Fringe Benefits Tax 2023 | We’re here to help

The FBT rates for the FBT year ended 31 March 2023 are as follows:

FBT rate: 47%

Statutory benchmark interest rate: 4.52% (unchanged from the 2022 FBT year)

Gross-up rates:

2.0802 for Type 1 benefits;

1.8868 for Type 2 benefits; and

1.8868 for Reportable Fringe Benefits.

Reportable fringe benefits threshold (reported via Single Touch Payroll and employee income statements):

Non-grossed up taxable value: $2,000

Grossed-up taxable value: $3,773

The relevant rates and thresholds for FBT-exempt and FBT-rebatable employers remain unchanged from the 2022 FBT year and are as follows:

Rebate for FBT-rebatable employers: 47%

Grossed-up taxable value of capping thresholds (generally):

FBT-exempt employers: $17,000 per employee

FBT-rebatable employers: $30,000 per employee

Salary packaged meal entertainment and entertainment leasing expenses (ELFE) capping threshold: $5,000 per employee

The car parking threshold for the 2023 FBT year is $9.72 (increased from $9.25 in the 2022 FBT year).

A reminder that effective from the 2021 FBT year onwards, the ATO have permanently changed the balancing payment due date to 25 June. This is to align the payment due date with the lodgement due date and is available to employers that lodge electronically through their tax agent.

For employers not lodging through a tax agent, the due date for lodgement and payment is 21 May.

As a measure to incentivise employers to provide their employees with electric cars (as opposed to their petrol or diesel counterparts), the Government has introduced the “Electric Car Bill”, which provides an FBT exemption for eligible electric cars that are provided by an employer to their employees (or their associates). This provides the opportunity for significant FBT savings for both employers and employees.

An electric vehicle is a ‘car’ for FBT purposes if it has a carrying capacity of less than 1 tonne and it is designed to carry fewer than 9 passengers. As such, prior to the introduction of the Electric Car Bill, the private use of an electric car that had been provided by an employer to their employees (or their associates) amounted to a car fringe benefit. This presented significant FBT consequences for an employer, particularly if they valued the car fringe benefit using the Statutory Formula Method (SFM). The SFM calculates the taxable value of the car fringe benefit with reference to the base value of the car, which can be considerably higher for electric vehicles.

A car benefit will be an exempt benefit in relation to a year of tax if all of the following requirements are satisfied:

• The car benefit is provided in the year of tax in respect of a current employee
• The exemption is available to current employees or their associates, but not future or former employees.
• The car benefit was provided on or after 1 July 2022.
• The car is a ‘zero or low emissions vehicle’ when the benefit was provided.
• A zero or low emissions vehicle is a car that is a battery electric vehicle, a hydrogen fuel cell electric vehicle or a plug-in hybrid electric vehicle.

It is important to note that plug-in hybrid electric vehicles cease to be a zero or low emissions vehicle from 1 April 2025, unless certain ‘transitional rules’ are met.

Essentially, where a car benefit relating to a plug-in hybrid car was provided and exempt under the electric cars FBT exemption prior to 1 April 2025, the transitional rules allow access to the electric cars FBT exemption beyond 1 April 2025 until there is a sufficient change to the pre-1 April 2025 arrangement.

Such changes to the pre-1 April 2025 arrangement include:

• Refinancing the car;
• Making alterations to an existing lease contract, including changing the duration of an existing lease contract;
• A change of employer, even within the same group of companies.

TIP: Caution should be exercised in relation to acquiring a plug-in hybrid car that is to be used as a ‘fleet car’ or similar until the ATO clarifies how it will administer the transitional rules in relation to ‘fleet cars’ not being available to one particular employee, as this may constitute a change in the pre-1 April 2025 arrangement.

A petrol-hybrid vehicle without an ability to plug-in, such as vehicles where the battery is recharged while you drive without being plugged in, are not eligible vehicles for the electric cars FBT exemption.

The first time when a person both held and used the car was on or after 1 July 2022.

TIP: The electric cars FBT exemption is not limited to new cars, but the relevant vehicle must not have been held or used by any person before 1 July 2022. Practically, this may present some challenges in determining when the car was first held and used, where the employer is not the first owner of the vehicle.

No amount of luxury car tax has become payable on a supply or importation of the car before the benefit is provided.

The luxury car tax for fuel efficient cars is $84,916 for the 2023 income tax year. Similar to point 4 above, it is necessary to determine whether luxury car tax was payable in relation to prior sales of the vehicle in order to access the electric cars FBT exemption.

