may not suit everyone, if you have a second vehicle used mainly for your private use, the FBT calculated may still be less than having two passenger vehicles. Please note, the way that these vehicles are exempt is that they are not designed to carry passengers and the private use must be minor and infrequent if this is not the case, you must also keep a log book for these vehicles.

4 3. Provide meals to employees and associates at your business premises Entertainment expenses are another area of FBT that is a great revenue raiser for the Government you can assist in reducing this area of collection by providing working lunch and other meals to staff at your business premises (such as business lunches and overtime meals), as these will not be subject to FBT. Where you entertain clients and staff at a restaurant or event, you have two main methods of accounting for each attendee (employee or customer/supplier) either you split the bill on a 50/50 basis or you keep a register for 12 weeks and the portion of employee entertainment as a percentage of your total entertainment cost is the portion that you apply to the balance of the year. Whichever method you use at the start of the FBT year must be carried through for the balance of the year. Where you provide entertainment to employees, and it is subject to FBT, the cost is deductible and GST can be claimed on the FBT portion. Entertainment provided to non employees/associates (such as suppliers and customers) is not subject to FBT, not tax deductible and no GST can be claimed on the cost incurred. Staff Christmas parties are exempt from FBT where the cost per head is under $300 and the cost of the event is not tax deductible. 4. Keep staff benefits under $300 and pay infrequently Whether you have the opportunity to provide discounted goods and services to employees, or where you reward employees at Christmas or at other times during the year, keeping employee rewards to a small value and paying them infrequently removes the requirement to pay FBT on these items, and does not impact their tax deductibility. Where you reimburse staff for home internet or private telephone costs, please ensure that they have signed the appropriate declaration (see far below) and have indicated a business use percentage.

5 5. Repay loans from your business before 30 June each year (or charge interest) Where an employee or associate (including a Director/shareholder) borrows money from the business during the financial year, the repayment of that loan before 30 June each year negates the need to pay FBT where no interest has been charged. So, you have two ways to mitigate the FBT impact of loans firstly, ensure that they are repaid (and where we cash out employee benefits each year, make sure that this amount has also been repaid) and secondly, where the loan is not going to be repaid, place it under a written loan agreement and charge at least the minimum rate of interest required by the ATO each year. 6. Pay an allowance for overnight travel Where your employees are required to travel for work, we recommend that the business pay for the accommodation and pay the employees a travel allowance, based on the ATO rates which are issued in July of each year. This removes the need for the employees to keep receipts for meals and incidentals and the allowance is not included on the employees payment summary where paid at or below the ATO rates. Where a spouse accompanies an employee on business travel, there is no FBT on the accommodation component where no additional costs are incurred. Where an allowance is paid, the employee, rather than the employer, is required to substantiate the expenses to be able to claim an income tax deduction for the costs of travel incurred. As travel costs often necessitate many receipts, this could be a simple way to save an employer time and money in accounting for these items. Car expenses using cents/km Where an employer pays car expenses for an employee s vehicle, such as fuel, registration, repairs, etc., and the employee records the kilometres they travel for work, these work kilometres can be used to offset the value of the car benefit being provided (employee contributions). For the FBT year ended 31 March 2018, the employer can use the car rates of 66 cents per kilometre, regardless the engine capacity of the employee s car.

6 Motor Vehicle Fringe Benefits In order to calculate the value of each motor vehicle provided by the employer to an employee for the current FBT year we require you to advise the motor vehicle odometer reading on 31 March Please complete the table below providing the required details for each motor vehicle owned or leased by the company. Motor Vehicle 1 Motor Vehicle 2 Motor Vehicle 3 Make of Car: Registration Number: Employee: Name of Driver/s: Odometer Reading 1/4/17 (or first date held): Odometer Reading 31/03/18 (or last date held): Date car sold: (if Applicable) Sales Details: No. of Days the vehicle was not available for private use: Where the vehicle is usually garaged? (e.g. work, home) Signed as a true accurate record Date Employer name: Employee's car declaration Section A (This section is the usual declaration for loan, expense payment, property or residual fringe benefits as set out in Fringe benefits tax - a guide for employers.)

7 Section B (To be completed where the benefit relates to a car that travelled more than an average of 96 business kilometres per week, and the second method above has been used.) I declare that the period of the FBT year during which the car was in use by me for business purposes was 1 April 2017 to 31 March 2018 and that an average of more than 96 business kilometres per week was travelled in that period. Signature Date Section C (To be completed where the benefit relates to a car and the third method above has been used.) I declare that: the period of the FBT year the car was in use by me for business purposes was: 1 April 2017 to 31 March 2018; the total number of kilometres travelled by the car in that period was the number of business kilometres travelled by the car in that period was Explanatory notes 1. If section B is completed, the tax deductible percentage stated in section A should be 33 1/3%. 2. If section C is completed, the tax deductible percentage stated in section A should be the lesser of 33 1/3% and the proportion of business kilometres to total kilometres as shown in section C.

8 Expense payment benefit declaration I, (name of the employee) declare that (show nature of expense e.g. telephone rental and/or calls) were provided to me by or on behalf of my employer during the period from 1 April 2017 to 31 March 2018 and the expenses were incurred by me for the following purpose(s) (Please give sufficient information to demonstrate the extent to which the expenses were incurred by you for the purpose of earning your assessable income.) I also declare that the percentage of those expenses incurred in earning my assessable income was %. Signature Date