Fringe Benefits Tax April 2018 Introduction With the recent close of the 2018 Fringe Benefits Tax (FBT) year on 31 March 2018, we would like to take this opportunity to provide a general recap on FBT and how it may affect your business. We also would like to highlight some recent FBT changes that have come into effect over the last 12 months. Client Update FBT Rate and Gross Up Rates The FBT rate decreased on 1 April 2017 as a result of the 2% debt tax on high income earners (Temporary Budget Repair Levy) ending on 30 June 2017. The FBT rate has been brought into line with the highest marginal income tax rate to discourage high income earners from using the FBT system to lower their taxable income. FBT Year FBT Rate Type 1 Gross Up Rate Type 2 Gross Up Rate 1 April 2017 onwards 47% 2.0802 1.8868 FBT Deadlines Due Dates for Lodgement and Payment 21 May 2018 Lodgement Due Date of the 2018 FBT Return (if not lodging via a Tax Agent) 28 May 2018 Payment Due Date for FBT Liability 25 June 2018 Electronic Tax Agent Lodgement Due Date of the 2018 FBT Return
Types of Fringe Benefits Meal Entertainment Generally, an employer provides meal entertainment to employees for FBT purposes where the employer provides or pays for: Entertainment by way of food or drink; or Accommodation or travel in connection to the provision of entertainment by way of food or drink. When deciding whether the provision of food or drink is meal entertainment, and therefore attracts FBT, the ATO generally considers why the food or drink is being provided and what type of food or drink is being provided. For example: Food or drink provided for the purposes of refreshment or sustenance (eg. to enable employees to complete the working day in comfort) does not generally constitute meal entertainment. Furthermore, provision of tea, coffee, cakes or light meals does not generally constitute meal entertainment; On the other hand, food or drink provided in a social situation where the purpose of the food and drink is for employees to enjoy themselves (eg. Friday night food or drinks after work), is more likely to be meal entertainment. Furthermore, the more elaborate the meal (eg. three course meal with alcohol), the more likely it is to be meal entertainment. There are three valuation methods available for meal entertainment: Actual method; 50/50 Split method; and 12-week register method. Social Functions Costs - Using the Actual Method By default, the actual method will be applied where an election has not been made to use the 50/50 split method or 12-week register method. From 1 April 2016, if the meal entertainment is salary packaged, employers will be required to value the benefit under the actual method. Once it is determined that the food and drink provided is meal entertainment, refer to the table on this page, for the various meal entertainment costs that may be subject to FBT. Please note that this table does not apply where the 50/50 split method is used to calculate the fringe benefit taxable value of the entertainment costs listed above. Type of Entertainment Social Function held at the Business Premises Food and drink consumed by: Does FBT Apply Income Tax Deduction employees on a working day No No No associates of employees (cost per associate > $300) Yes Yes Yes associates of employees (cost per associate < $300 and infrequent) No No No clients, contractors or suppliers No No No Taxi Travel (e.g. single, uninterrupted trip that begins or ends at work) employees (including accompanying spouse) No No No clients, contractors or suppliers No No No Social Function held at an External Venue Food, drink and travel provided to: employees and associates (cost per head > $300) Yes Yes Yes employees and associates (cost per head < $300 and infrequent) No No No clients, contractors or suppliers No No No GST Credits Available
FBT Exempt Items The provision of certain benefits are often excluded from FBT. The following work related items are exempt from FBT if they are primarily used by the employee for work purposes: Portable electronic devices (laptop, portable computer, tablet, mobile phone, PDA, and GPS device); An item of computer software; Protective clothing required for the employee s job; A briefcase; A calculator; A tool of trade; Newspapers and periodicals; Membership fees; and A subscription to a trade or professional journal. Minor Fringe Benefit A minor fringe benefit is exempt from FBT if the value is less than $300 (including GST) and it is infrequent. Car Fringe Benefits In general, a car fringe benefit arises where an employer makes a business vehicle available for the private use of an employee. The car must be provided to an employee in respect of their employment and held by the employer. Loan Fringe Benefit If you provide a loan to an employee with no interest or a low rate of interest, it may constitute a loan fringe benefit. A low interest rate is defined as a rate lower than the ATO statutory rate. The statutory rate of interest for the FBT year ended 31 March 2018 is 5.25% (TD 2017/3). Property Fringe Benefit A property fringe benefit arises if you provide an employee with property (either tangible or intangible) for free, or at a discount, that is not otherwise deductible. Property includes: Goods; Real Property (e.g. Land and Buildings); Rights to property (e.g. Shares, Options or Bonds); and Any other kind of property, including money. The property that you provide to your employee may be classified under two different categories: In-house property fringe benefits; and External property fringe benefits. Please contact our office if you would like further information. LAFHA A living-away-from-home allowance (LAFHA) fringe benefit is an allowance paid by an employer to an employee to compensate them for additional costs of living away from their usual place of residence. As a starting point, FBT applies to the full amount of the allowance that has been paid. However, if certain strict conditions can be satisfied the taxable value of the LAFHA fringe benefit can be reduced by the exempt accommodation and/or food component. The taxable value of the LAFHA depends on the circumstances of the employee to whom the LAFHA is provided. Please contact our office if you would like further clarification regarding these new changes and how they may affect your business, or if you would like to gain a further understanding of LAFHA declarations, record keeping and substantiation requirements.
