By Kim Reynolds and Nicole McLean
As another FBT year draws to a close, it’s time to start thinking about any potential exposure to FBT for you and/or your clients. To help you prepare for the FBT season, we have covered off on some of the recent changes and updates to FBT whilst also highlighting specific FBT areas of risk or areas that are currently experiencing increased ATO audit activity.
FBT Rate, Gross-Up Rates & Capping Thresholds
The FBT rates for the year ended 31 March 2019 are unchanged from the 2018 FBT year.
- FBT rate: 47%.
- Gross-up rates:
- 2.0802 for Type 1 benefits;
- 1.8868 for Type 2 benefits; and
- 1.8868 for Reportable fringe benefits.
The FBT caps for FBT-exempt and FBT-rebatable employers also remain unchanged from the 2018 FBT year.
- Grossed-up taxable value (generally):
- FBT-exempt employers: $17,000
- FBT-rebatable employers: $30,000
- Grossed-up taxable value (salary packaged meal entertainment and entertainment facility leasing expenses (EFLE)): $5,000
Recordkeeping concessions under the Logbook Method
The ATO have accepted that employers can maintain their FBT records in electronic format.
- As such, employers are able to maintain a car logbook in electronic format, providing the information requirements are satisfied, the information is readily accessible and convertible into written English.
- To ensure that the electronic logbook adheres to the information requirements, we recommend only using an electronic platform for which the ATO has issued a Class Ruling.
Please contact us if you require a list of the electronic logbook products that have received approval from the ATO.
Employees paying home internet costs
With the rise in the number of employees working from home, the ATO has increased its focus on employers who pay or reimburse an employee’s internet costs.
- The taxable value of these benefits may be reduced to an extent via the operation of the otherwise deductible rule.
- However, determining the work-related portion of home internet costs can be onerous and requires that the employee maintains a four-week representative diary of home internet time and / or data usage.
TIP: Consider paying an allowance to employees for their home internet costs rather than paying for or reimbursing the actual expense. This moves the tax liability to the employee and it is therefore the employee’s responsibility to keep reasonable records to support their business use.
Employees being entertained by third-parties such as suppliers or clients
It is important to remember that FBT may be payable on the provision of benefits to an employee by a third party such as a supplier or client.
- Broadly, a third party benefit can give rise to a fringe benefit where it was provided under an arrangement (provided that the employer was a party to the arrangement), or where the employer participated, facilitated or promoted the provision of the benefit.
- In extreme circumstances, the ATO have indicated that this may extend to where the employer is merely aware the benefit is being provided and does nothing to prohibit the provision of the benefit.
- Third party benefits present considerable difficulty to employers (e.g. determining whether a fringe benefit has been provided and obtaining the relevant information to value the benefit).
- The ATO has expressed concern that there has been serious non-compliance in this area and will no doubt be increasing its focus on third party benefits.
The provision of a workhorse vehicle will be exempt if its private use is limited to work-related travel and any other private use is minor, infrequent and irregular.
- Work-related travel is defined to include travel by the employee between home and work.
- Historically, there has been little guidance on what was meant by minor, infrequent and irregular.
- Fortunately, the ATO have recently issued some safe-harbour guidelines.
- All of the safe-harbour conditions need to be satisfied in order to be treated as an exempt benefit and include conditions such as:
- A policy that limits private use of the vehicle;
- Any diversion from travel between home and work adds no more than 2 kilometres to the trip; and
- The total of all other private trips does not exceed 1,000 kilometres and no single return journey exceeds 200 kilometres.
Cars parked at work whilst employee is on holidays
Historically, it has been thought that no FBT reduction was available for cars valued under the operating cost method during periods where the car was unavailable for private use (e.g. parked at the employer’s premises whilst the employee is on holidays).
- However, there may be an opportunity for employers to exclude car operating costs incurred whilst a car is not available for the employee’s private use.
- This has the potential to reduce the FBT liability for a car valued under the operating cost method if it can be shown that a car was in fact unavailable for private use during the year.
TIP: Implement a policy where employees are required to leave their business vehicles at the business premises (if feasible) whilst on annual leave and identify the cars operating costs incurred during this time.
Airport car parks
- The ATO have recently issued some class rulings confirming that arrangements with certain airport car parking providers will result in no car fringe benefit arising on the days the car is parked in the airport carparking facility.
- The arrangements require certain conditions to be met and will generally involved a bailment agreement whereby the employee surrender custody of the car and keys to the airport car parking provider whilst travelling.
Proposed changes to Division 7A (deemed dividend rules)
- A consultation paper, Targeted amendments to the Division 7A integrity rules, was released in October 2018.
- If the legislation is passed as proposed, the outcome will be an adverse one in relation to the provision of excluded fringe benefits to employee/shareholders.
- The proposed changes are to take effect from 1 July 2019.
- However, we note that these proposed changes are not yet law and further amendments may arise prior to the changes becoming law.
Employees on construction sites and working outdoors
The provision of work-related items, including items of protective clothing, are exempt from FBT. Examples include:
- Sunglasses and sun hats;
- Safety googles;
- Safety boots and other protective footwear;
- High visible vests;
- Hard hats and other protective headwear; and
- Ear muffs and plugs.
- Employers who provide sun protection products such as sunscreen to employees who are required to work outdoors are ineligible for the work-related items exemption.
- However, due to the operation of the otherwise deductible rule, the FBT taxable value of these items will generally be reduced to nil.
Other points to note
- The ATO is continuing to undertake audit activity in relation to employer obligations and we expect this will continue. These obligations include a review of employees vs contractors, PAYG withholding, superannuation guarantee and fringe benefits. We recommend that you review your arrangements with employees and contractors to ensure compliance with all your obligations.
- Benefits with a value of less than $300 that are provided infrequently are exempt from FBT. This exemption does not extend to the provision of meal entertainment where the 50/50 split or 12 week register methods are used.
- Where the log book method is used in calculating car fringe benefits, the log book must not be more than 5 years old (i.e. a log book used in the 2019 FBT year must not have been completed before 1 April 2014). As more employers move towards using the operating cost method, audit activity on log books is set to increase. It is imperative that any variations in the pattern of use of a car be taken into consideration when determining an employee’s business use percentage.
- Ride sharing services such as Uber do not qualify for the taxi travel exemption, however employers may still apply the minor benefits exemption, if applicable.
- Where the taxable value of the benefits provided to an employee in the 2019 FBT year exceeds $2,000, the grossed up taxable value of an employee’s fringe benefits must be shown on the employee’s PAYG payment summary for the year ended 30 June 2019. Although this will not affect the amount of FBT payable, an allocation of reportable fringe benefits on an employee by employee basis is required. Note meal entertainment (not provided under a salary packaging arrangement), car parking and exempt benefits (such as minor benefits provided) are not reportable.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.