Fringe Benefits Tax 2024 | What You Need to Know

27/3/24

Hayden Jones Associate Director, Business Advisory

Kim Reynolds Director, Taxation Advisory

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It is common practice in today’s competitive marketplace for employers to provide additional benefits and incentives to their employees. Often, the fringe benefits tax (FBT) consequences can be overlooked. Here’s what you need to know about recent FBT developments, concessions and exemptions, as well as ATO audit ‘hot spots’.

This article will cover:

FBT Rate, Gross-Up Rates and Capping Thresholds

Balancing Payment Due Date

ATO’s Guidance on Critical FBT Issues

Employee Education

Employee Travel

Employees Vs Contractors

ATO Audit ‘Hot Spots’

Other Points to Note

FBT Rate, Gross-Up Rates and Capping Thresholds

The FBT rates for the FBT year ended 31 March 2024 are as follows:

FBT rate: 47%
Statutory benchmark interest rate: 7.77% (a significant increase from 4.52% in the 2023 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 2023 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 2024 FBT year is $10.40 (increased from $9.72 in the 2023 FBT year).

Balancing Payment Due Date

A reminder that 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.

ATO’s Guidance on Critical FBT Issues

Many of the developments for the 2024 FBT year relate to guidance provided by the ATO in relation to critical FBT issues, including car fringe benefits, car parking fringe benefits and eligible FBT-exempt electric vehicles.

Car Fringe Benefits

According to the ATO, there is a significant level of non-compliance associated with car fringe benefits. In response, the ATO has developed additional guidance to assist employers in correctly identifying when FBT exposure may arise in relation to the provision of a car.

In particular, the additional guidance provides clarity on:

a. Calculation of taxable value when a car is being held by a mechanic to undertake repairs

Where a vehicle is undergoing significant repairs for a considerable period of time, there may be uncertainty as to whether there is an FBT exposure for that period.

The ATO has confirmed that no car fringe benefit will arise where the car is in a workshop for extensive repairs. This is because:

The car is not applied for private use nor is it deemed available for private use; and
The car is not considered to be ‘held’ by the employer during this time.

The ATO will not extend this concession where a car is being held by a mechanic for routine servicing or maintenance or minor repairs. A car fringe benefit can still arise in these situations.

TIP: If using the Operating Cost Method to value car fringe benefits, employers are only required to include operating costs of a car incurred during the ‘holding period’. As such, where a vehicle is being held by a mechanic to undertake extensive repairs, any operating costs that relate to that period can be excluded. Insurance and registration costs should be attributed to the relevant ‘holding period’.

It is further noted that where a replacement car is provided by the employer during the extensive repairs of an employer-held car, the following FBT implications will arise:

*Scenario*	*FBT benefit type*
The replacement car is from the employer’s fleet of cars.	Car fringe benefit
The employer hires a car on behalf of the employee for three months or more.	Car fringe benefit
The employer hires a car on behalf of the employee for less than three months.	Residual fringe benefit
The employer reimburses the employee for the cost of a hire car.	Expense payment fringe benefit
Employee arranges own hire car without any involvement or reimbursement from employer.	N/A

b. Whether the Operating Cost Method can be used where no logbook has been maintained

It is common to assume that if no logbook has been maintained, an employer must use the Statutory Formula Method to value car fringe benefits.

The ATO has confirmed that where a valid logbook has not been maintained, an employer can still utilise the ‘Operating Cost Method’ for valuing car fringe benefits, but the business use percentage will be deemed to be 0%.

In certain circumstances, usually when the car has been held by the employer for a number of years and the use of the car is low, the Operating Cost Method (with a business use percentage of 0% applied) may result in a better FBT outcome than the Statutory Formula Method.

c. FBT implications in relation to an employee acquiring a car at the end of a lease arrangement or hire purchase agreement

Under both operating and (bona fide) novated leases, the employee has the option to pay a pre-determined residual value of the car at the end of the lease to buy the car from the lessor.

This may mean that the residual value paid is less than the market value of the car at the time of the lease ending.

The ATO has confirmed that no FBT implications will arise under this circumstance, as the employee is considered to have acquired the car for an arm’s length amount (i.e. no fringe benefit has been provided).

However, a taxable property fringe benefit may arise where the employer provides a car acquired under a hire purchase agreement to an employee at the end of the agreement for the car’s residual value. This is because a hire purchase agreement is a contract for the sale and purchase of the car, and the residual value is not an estimate of the car’s market value at the end of the lease.

d. The business versus private use of a car wrapped in advertising signage or decals

It is often argued that a car that has company signage is considered advertising, and accordingly a business use percentage of 100% should be applied whenever the car is being driven.

The ATO’s updated guidance states:

“Private use is everything else other than in the exclusive course of working, running a business or otherwise earning income. This means that private use of a car includes any use that is dual purpose and has both private and business aspects to it.”

Accordingly, if a vehicle is used or is available for private use on a given day, a car fringe benefit can still arise, regardless of whether the employer-provided car is wrapped in advertising signage.

Car Parking Fringe Benefits

Changes to the ATO’s interpretation of a “commercial parking station” for car parking fringe benefit purposes took effect from 1 April 2022. Parking facilities at shopping centres, hospitals and hotels can now represent a commercial parking station, despite charging penalty rates to discourage all-day parking.

Our 2023 FBT article covered the changes to the ATO’s interpretation in detail. (https://vincents.com.au/fringe-benefits-tax-2023/

The ATO has clarified that a dual-purpose car parking facility may still be a ