Savvy businesses use fringe benefits as an effective tool for recruiting and retaining valuable staff. And the really savvy ones do it in a way that doesn’t attract a hefty Fringe Benefits Tax (FBT) bill! FBT rules and exemptions are constantly changing, so in this article we explore the exemption of electric bicycles (e-bikes) from FBT, and how this can be applied to benefit employees.
What is the Fringe Benefits Tax?
FBT is a tax that employers pay on certain benefits they provide to their employees or their employees' associates. These benefits are in addition to, or part of, their salary or wages package. FBT is distinct from income tax and is calculated on the taxable value of the fringe benefits provided. In recent years, the electric vehicle FBT exemption has been an area of keen interest for both employers and employees. We’ve covered everything you need to know about EV FBT exemptions . Now let's talk about e-bikes!
The ATO's Class Ruling on E-bikes and Their FBT Exemption
The Australian Tax Office's Class Ruling CR 2020/68 is a game-changer for employers considering e-bikes as part of their employee benefits program. However, it’s essential to note that this ruling only binds the ATO concerning employees using e-bikes under a salary sacrifice arrangement with E-Stralian Pty Ltd. This ruling outlines the FBT implications for employers who offer the use of e-bikes to their employees under a salary packaging arrangement.
Key Takeaways from the E-Bike FBT Exemption Ruling
- No Car Benefit: E-bikes are not classified as cars, so providing them to employees does not trigger a car benefit, which typically has a higher taxable value.
- No Expense Payment Benefit: Employers are legally responsible for the lease payments of the e-bikes, meaning no expense payment benefit arises for the employee.
- No Property Benefit: Ownership of the e-bike remains with the leasing company, not the employee, so no property benefit arises.
- Potential Exempt Benefit: If the use of the e-bike is limited to work-related travel, it may be exempt from FBT, reducing the employer's tax liability.
- Taxable Value Calculation: The taxable value of any residual fringe benefits from e-bike use can be calculated using the operating cost method or a cents per kilometre basis for extensive business use.
How Businesses Can Provide FBT Exempt E-Bikes
It's crucial to note that the benefits of this ruling can only be relied upon if the e-bike scheme is carried out as described. Any deviation may invalidate the applicability of this FBT exemption, and the associated tax benefits may not be realised. So check in with your accountant before buying a bunch of e-bikes!
- Lease Agreement: Employees enter into a lease agreement with a provider for the e-bike.
- Deed of Novation: A deed transfers the liability for lease payments from the employee to the employer during the employee's tenure.
- Employer's Role: The employer agrees to pay the leasing company the specified amount for the lease payments.
- Insurance and Maintenance: These are typically included in the lease payments, and the employer may not be responsible for these additional costs.
- End of Lease: At the end of the lease term, the employee may return the e-bike or purchase it by paying the residual value.
Why This FBT Exemption Ruling Matters
For small businesses, this ruling simplifies the process of offering e-bikes as a non-cash benefit, which can be a great way to increase employee satisfaction and retention without incurring additional FBT liabilities. Providing e-bikes to staff is also a great way to support environmentally friendly transportation and promote employee health.
For accountants, this ruling is a tool to ensure that their small business clients can provide tax-effective fringe benefits while remaining compliant with FBT regulations. However, it's important to highlight that private companies need to be cautious. If the employee is also a shareholder or an associate of the shareholder, there could be Division 7A consequences if it's determined that the benefit is provided in the employee's capacity as a shareholder (or associate of the shareholder).
Case Study: Leveraging the FBT Exemption for E-Bikes
Consider Dwayne, who owns a film production company in Sydney. Dwayne wants to promote sustainable commuting and enhance employee satisfaction by giving his team a green and cheap way to get to work.
So, he decides to purchase 3 e-bikes that his employees can use to commute to the studio, client meetings, and shoot locations. If these e-bikes are used primarily for work-related travel, they are less likely to attract FBT. However, if they are used for non-work purposes, the employer might still face potential FBT liability.
Let’s say he pays $3,300 (including GST) for each e-bike. He can claim a tax deduction for depreciation on the e-bikes. According to the ATO, e-bikes have an effective life of 4 years, which, based on the prime cost method, equates to a deduction of $750 per year for each e-bike. Note that there are accelerated depreciation rules applicable to small businesses, which, if eligible, could allow the amount to be deducted in full upfront. Additionally, Dwayne can also claim a GST credit of $900 ($3,300 / 11 * 3).
Ask BlueRock’s Accounting & Tax Advisors About Your FBT Liability
The ATO's Class Ruling CR 2020/68 offers a valuable opportunity for business owners and accountants to enhance their benefits program with e-bikes. If you'd like to learn more about reducing your FBT bill while providing great benefits to attract and retain top talent, get in touch with our Melbourne accountants today for a free consultation. Simply complete the form below to get started.
Disclaimer: The information in this article, including the case study hypothetical scenario, may be different depending on the exact nature of the workplace and the specific arrangement. Consult your accountant for personalised advice.