In addition to the private use of the electric car being exempt from FBT, any associated running costs will also be FBT-exempt. This includes:

• Registration and insurance
• Repairs and maintenance
• Fuel (including the cost of electricity associated with charging the battery of an electric car)

TIP: It has previously been the case that FBT-exempt benefits are not included when calculating an employee’s reportable fringe benefits amount (RFBA). However, the Electric Car Bill provides that car benefits arising in respect of FBT-exempt electric cars are included when calculating an employee’s RFBA.

The distinction between employees and contractors has long been a concern for employers, particularly when assessing obligations in relation to withholding taxes, superannuation and other employment-related obligations.

The provision of fringe benefits, and any subsequent FBT liability, is one of those employment-related obligations. By way of background, FBT applies to fringe benefits provided to employees, or to employee’s associates. For FBT purposes, an employee includes a current, future or past employee.

Recent High Court decisions and the subsequent guidance issued by the ATO (TR 2022/D3 and PCG 2022/D5) have provided a timely reminder for employers that misclassification of an individual as an employee or a contractor may have unintended FBT consequences. Employers can refer to this guidance to determine the status of their workers, and accordingly, whether they have any FBT liability in respect of those workers.

Comprehensive written agreements are vital in determining the legal rights and obligations of both parties. The existence of such agreements removes uncertainty in the subjective assessment of the working relationship.

The examination of the contractual terms of the agreement will consider a number of rights and obligations of both parties (outlined in TR 2022/D3). Some key takeaways from the draft ruling are as follows:

If the payer has the right of control over the worker (e.g. where to be, how to do the work), this indicates the person works in the business of the payer (i.e. employee).

Generally, being paid by the hour indicates the person is working in the business of the payer (i.e. employee).

Labels in the contract as “employee” or “contractor” are not determinative of the nature of the relationship between the parties.

The existence of an ABN (or lack thereof) is not determinative of the nature of the relationship between the parties.

If the worker provides their own equipment and assets, and incurs their own expenses to complete the work, this indicates the worker may not be working in the business of the payer (i.e. contractor).

TIP: Fringe benefits provided to an independent contractor generally does not attract FBT, however unintended FBT consequences may arise where the contractor later becomes an employee, and the benefits are considered to have been provided in relation to that future employment.

Changes to the ATO’s interpretation of a “commercial parking station” for car parking fringe benefit purposes have been confirmed with the release of TR 2021/2 and has taken effect from 1 April 2022. The ruling provides that parking facilities at shopping centres, hospitals and hotels can now represent a commercial parking station, despite charging penalty rates to discourage all-day parking.

Per TR 2021/2, if a car parking facility is operated by a car park operator (i.e. management of the facility is outsourced), it is considered to be a “commercial parking station”, including those facilities within shopping centres, hospitals, hotels, etc.

If the management of the facility is not outsourced, the facility will generally be considered to be a “commercial parking station” where two or more of the following characteristics are present:

• The facility has clear signage visible from the street, advertising that paid parking is available
• The facility has mechanisms to control who can enter and/or exit the facility (e.g. boom gate, licence plate reader)
• The facility charges more than a nominal fee for paid parking (i.e. a fee that is significant and not lower than the local market rate)

Accordingly, employers will need to review car parking spaces provided to employees from 1 April 2022 to identify whether there are any spaces that now fall within car parking fringe benefits.

We note our 2022 FBT article referenced consultation that the then Morrison government was planning to undertake, with a view to restoring the previously understood interpretation of the application of FBT to car parking benefits. At the time of writing, the Albanese government has not indicated it will be undertaking such consultation or changing the law.

As we adjust to the “new normal” post-pandemic, many employers have experienced a shift in their employees’ working arrangements. While some employers are working to incentivise employees back to the office, others may be adopting a more permanent remote working approach, whether it be full-time or part-time.

Meals

• Food and drink provided to employees on a working day on an employer’s business premises are exempt from FBT under Section 41 of the Fringe Benefits Tax Administration Act 1986 (FBTAA86), regardless of whether the food and drink may constitute meal entertainment.
• Conversely, food and drink sent to an employee’s home for consumption will not be eligible for the Section 41 exemption, as the meal has not been consumed on an employer’s business premises. If the food and drink is substantial enough to amount to entertainment, the employer will have provided meal entertainment, even if the meal has been provided on a working day.
• TIP: Light meals or refreshments (e.g. sandwiches, cakes and biscuits) are unlikely to constitute meal entertainment, and can be FBT-exempt if the minor benefit exemption can apply.

