With most employers now using Single Touch Payroll (STP), the Australian Taxation Office (ATO) has access to real-time information about employers and their employees. If you have employees, the more likely it is you are providing some form of fringe benefit and the higher the expectation the ATO will expect to see you lodge an FBT return.

With the end of the 2021 Fringe Benefits Tax (FBT) year 31 March fast approaching and taking into account the ATO’s increased access to information about employees, now is the time to undertake a review of FBT and the benefits you may be providing.

FBT is a tax employers pay on certain benefits they provide to their employees. The general concept of FBT is to ensure that any benefits over and above wages paid to employees are taxed to capture the PAYG withholding that would be paid if the benefit had been paid as a wage. 

FBT is paid by the employer to the ATO and therefore it is the employers’ responsibility to comply with the relevant requirements. FBT is often overlooked by small businesses thinking that it doesn’t apply to them but this is not always the case. 

The list of benefits that fall within the FBT regime are listed below: 

1. Car fringe benefits 
2. Car parking fringe benefits 
3. Meal and Entertainment fringe benefits 
4. Expense payment fringe benefits 
5. Loan fringe benefits 
6. Debt waiver fringe benefits 
7. Housing fringe benefits 
8. Board fringe benefits 
9. Living away from home allowance fringe benefits

Today I am going to touch on the top 4

Car Fringe Benefits

A car fringe benefit can occur when an employer makes a car they own or lease available for the private use of an employee. When a non-cash benefit (like the use of a car) has been provided to an employee, your business may be liable to pay FBT.

There are two calculation methods available to value a car fringe benefit the Statutory Formula or the Operating Cost method. An employer can choose which method determines the lowest taxable value. It can also alternate from FBT year to FBT year.

The statutory FBT method is based on how much the vehicle costs rather than how much it is being used privately. It uses a flat rate of 20% of the car’s base value, taking into account the number of days per year the vehicle is available for private use. The Operating Cost Method of calculating FBT on motor vehicles, is based on a log book record of travel which establishes the business percentage of motor vehicle expenses. The log book must be maintained for a continuous period of at least 12 weeks. Unless circumstances materially change, the same log book may be relied upon for 5 years before another 12-week period must be recorded. The lower the incidence of actual private use, the lower the taxable value.

Safe Harbour Provisions

The ATO has now released safe harbour guidelines for employees that are provided with workhorse vehicles.

A workhorse vehicle is a panel van, utility (ute) or other commercial vehicle (that is, one not designed principally to carry passengers) such as a dual cab ute with a carrying capacity of more than one tonne.

The ATO has provided that where the vehicle first meets the definition of a workhorse vehicle, and provided that the private use of the vehicle satisfies the following conditions that car will be exempt from FBT:

• Private travel between the employee’s home and their place of work can be no more than two kilometres (e.g., dropping children off at school on the way to work).
• No more than 750 kilometres in total for each FBT year are taken for a wholly private purpose (i.e., multiple journeys).
• No single, return journey undertaken by the employee that is wholly private purpose exceeds 200 kilometres.

As part of your employer obligations, it is important that any private usage of motor vehicles is reviewed each year and an employee declaration signed as a record. The company’s HR policy should include motor vehicle usage so that you have the records to verify the safe harbour provisions have been satisfied.

Car Parking Fringe Benefits

A car parking fringe benefit will generally arise if an employer provides car parking to an employee and all the following conditions are satisfied:

• the car is parked at premises that are owned or leased by, or otherwise under the control of, the provider (usually the employer)
• the car is parked for a total of more than four hours between 7.00am and 7.00pm on any day
• the car is owned by, leased to, or otherwise under the control of, an employee, or is provided by the employer
• the parking is provided in respect of the employee’s employment
• the car is parked at or near the employee’s primary place of employment on that day
• the car is used by the employee to travel between home and work (or work and home) at least once on that day
• there is a commercial parking station that charges a fee for all-day parking within 1 kilometre of the premises on which the car is parked and  
  • the commercial parking station fee for all-day parking is more than the car parking threshold, and
  • at the beginning of the FBT year, the commercial parking station fee for all-day parking was more than the car parking threshold.

Small Business and Other Car Parking Exemptions

Car parking benefits are exempt from FBT where provided:

• by employers who meet the conditions of a small business entity
• by certain research, education, religious and charitable institutions
• for employees with a disability (irrespective of the type of employer).

