For many, Fringe Benefits Tax (FBT) is likely to be at the bottom of your list of priorities, but with the end of the 2021 FBT year upon us, it is time to start thinking about all things FBT, whether for yourself as an employer, or for your clients.
To assist you with this process, we have prepared a summary of some of the key FBT details including recent developments, possible concessions and exemptions in light of the pandemic, areas attracting ATO audit activity and issues to be aware of when assessing your exposure to FBT.
The FBT rates for the year ended 31 March 2021 are as follows:
- FBT rate: 47%
- Statutory benchmark interest rate: 4.80% (down from 5.37% in the 2020 FBT year).
- Gross-up rates:
- 0802 for Type 1 benefits;
- 8868 for Type 2 benefits; and
- 8868 for Reportable fringe benefits.
- Reportable fringe benefits threshold (employee income statements):
- Taxable value greater than $2,000
- Minimum grossed-up value of $3,773
The FBT caps for FBT-exempt and FBT-rebatable employers remain unchanged from the 2020 FBT year and are as follows:
- 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
Effective from the 2021 FBT year onwards, the ATO have permanently changed the balancing payment due date from 28 May to 25 June. This change aligns the payment due date with the lodgement due date and is available to employers that lodge electronically through their tax agent.
With the increase in the number of employees working from home during Covid, the business use of employer-provided cars may have substantially reduced (in some cases to nil) while any private usage may also have been minimal.
Since car fringe benefits are determined based on the period during which the car is deemed to be ‘available for private use’ by an employee and/or their associate, the change in use as a result of the pandemic does not automatically translate to a reduced FBT liability.
However, the ATO have announced the following Covid concessions for employers using the logbook method:
- The employer must elect in writing to use the logbook method for the 2021 FBT year before the due date for lodgement of their 2021 FBT return.
- The car is garaged at the employee’s home for all or part of the 2021 FBT year.
- While garaged at the employee’s home, the car is not driven at all, or, it is only driven for brief trips purely to maintain the car (e.g. a trip around the block). Importantly, a short trip to the grocery store, for example, would not qualify as a maintenance trip.
- Odometer records must be maintained demonstrating that the car was not driven, or was only driven for short maintenance trips.
Where the above conditions have been satisfied, the employer is effectively able to exclude any periods during which the car has been garaged at the employee’s home, but has not been used except for genuine maintenance trips (e.g. during lockdown periods).
Practically, this means that the employer can reduce the number of days that the car was available for private use whilst also excluding any running costs related to the excluded period(s). Note that the ordinary logbook method rules will apply to all non-concessional periods that the car was provided to the employee during the FBT year.
TIP: The ATO have released a factsheet, ‘Covid-19 and car fringe benefits’ which provides further guidance on the above including practical examples. This factsheet is available here: https://www.ato.gov.au/law/view/pdf/afs/afs-car-fbt-covid-19.pdf
The implementation of lockdown periods saw many commercial car parking stations temporarily close, offer free all-day parking or charge heavily discounted fees.
As a result, there may be some instances where an employer has provided an employee and/or their associate with a car parking benefit, but no FBT liability arises. This will be the case where:
- On the relevant day, all commercial parking stations located within a 1km radius of the employer-provided car park are either closed or are offering free all-day parking.
- On the first day of the 2021 FBT year, the lowest representative fee charged by a commercial car parking station within a 1km radius is less than or equal to the 2021 FBT car parking threshold of $9.15. This scenario may arise where car park operators offered discounted fees as a result of the pandemic.
Note – where a discounted fee has been charged, the fee must not substantially differ from the average lowest fee charged for the 4 weeks before 1 April 2020 and the 4 weeks after 1 April 2020.
TIP: Employers should consider whether the first point noted above applies, particularly where the employer is using the actual or statutory formula methods to calculate the number of car parking fringe benefits provided. Doing so may allow employers to substantially reduce their FBT liability, remembering that the employer will need to keep adequate records to support their calculations.
In order for employees to work-from-home during Covid, many employers provided equipment and/or covered home office costs for their employees. Some of the most common scenarios and related FBT considerations are summarised below.
- Temporary use of desktop computer and other office equipment at employee’s home – This will generally give rise to a residual fringe benefit as ownership of the equipment has been retained by the employer.
TIP: Consider whether the s47(3) exemption applies (property ordinarily on employer’s business premises and used in connection with business operations). Alternatively, the minor benefits exemption or otherwise deductible rule (in the context where the employee had instead hired the equipment) may apply.
- A laptop or other equipment is given to the employee – These will generally constitute property fringe benefits or expense payment benefits (where the employer has reimbursed the employee).
