The Australian Taxation Office have recently announced an increase in audit and review activity on Fringe Benefits Tax (FBT), so here’s what you need to know.
Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits provided to their employees or associates and is separate from income tax. A fringe benefit is akin to a payment to an employee but differs from a salary or wage.
The FBT year runs from 1 April to 31 March, during which all fringe benefits provided to employees need to be assessed to determine if they are taxable or eligible for an exemption or reduction.
There are different types of fringe benefits, including some of the following common items:
- Cars
- Entertainment
- Travel
- Training
Motor Vehicles:
If your employees use a car your company holds for private purposes, you are providing a car fringe benefit. For FBT purposes, a ‘car’ is defined as any of the following:
- A sedan or station wagon
- A good-carrying vehicle with a carrying capacity of less than one tonne
Note: Carrying capacity, also referred to as payload capacity, is not the same as towing capacity.
- A passenger-carrying vehicle designed to carry fewer than 9 passengers.
A car fringe benefit commonly arises when you make a car you own or lease available for an employee’s private use.
What records do you need to keep?
There are two methods of calculating FBT that your accountant will use, and the records you need to keep depend on which method. However, you should always keep the following:
If you purchase a car:
- Date the Motor Vehicle was first held
- Purchase Price of Motor Vehicle
- Odometer Reading at the Date of Purchase
If you sell a car:
- Date the Motor Vehicle was last held
- Odometer Reading at the Date of Selling
The employee that uses the car for private use.
Statutory Formula Method:
The statutory formula method applies a 20% statutory rate to the car’s base value. Alongside the standard information, your accountant will require:
- Odometer Readings: Opening – 1st April; Closing – 31st March
Operating Cost Method:
The operating cost method is based on operating costs and the percentage of private use for the car over the year. Alongside the standard information, your accountant will require:
- Operating costs: Repairs and Maintenance, Fuel, Registration, and Insurance (usually contained in your accounting software/bookkeeping data)
- A Logbook detailing Business Use Percentage (12 consecutive weeks) needed every 5 years
Entertainment-Related:
As an employer, you are providing a fringe benefit if all the following apply:
- Provide food, drink, or recreation to employees or their associates.
- The food, drink, or recreation is considered entertainment.
- The entertainment is not an exempt benefit.
Common scenarios where entertainment occurs:
- Staff social functions, e.g., Christmas Party
- Tickets to sporting/events
- Gym membership
What records do you need to keep?
For entertainment, please keep a detailed register or add a reference relating to each event when reconciling accounts. Details should include:
- Who is attending (+number)? Staff, associates, or clients
- Where is the entertainment occurring? In-office or out of office.
Training and Education::
It is common for employers to incur expenditure relating to the training and education of their employees. The taxable value of training and education related benefits provided to employees will often be reduced to nil under the ‘otherwise deductible’ rule. This means that the employer doesn’t pay FBT on the expense as your employee could have claimed it as a deduction if they paid for it themselves.
What records do you need to keep?
For training and education, ensure the following information is provided to MJJ regarding training of employees:
- Which employee was the training or education provided to?
- How does the training and education:
- Maintain or improve the employee’s knowledge and/or skill in their current job.
- Likely lead to an increase in income in respect of the employee’s current income-earning activities.
Where the training does not meet the above criteria, ie. retraining an employee in an entirely new job, there may be FBT implications.
Business Travel-Related Expenses:
Employees often undertake travel for business purposes where a fringe benefit arises when the travel expenses are either:
- Reimbursed by an employer: the benefit is generally an expense payment fringe benefit.
- Incurred and paid directly by the employer: the benefit is generally a residual fringe benefit.
The taxable value of travel can be reduced (potentially to nil) under the ‘otherwise deductible’ rule.
What records do you need to keep?
For business-related travel, keep records that prove all your business travel expenses. It is highly recommended that your employees keep a travel diary to determine the portion of travel that was for private purposes and should include:
- The nature of each business activity
- The date and approximate time the business activity began
- How long the business activity lasted
- The name of the place where you engaged in the business activity.
If you think you are liable for FBT after reading this article, please contact our office to discuss further with one of our accountants.
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