As the end of Q3 fast approaches, so too does the end of the Fringe Benefits Tax (FBT) year. Running from 1st April to 31st March, the FBT year is separate to the income tax year end of 30th June.
With the ever-increasing use of data matching and audit activity on the rise, it’s easier than ever for the ATO to become aware of non-compliance, so it’s important to get it right – and it’s not easy!
If you, as an employer, provide (or organise through a third party to provide) a benefit to your employees, other than a salary/bonus/super etc then you may be providing a Fringe Benefit to your employees. Some common examples include meals, entertainment, motor vehicles, gifts and many more.
Below we’ve highlighted some areas that can prove tricky for employers to get right.
Motor Vehicles
One of the most common fringe benefits provided by an employer is the provision of a motor vehicle. If an employee uses a motor vehicle owned by the employer, FBT should always be considered.
There are two broad methods in determining the value of the motor vehicle benefit the Statutory Method & the Operating Cost Method.
1. Statutory Method – This method is the simpler of the two, calculating the taxable value by multiplying the purchase price (including acquisition costs) of the vehicle x 20%. This can be reduced by employee contributions to offset the benefit, or if the vehicle was not provided to the employee for the full year.
2. Operating Cost Method – This requires keeping records of all expenses relating to the vehicle, reducing these by an appropriate business use percentage, leaving the taxable value. A business use percentage is determined by considering the following:
a. Information contained in a compliant logbook
b. Odometer records – which must be kept every year
c. Any variations in the pattern of business use (changes in job, holidays etc)
d. Other records maintained by the employer.
There are exemptions that may apply to vehicles other than cars (some types of utes, trucks etc.) however even these are being restricted over time.
Meals and Entertainment
One of the biggest challenges facing employers is to correctly identify what is, and what is not, entertainment. Common examples that require analysis include:
• Business meals
• Christmas and other social functions
• Light lunches and snacks during meetings with clients.
Entertainment is defined as:
a. entertainment by way of food, drink or recreation; or
b. accommodation or travel to do with providing entertainment by way of food, drink or recreation.
Some common misconceptions include:
• Entertainment can be provided despite business discussions occurring (i.e. at a business or working lunch)
• GST cannot be claimed on entertainment which is not subject to FBT (for example, if the entertainment is exempt under the ‘minor and infrequent’ exemption)
• ‘Friday night drinks’ or similar events at the office may still be classed as meal entertainment.
Fringe Benefits Tax applies to almost all businesses, but is seldom handled correctly. The best way to ensure your business remains compliant is to keep detailed records and get specific advice for your circumstances.