Fringe Benefits Tax - What is it and where can I get help?
With the end of the Fringe Benefits Tax year fast approaching on 31st March, it's time to start thinking about getting your FBT return ready for lodgement. As a business owner, you are often providing non-cash incentives to your team during the year so it is important that you understand if that incentive or bonus is a benefit that might attract a tax liability for you.
Why Lodging an FBT return is important.
All businesses (except exempt organisations such as not-for-profits) will need to assess for any FBT payable each year. If there are fringe benefits provided an FBT Return needs to be prepared. If there are no fringe benefits provided, it is still recommended to lodge a Nil FBT return. In small businesses, the most common fringe benefit is in relation to motor vehicles. The ATO has three years in which to go back and amend an FBT return. Lodging a Nil return may reduce the risk of ATO Audit and subsequent amendments of prior years where an FBT return was not prepared but was required. The ATO is continuing to increase its audit activity on FBT.
What are fringe benefits?
A fringe benefit is something extra you give to your employee. It's generally not actual salary, wages, or cash, and the benefit does not need to be given to the employee but also may be to the employee’s family. These benefits are offered by businesses to help attract and keep good people. If your business is in an employee scarce market you might find that you are constantly having to offer additional benefits. The Australian Tax Office use the following as examples of Fringe benefits:
allowing an employee to use a work car for private purposes
giving an employee a discounted loan
paying an employee's gym membership
providing entertainment by way of free tickets to concerts
reimbursing an expense incurred by an employee, such as school fees
giving benefits under a salary sacrifice arrangement with an employee.
How are Fringe benefits Taxed?
You as the employer are liable for Fringe Benefits Tax. The tax year differs from the financial year and runs from 1st April to 31 March each year and if you providing fringe benefits you may be required to lodge an FBT return with the ATO. FBT is in addition to income tax and is payable on the taxable value of the Fringe benefit and that FBT rate for 2022 is 47%. Determining the Taxable Value of a fringe benefit will depend on the type of benefit provided. For calculating purposes, fringe benefits are broken into the following types:
Car fringe benefits
Car leasing fringe benefits
Car parking fringe benefits
Entertainment-related fringe benefits
Expense payment fringe benefits
Debt waiver fringe benefits
Loan fringe benefits
Housing fringe benefits
Board fringe benefits
Living away from home allowance fringe benefits
Property fringe benefits
Residual fringe benefits
The most common fringe benefits for small businesses are car fringe benefits, entertainment-related fringe benefits, and expense payment fringe benefits
Car Fringe Benefits
If you make a car that your business owns available to an employee, you may be providing a car fringe benefit. For Fringe benefits Tax purposes, the ATO defines a car as:
a sedan or station wagon
any other goods-carrying vehicle with a carrying capacity of less than one tonne, such as a panel van or utility (including four-wheel drive vehicles)
any other passenger-carrying vehicle designed to carry fewer than nine passengers.
A common myth when it comes to car fringe benefits is that dual cab Utes are not cars under the definition and are not subject to Fringe benefits tax. Determining this requires the investigation of the car’s Gross vehicle Mass and kerbside weight in addition to the nature of the personal use considering where or not use is minor or infrequent which is defined as:
No more than a 2 km private travel diversion between home and work;
No single return private journey in the FBT year that exceeds 200 km; and
No more than a total of 1,000 km of private travel in the FBT year.
It certainly isn’t just a case of saying “it’s a Ute” and therefore not subject to FBT
The taxable value of a car fringe benefit can be complex and as with claiming motor vehicle deductions there are a number of different options:
Statutory method - ATO allows Stat method 20% of vehicle cost for Cars (but not commercial vehicles).
The Operating cost method – This require the motor vehicle deductions to be valid and the only way this can happen is if you have a valid logbook. An invalid logbook is the easiest way to knock out MV deductions - so even if you can demonstrate you have done the travel, you might get stuck.
It is essential that you speak with your Accountant to ensure that you use the option that gives you the best outcome.
Entertainment-related fringe benefits
An Entertainment Fringe Benefit may arise if you provide your employees or employees families with entertainment by way of food, drink, entertainment, and associated travel and accommodation. It is an area that a lot of small business owners overlook when planning events such as Staff Christmas parties. Determining the Taxable value of these fringe benefits is relatively simple, and we generally use an actual value method. The complexity with Entertainment related fringe benefits is working out what in fact is a fringe benefit. For Example, when considering if a meal is a fringe benefit, the ATO will consider factors such as when the meal is, how elaborate the meal is, why the meal is being provided, and where the meal is being provided. As with care fringe benefits, it is important that you speak to an expert to help get the best outcome.
Whilst COVID restrictions may have lessened the use of car and entertainment fringe benefits over the past 2 years, the lifting of restrictions, a scarce labour market, and an increasingly mobile workforce, these types of benefits will be a major weapon for business owners looking to attract and keep staff. Before your offer these benefits it is essential that you find out the tax consequences, if any, of providing them to your employees by reaching out to your Accountant.
Our Accountants are experienced in helping business owners work through the complex FBT laws and lodging annual FBT returns for their clients. Give us a call to get your 2022 lodged.