Fringe Benefits Tax (FBT) is a highly complex tax that requires employers to make many choices that can significantly reduce their liability. The complex nature of FBT can make the preparation of the annual return difficult for the employer’s internal accounting team. Our team of BlueRock accounting advisors have collated everything you need to know about Fringe Benefits Tax in this easy-to-digest article.
When is Fringe Benefits Tax Paid?
A Fringe Benefit is a payment that is made to an employee, in a different form to both salary and wage. FBT exists to capture the tax on benefits provided to the employee that would otherwise have been taxed in their name as ordinary income.
FBT is paid by employers on a number of benefits that they provide to their employees. Employers pay FBT on:
- Every other benefit that is not already taxed
How has COVID-19 Impacted FBT?
The pandemic has impacted countless avenues, and Fringe Benefits Tax has not been made exempt. As a result of COVID-19, we’ve seen changes to FBT in the following areas:
Working From Home
Laptops, portable printers, and other electronic devices are exempt from FBT. Employers can consider minor benefits exemption or otherwise deductible rules.
No car parking benefit is provided if the work car park is closed, or all of the commercial parking stations within a 1km radius from the place of work are closed. The threshold for the lowest rate at commercial parking stations has been lowered to $9.25. Car parking is tested as at 1 April 2021 for all commercial stations with 1km radius (as many were free or closed during some of the COVID-19 impacted times, therefore affecting the determination of whether a benefit is being provided).
Logbooks can still be utilised even if driving patterns changed throughout COVID-19.
If Employees Didn’t Use Their Cars Throughout Lockdowns
Where an employee receives a car benefit and the car has been at their home and only driven for maintenance purposes throughout the FBT year, the ATO have accepted that the car is not held/used privately/deemed to be available for private use by the employee during this time, and therefore reducing the FBT liability for the employer.
Please note that this is only available under the operating costs method. If an employer wants to elect to use the operating cost method, they must take the vehicle odometer readings at 31st March 2022 and maintain these business records for FBT reporting purposes.
Accommodation, Food, and Transport
Accommodation, food, and transport are not subjected to FBT if they are provided to grant immediate relief for employees being adversely affected by COVID-19.
COVID-19 testing is currently only exempt if administered by registered nurses and available to employees. An exemption is expected to come soon for RATs.
Items That Help Protect Employees from COVID-19
Items that help protect employees from COVID-19 may be subject to FBT. However, there is an exemption if the items are used for emergency assistance.
Fringe Benefits Tax Windfall for SME Employers
SME employers receive an FBT exemption for:
- Providing multiple portable electronic devices
- Car parking
It is important to note that the above benefits are still relevant for tax deductibility.
In order to be classified as an SME, a business is required to:
- Carry on business in the current income year
- Have an applicable threshold of:
- $10m before 1 April 2021
- $50m after 1 April 2021
- Have one of the following:
- Prior year’s aggregated turnover less than the threshold
- Current year’s aggregated turnover likely to be less than the threshold
- Current year’s aggregated turnover is actually less than the threshold (and measured after year-end)
Concessions for Retraining and Reskilling Staff
When retraining and reskilling staff, the exempt benefit can be provided on or after 2 October 2020, if all of the following conditions are satisfied:
- The benefit is provided in the year of the tax in respect of education or training undertaken by an employee
- The employee has been made redundant or is soon to be made redundant
- The education of training is for the primary purpose of enabling the employee to gain or produce salary or wages in respect of any employment to which the education or training relates to
There are also a number of caveats to consider. These include:
- No salary-packaging
- Not for spouses
- Not covered by Commonwealth-supported student assistance (such as HELP or HECS)
- No ‘related employees’
- No primary or secondary schools
What Processes are Involved in Lodging a Fringe Benefits Tax Return?
There are four main steps involved in Fringe Benefits Tax. These include:
As with all taxes, a little effort paid towards structuring benefits and choosing strategies that reduce exposure to liability can help eliminate any problems before they arise.
Your accountants will work with your staff to understand your risks, and enables us to assess any alternative reporting options necessary.
Your accountants will prepare the returns and manage the lodgement and assessment process accurately to ensure compliance.
As employee benefits need to be reported on PAYG summaries, reporting includes full employee data and full work papers to support any future audits from the ATO.
Fringe Benefits Tax Auditing
According to the ATO’s latest statistics, in the 2018-19 financial year, there was a difference of approximately $1.13 billion between the FBT paid to the ATO by employers and the total theoretical FBT payable in 2018-19. The ATO have identified that there are significant compliance issues for small and medium enterprises and estimates that they are paying far less in FBT than what the ATO modelling suggests. The ATO will continue to use data and analytics to identify high-risk employers.
In the current digital age, the ATO has access to more information than ever. This will enable them to make their audit process far more precise and successful. In particular, they will continue to use data from the following sources to target employers not meeting their FBT liabilities:
Income Tax Returns and BASs:
Various items and labels contained on ITRs and BASs exist for the purpose of reporting data relating to employee remuneration and other transactions that may indicate and FBT liability.
Single Touch Payroll
STP makes it compulsory for all employers to report their payroll information electronically to the ATO.
Data Matching Programs
The ATO has access to several data matching programs, including a recent extension to collect insurance policy information on various ‘lifestyle assets’ owned by employers and used by their employees.
However, even the most diligent and honest employers can still be subjected to an ATO audit. In order to ensure compliance, it is crucial that employers structure their benefits correctly and report accurately.
Here at BlueRock, we have invested in specailised software and training in order to assist our clients in accurately assessing their liability, ensure compliance, and to facilitate precise reporting through to individual employee PAYG summaries. For further support in Fringe Tax Benefits, get in touch with our Melbourne-based accounting team today for a free consultation.