Use of Office Equipment

• Where an employer has provided their employees with equipment to allow them to work from home (e.g. a desk or monitor), a residual fringe benefit arises. The taxable value can be reduced:
• To the extent the employee uses the equipment solely for work-related purposes under the ‘no private use exemption’ (employee declaration required);
• To the extent the employee would have hypothetically been entitled to a once-off deduction for the cost of hiring the equipment under the ‘otherwise deductible rule’ (employee declaration required); or
• To $Nil where the property is ordinarily located on the employer’s business premises and is used in connection with the employer’s business operations (no employee declaration required).
• TIP: The equipment does not need to have been physically located on an employer’s business premises prior to the benefit being provided, as long as the item is expected to be returned to the employer’s business premises at the end of the working-from-home arrangement.

Reimbursement of Home Internet

• Where an employer only pays for or reimburses an employee for the business use percentage of their home internet use, the benefit can be FBT exempt where the employee completes a ‘no private use’ declaration.
• It is important to note that the minor benefit exemption is unlikely to apply where the internet costs are being paid or reimbursed on a regular basis.
• Portable Electronic Devices
• Eligible work-related items (including portable devices such as a mobile phone or laptop) are exempt from FBT under Section 58X FBTAA86.
• TIP: From 1 April 2021, small and medium-sized business employers with an aggregated turnover of less than $50 million can gain access to certain Small Business Entity (SBE) FBT concessions and exemptions, including being eligible to provide multiple portable electronic devices to employees in a singular FBT year.

Car Parking

• An employer that simply pays for or reimburses an employee for the costs incurred in relation to car parking when travelling to the office does not amount to a car parking fringe benefit, but rather an expense payment fringe benefit.
• The minor benefit exemption may apply if the benefit has been provided on an ad-hoc basis (but not if the employee is reimbursed every time they come into the office).

The onus to retain accurate and appropriate documentation lies with the employer. Such documentation will be requested by the ATO in the event of an FBT audit.

Key areas for employers to be aware of:

Evidence, such as invoices and / or receipts, in relation to the provision of expense payment, property or residual fringe benefits should be retained for a minimum of five years.

Many benefits that adopt concessional valuation methods or that are able to have their taxable value reduced require a signed employee declaration to be kept on file. Generally, declarations should be provided to employers by 21 May of each FBT year. Approved ATO declarations can be found at the following link: https://www.ato.gov.au/Forms/Employee-Declaration/. 

Car logbooks

A logbook can be used by employers to substantiate an employee’s business use percentage of a car when adopting the Operating Cost Method to value the car fringe benefit. While a logbook is required at least once every five years, an employer cannot automatically apply the logbook percentage in a non-logbook year without considering and applying any variations in the pattern of use of the car.

It is also important to note that entries within the logbook must meet the prescribed requirements (including date, odometer readings, kilometres travelled and a sufficient description of the purpose of travel). The ATO may disregard deficient logbook entries, thereby decreasing the business use percentage and increasing the associated FBT liability.

The Government has recently introduced simplified employer FBT record-keeping requirements. These simplified measures will enable employers to provide alternative documents in place of currently prescribed documentation and declarations. The earliest these measures can come into effect is from 1 April 2023 (i.e. the 2024 FBT year).

• Key income tax return labels that may indicate to the ATO that an employer is providing fringe benefits include ‘Fringe benefit employee contributions’, ‘Contractor, sub-contractor and commission expenses’ (consider whether employees are incorrectly classified as contractors), ‘Motor vehicle expenses’, ‘Superannuation expenses’, ‘Salary and wage expenses’, ‘Non-deductible expenses’ and/or expense reconciliation adjustments, and ‘Payments to associated persons’.
• The ATO’s data-matching program is ongoing. Under this program, lifestyle asset (e.g. boats, fine art) data will be acquired from insurance policies for assets where the value is equal to or exceeds certain nominated thresholds in order to determine whether an employer is liable for FBT.
• A recent decision by the Administrative Appeals Tribunal’s (AAT) backs the ATO’s view that whilst an employment agreement may provide the ability to salary package, an agreement should be made between an employer and employee to explicitly activate the packaging facility and therefore exclude the benefit from classification as payments of salary.
• 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.
• 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 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 2023 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 2023.  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. However, FBT-exempt electric vehicles are 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 2023 FBT year must not have been completed before 1 April 2018).  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.