As is the case with most taxes in Australia, understanding Fringe Benefits Tax (FBT) and its applications seems to get more and more complex each year. Amendments and newly introduced items can make it difficult to navigate successfully. In addition to yearly changes, the move away from once-common workplace arrangements such as more remote work and less office time further contribute to making FBT challenging for both employers and employees. Let’s take a closer look at the key components of Fringe Benefits Tax, as well as highlighting important changes for the current 2023-24 FBT year.
Fringe Benefits Tax Explained
Employers are liable for Fringe Benefits Tax (FBT) if they provide certain benefits to their employees or associates throughout the FBT year, 1 April to 31 March. The FBT rate is 47% and is levied on the taxable value of fringe benefits. It is not only companies that are liable to pay FBT, but also sole traders, partnerships and trusts.
Be Clear on the Employee vs Contractor Distinction – Generally only benefits provided to employees under formal employment – including current, future and former employees, can constitute a fringe benefit. Benefits provided to volunteers and contractors are usually not liable for FBT. If you are engaging with contractors or consultants, it is important to ensure that you are engaging with a company or trust set-up, not just an ABN. In certain circumstances, a sole trader operating under an ABN may be considered an employee for FBT purposes and consequently, any benefits paid to that worker may attract FBT liability.
Fringe benefits can either be provided by an employer, its associates, or by a third party under an arrangement with an employer.
Items exempt from FBT include:
- payments of salaries or wages
- shares issued under approved employee share acquisition schemes
- employer contributions to complying super funds
- employment termination payments
- certain dividends
- capital compensation for personal injury or restraint of trade
- minor benefits valued at less than $300
- work related items that are required by an employee for the day to day running of the business, such as a phone, certain computer software, protective clothing or tools
- electric cars (that meet the exemption criteria)
- membership fees eg. airport lounge membership
- in-house gymnasium for employees to use
Fringe Benefits Categories
Fringe benefits can be provided in various forms, such as rights, privileges, and services. Some of the most common types of fringe benefits are outlined below.
Internet & Phone Plans
With working from home arrangements more common than ever, it is important to be aware of the best way to provide mobile phone and internet services to your employees who are working from home in order to minimise potential FBT liability.
Internet and mobile phone plans provided to employees who are working from home and paid for via a company bank account are subject to FBT.
Alternatively, employers should provide employees with allowance to cover those costs as that will not attract an FBT liability.
Car Fringe Benefits
Car fringe benefits arise when an employer provides a car for the private use of an employee or related associate. Generally speaking, the vehicle is deemed to be for private use whenever it is under an employee’s custody and control, such as travelling to and from work.
The following vehicles are classified as a car for FBT purpose:
- motor cars, station wagons, panel vans and utilities
- any goods carrying vehicles designed to carry less than one tonne
- any passenger carrying vehicles designed to carry fewer than nine occupants
Some important things to note when it comes to cars & FBT include:
- There may be FBT implications where an employee acquires a car for less than market value at the end of a lease or hire-purchase arrangement with their employer.
- An employee’s use of a taxi, a vehicle designed to carry a load of one tonne or more, or any other commercial vehicle will be exempt from car fringe benefits tax.
- The ATO is clear in defining that a car is deemed to be available for private use even if it is available to them for only 1 minute in a day.
- In the event that a car is non-drivable, such as it has been in an accident and is under repair at a repair shop, the FBT liability/exemption should be apportioned for the days that the car was not held/available for private use.
Record-Keeping for Car Fringe Benefits
There is a requirement to maintain and manage specific records throughout the FBT year in order to substantiate, and sometimes potentially minimise, a car fringe benefits liability.
- Logbooks – During the year, ensure that all logbooks for all company vehicles are up-to-date and completed per ATO requirements.
Workers who have been provided a car for use for personal and work purposes are required to record details of their work-related journeys. That data is used to determine the “business use percentage” of a car when calculating the taxable value of car fringe benefits under the Operating Cost method.Logbook entries should include:
– The date on which each journey begins and ends.
– The car odometer readings at the beginning and end of each journey.
– The number of kilometres travelled in the course of each journey.
– The purpose of each journey.The ATO will differentiate between vehicles that meet their definition of a car and workhorse vehicles with a carrying capacity of more than 1 tonne that has minor and infrequent personal use. Some dual cab utilities will be defined as cars under these rules.
It is important to note:
– If your vehicle is defined as a car, then it will not be exempt from FBT unless there is a log book that shows 100% business use.
– In the absence of a logbook , the FBT for a company car is worked out by using the statutory formula which is 20% of the purchase value of the vehicle. This can be significantly more for new cars with minor business use so it is strongly encouraged to have workers diligently complete the logbook requirements as it can make a big difference to fringe benefits tax liabilities.On 31 March, when the employees have finished their travel for the day, you should request that they each take a photo of their vehicle odometer readings using their phones and email the photo to you, or to a nominated person in your business to collate them all for you.
- Private Use – Carefully manage the private use of business cars, including the travel between home and work. The ATO is conducting a data matching program aimed at motor vehicles to capture benefits that aren’t currently being reported through FBT. If significant variances are identified a full ATO audit may follow.
FBT Exemption for Electric Cars – New in 2022/23 FBT Year
The ATO has introduced FBT exemptions such that from 1 July 2022, employers will not pay FBT on benefits provided for eligible electric cars and associated car expenses such as registration, insurance, repairs, maintenance and fuel or electricity costs for charging.