The small business car parking benefits exemption applies if all the following conditions are satisfied:

• the parking is not provided in a commercial car park
• the employer is not a government body, a listed public company, or a subsidiary of a listed public company
• the employer qualifies as a small business – that is, either your gross total income for the last income year before the relevant FBT year was less than $10 million , or you were a small business for the last income year before the relevant FBT year.

From 1 April 2021 the small business turnover threshold will increase from $10 million to $50 million.

Meal and Entertainment Fringe Benefits

To determine whether providing food or drink is entertainment, the employer needs to look at the following factors. None of these on their own will determine whether providing food and drink is entertainment, but the first two questions are the more important.

• Why are you providing the food or drink for employees?
  • Providing refreshments to enable the employee to complete the working day in comfort is not generally entertainment.
  • Providing food or drink in a social situation where the purpose of the function is for employees to enjoy themselves is likely to be entertainment.
• What type of food or drink is being provided?
  • The more elaborate a meal, the more likely it is that entertainment arises from eating the meal.
• When is the food or drink being provided?
  • Food or drink provided during work time, during overtime or while traveling for work is less likely to be entertainment. This is because the food or drink is generally provided for a work-related purpose rather than for entertainment.
• Where is the food or drink being provided?
  • Food or drink provided on your business premises or at the employee’s usual workplace is less likely to be entertainment.
  • Food or drink provided off your business premises, such as at a function room, hotel or restaurant, or consumed with other forms of entertainment is more likely to be entertainment.

Entertainment – Client

It is important to note that, whilst entertainment provided solely to clients does not attract fringe benefits tax,such expenditure is not tax deductible nor can a GST input credit be claimed. In order to remain exempt from FBT in respect of non-employee meal entertainment expenditure, it is a requirement that the Company maintains a detailed expense log of all entertainment costs incurred dissected between employees and clients.

Entertainment – Employee

There are two alternative methods for calculating the FBT liability in respect of meal entertainment fringe benefits (provided to employees) which are the 50/50 and 12 week register method.  Whilst these methods simplify calculation of your FBT liability, they deny the use of the minor benefit exemption for meal entertainment expenses such as a Christmas party.

Minor Benefit Exemption

A minor benefit is a benefit that has a value of less than $300. It is exempt from FBT if it would be unreasonable to treat it as a fringe benefit, that is, if the benefit is provided infrequently and irregularly.

Work Related Items Exempt from FBT

The following work-related items are exempt from fringe benefits tax (FBT) provided they are used primary for the employees employment and one device per year unless you can satisfy the ATO requirements of having more than one device.

• portable electronic devices such as mobile phones, laptops, tablets, portable printers and GPS navigation receivers
• computer software
• protective clothing
• briefcases
• tools of trade.

Expense Payment Fringe Benefits

An employer may provide an expense payment fringe benefit if an employee incurs expenses and the employer either:

• reimburses them for the expenses, or
• pays a third party for the expenses.
• The expenses can be business or private expenses or a combination of both, but they need to be incurred by the employee.
• If the employer incurs the expense, for example through a corporate credit card, they won’t have provided an expense payment fringe benefit. However, depending on what is paid for, a property, residual, meal entertainment or tax-exempt body entertainment fringe benefit could arise.

Some examples of expense payment fringe benefits are when an employer pays an employee’s health insurance, non – business travel, rent, rates, electricity, and airfares for family members.

Tips for Preparing for the End of the FBT Year

• Check if you are providing fringe benefits to employees;
• Check that you have appropriate policies and procedures in place.
• Obtain copies of log books – if the log book is 4 years old or no longer reflects the private use of the vehicle, ask the employee to complete a new one.
• Where you provide dual cabs and are relying on PCG 2018/3, obtain declarations from employees that their private use falls within the criteria in the PCG.   
• Check your accounting records to ensure you have the required information to apply relevant exemptions or reductions;
• Obtain supporting documentation (invoices, bank statements etc) from employees in respect of expenses reimbursed (e.g. for meal entertainment, a description of the function, the number of people who attended, the names of who attended, whether they were an employee/associate/spouse/client);
• Obtain required FBT declarations from employees (e.g. no private use declaration, loan fringe benefits declaration, living away from home declarations, relocation transport declarations).

If you have any questions regarding FBT please don’t hesitate to contact Amanda Bonavita.

Written for you by Amanda Bonavita