FBT Developments Over the Last 12 Months Car Fringe Benefits - Safe harbour The FBT Act contains some exemptions which can apply in situations where certain vehicles (utes and other commercial vehicles for example) are provided and the private use of the vehicles is limited to work-related travel, and other private use that is minor, infrequent and irregular. One of the practical challenges when applying the exemption is how to determine if private use has been minor, infrequent and irregular. The ATO recently released a compliance guide that spells out what the regulator will look for when reviewing the use of the exemption. Please contact our office for further information on these specifications and to gain an understanding of whether particular exemptions apply to your circumstances. Car Parking Benefits The ATO has noticed that where car parking benefits are being declared (that is, where an employer provides parking to an employee), the value of what is being declared is significantly less than what you would expect to pay. Common errors include: Market valuations that are significantly less than the fees charged for parking within a one kilometre radius of the premises on which the car is parked; Using parking rates or facilities not readily identifiable as a commercial parking station; Rates charged for monthly parking on properties purchased for future development that do not have any car parking infrastructure; and Insufficient evidence to support the rates used as the lowest fee charged for all day parking by a commercial parking station. LAFH - removal of 21 day rule The ATO has removed the 21 day rule of thumb in relation to determining if an employee if Living Away From Home (LAFH), for LAFHA purposes. As such, there is no set time frame to assist in distinguishing whether an employee is travelling on work or whether an employee is LAFH. Rather, regard must be given to the following factors: Intention to return to initial workplace and usual place of residence; The time the employee spent working away from home; The nature of the accomodation; and Whether the employee is, or can be, accompanied by family and friends. Broadly however, the ATO appears to treat an employee as LAFH if they are working away from home for a period of roughly three months or more. If an employee is working away from home for less than three months, the ATO treats them as an employee on secondment.
Travel-related Benefits The ATO has recently released draft taxation ruling TR 2017/D6, which sets out the ATO s latest view on the FBT treatment of travel-related benefits provided to employees. It outlines various new scenarios in which travel-related benefits do not attract FBT, including references to more modern or less traditional commonplace working arrangements. The more favourable changes include: A larger scope of deductible or otherwise deductible costs for employees who work concurrently between two work locations (and who are not considered as Living Away From Home); The reduction (or apportionment) of deductibility for the private portion of travel costs incurred, where employees combine work travel with a private holiday; A larger scope of deductibility for costs incurred by employees who are on secondment; No affect on the character of expenditure where employees choose to return home from overnight business travel, as long as the overnight stay is reasonably required from a practical point of view; and The consideration of special demands travel between home and a regular work location, which takes into consideration such things as whether the employee is being paid for the journey, the remoteness of the work location, and whether the requirement exists to move continuously between changing work locations. This is especially relevant for employees in the building and construction site industry and similar industries, or those employees who are on a fly-in-fly-out arrangement. ATO Areas of Focus The Australian Taxation Office (ATO) is focusing their attention on car fringe benefits and LAFHA. Ongoing use of data matching programs (e.g. where an employer has purchased several cars but not reported any fringe benefits, or if the odometer readings don t match the work schedule of the business) will continue to be used by the ATO to identify employers for a review of their FBT obligations. The ATO is still maintaining a heavy focus on LAFHA, particularly on whether the employee is actually living away from home, as opposed to simply travelling in the course of their work or relocating. Employers providing these benefits should ensure that they have sufficient evidence to support any exemption claimed and that the employee has met the relevant conditions. Given the FBT reforms commencing 1 April 2016, the ATO expects that employers will make errors with regards to salary packaged meal entertainment and entertainment facility leasing expense benefits. Employers must ensure that these benefits are valued using the actual method only. Further, employers cannot apply any FBT exemptions to these salary packed entertainment benefits. Salary sacrifice calculations will also be under close scrutiny this year. A loophole in the superannuation guarantee legislation allows unscrupulous employers to reduce their superannuation guarantee (SG) obligations when employees salary sacrifice contributions into superannuation. The loophole occurs when employers calculate SG on the post salary sacrifice earnings base. This method of calculation may reduce the contribution being made by the employee.
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