Even though there is no FBT payable, employers must still include the value of these exempt car fringe benefits in the calculation of an employee’s reportable fringe benefits amount and employees must also include the reportable FBT amount on their individual tax return.
Before rushing out to buy electric vehicles for your employees, it is important to be familiar with the conditions and criteria, and seek independent professional advice from tax accountants like the team at The Quinn Group, so that you can determine if it is a viable option for you and your business.
Such criteria include:
- The car needs to be a zero or low-emissions vehicle – full-electric, hydrogen fuel-cell, or plug-in hybrid drivetrain and it must be designed to carry a load less than one tonne.
- The car has never been subject to luxury car tax (LCT). The LCT threshold for 2023/24 financial year is $89,332 (GST inclusive).
- An electric car must be used for the first time on or after 1 July 2022 – even if it is held before this date. This time stamp is based on when the car was first used, so if you buy a used electric car after 1 July 2022, even if it is your first time ‘using’ it, the car is already deemed ‘used’ by the ATO, and is not eligible for the FBT rebate.
- The car is used by a current employee or their associates (such as family members)
Benefits provided under a salary packaging arrangement are included in the exemption.
The Government is expected to complete a review into this exemption by mid-2027 to consider electric car take-up.
Entertainment Fringe Benefits
An entertainment fringe benefit is when an employee is entertained by the way of food, drink or recreation, then is reimbursed by their employer. Some examples of this could be the reimbursement for the cost of theatre tickets, facility leasing or accommodation/transport in relation to entertainment.
Record-keeping for Entertainment Fringe Benefits – during the year, you should keep a logbook of all meal entertainment expenses provided to employees, associates and clients. Include details such as cost, who/how many people were present and the type of event.
Debt Waiver Fringe Benefits
A debt waiver fringe benefit arises when an employer waives or forgives part, or all, of an employee’s debt to the business. Any business that waives these debts will be liable for FBT. However, if an employee debt is written off because it is uncollectable, it does not qualify as a debt waiver fringe benefit.
Loan Fringe Benefits
A loan fringe benefit is when an employer provides a loan to an employee with no interest, or at an interest rate that is less than statutory interest rate. Loan fringe benefits also arise when an employee is given time to repay an overpaid salary. The following loan benefits are exempt from FBT:
- fixed and variable loans to employees that are provided at the same rate, and with the same terms, that are offered to the public
- short term (6 months) advances to employees in order to cover employment-related expenses
- a temporary advance (12 months) to cover security deposits
Living-away-from-home Allowance Benefit (LAFHA)
This arises where the employer pays an allowance to an employee as compensation of additional expenses incurred because they are required to live far away from their usual residence to perform their employment duty. A period of less than 21 days away is considered as travel.
Property Fringe Benefit
A Property Fringe Benefit may arise when an employer provides an employee with free or discounted property, either tangible or intangible, such as goods, shares, bonds or the rights to a property. However, property provided and consumed by an employee on working days and in the employer’s premises or related company is exempt from fringe benefit tax.
Taxable values of such benefits are affected by its nature in regards of in-house or external property fringe benefit. Generally, it is 75% of the amount of related goods or service charging to the public in the ordinary course of business.
Residual Benefits
Any benefit not covered previously would fall into the residual benefit category, excluding the following:
- Recreational or childcare facilities located on business premises
- Motor vehicles not for private use
- Living away from home accommodation provided as a residual benefit
- Use of property located on business premises principally connected with employment
- Office equipment provided for temporary use and is expected to be returned back (e.g., desk, chair etc.)
- COVID-19 tests (PCR/RAT) provided to employees on the basis that it constitutes work-related preventive health care of the employees.
What Records are Needed for FBT?
You must keep all adequate records to enable the fringe benefit tax liability to be assessed, including the working paper indicating how you worked out the taxable value of the benefits. The records need to be kept for five years from the date of the relevant transactions.
Benefits of Lodging a Nil Return
The ATO is getting much more efficient in identifying and following up many discrepancies/failure to lodge for a range of tax liabilities, including FBT.
Even if you have not accrued any FBT liability for the current FBT year it is strongly encouraged that you lodge a nil FBT return, as opposed to not lodging at all.
In addition to this being good record-keeping and taxation practice, the benefit of lodging a nil return is that in the event that the Commissioner of Taxation identifies an amendment to the original assessment is required, they have only 3 years in which to do so. If you do not lodge anything, and an assessment/amendment needs to be issued, the Commissioner has an indefinite period in which they can take that action.
Expert Fringe Benefits Tax Advice
As we have explained, Fringe Benefits Tax is a complex tax with additional complexities arising as traditional work arrangements continue to transition and evolve. A trained professional, such as our expert tax accountants at The Quinn Group, can assist and provide advice regarding any FBT problem or query that you might have. Getting the right advice from the outset can help to ensure that you are correctly executing and meeting your FBT liabilities and avoid any potential complications and penalties down the track.
For expert Fringe Benefits Tax advice contact our team of experienced tax accountants by submitting an online enquiry form, calling us on 1300 QUINNS or +61 2 9223 9166 to arrange a teleconference or appointment.
To check whether you may have an FBT liability for the current period, you can review the questions in our FBT Liability Checklist.