TIP: Consider whether the portable electronic device exemption applies (s58X), particularly where the employer is a Small Business Entity. Where this exemption is not available, consider the minor benefits exemption (unlikely to apply in most scenarios) and otherwise deductible rule (difficult to apply in practice as requires the employee to have been entitled to a once-only full deduction for the equipment) as applicable.
- Payment of home internet costs – Generally an expense payment benefit (where the employee is reimbursed) or residual benefit.
TIP: In future, consider paying an allowance to employees 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. Note that the minor benefits exemption is unlikely to apply due to the regularity of this expense.
Where an employer has incurred non-refundable function costs and the event did not proceed, no FBT liability will arise because a benefit has not been provided to employees and/or their associates.
Additionally, the employer will not be entitled to an income tax deduction nor input tax credits on these costs because they relate to entertainment (which is ordinarily only deductible to the extent that FBT applies).
TIP: Where work functions have merely been postponed, a FBT liability may still arise in a future FBT year, which may require the employer to reconsider whether they are entitled to a tax deduction and input tax credits on the underlying costs.
Where an employer has provided emergency assistance or support to their employees as a direct result of Covid, any such benefits will generally be exempt from FBT (see s58M and s 58N). Some potentially exempt benefits are as follows:
- Emergency assistance in the form of transport, meals and temporary accommodation – Where an employee is unable to return home due to lockdown restrictions or where the employee is required to self-isolate or quarantine away from home.
- Costs to relocate an employee that has been affected by Covid, including flights for overseas employees to return to Australia.
- Short-term loans relating to emergency assistance for health care.
TIP: Note that there are additional requirements for emergency assistance provided in the form of ‘health care’. Refer to s58N as well as the ATO’s ‘Covid-19 and fringe benefits tax’ guide available here: https://www.ato.gov.au/General/COVID-19/Support-for-businesses-and-employers/COVID-19-and-fringe-benefits-tax/
For employers in the medical, cleaning, hospitality, airline and beauty services industries, the provision of certain items to employees in order to protect them from Covid will be exempt from FBT. These items include gloves, masks, sanitisers and anti-bacterial spray.
For other employers, while these benefits may not be exempt, you may be able to apply the minor benefits exemption on an employee-by-employee basis.
- The ATO have confirmed that they have recommenced their FBT audit activity off the back of Covid.
- Unreported car fringe benefits, expense payment benefits (particularly where the employer relies on the otherwise deductible rule but may not have appropriate employee declarations to substantiate this), incorrect application of the workhorse vehicle exemption, car parking benefits, inappropriate application of the multiple portable electronic devices exemption and treatment of non-cash benefits provided to departing employees (i.e. income tax vs. FBT rules) are some of the primary FBT areas in which the ATO are currently directing their audit resources.
- Employers cannot avoid FBT on entertainment simply by not claiming a tax deduction.
- Similarly, employers cannot escape their FBT liabilities and FBT exposure by not lodging a FBT return.
- 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.
- Changes to the ATO’s interpretation of “commercial parking station” for car parking fringe benefit purposes has been deferred until 1 April 2022 (i.e. it will apply for the 2023 FBT onwards). This delay provides employers with the opportunity to review their current car parking arrangements and employee remuneration packages to determine whether this new interpretation will give rise to car parking fringe benefits in the future and whether these benefits can be avoided by instead paying a parking allowance.
- The ATO has confirmed it considers all government departments to be associates for the purposes of the Living-Away-From-Home-Allowance (LAFHA) 12-month rule. This is relevant where an employee is receiving (or has received) a LAFHA from two or more associated employers for the same location, as the combined aggregate period in which a LAFHA is (or has been) provided by both of these employers must not exceed 12 months in total. The ATO is of the opinion that all government departments (whether Federal, State or Territory) are associates of one another.
- Where the taxable value of the benefits provided to an employee in the 2021 FBT year exceeds $2,000, the grossed up taxable value of an employee’s fringe benefits must be shown on the employee’s income statement for the year ended 30 June 2021. 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.
- You can report an employee’s reportable fringe benefit amount (RFBA) or a reportable employer superannuation contribution (RESC) through Single Touch Payroll (STP). If you cannot (or choose not to) provide RFBA or RESC through STP, you must provide this information on a payment summary and provide the ATO with a payment summary annual report. The payment summary must not include amounts reported through STP.
- 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 2021 FBT year must not have been completed before 1 April 2016). 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.
- Employers that do not currently qualify for the Small Business Entity exemptions may be eligible for certain FBT exemptions and concessions from the 2022 FBT year with the increase in the small business turnover to $50m.
With our wide ranging experts the Vincents Taxation Advisory team is equipped to assist you with navigating the challenges and implications of our complex tax system.
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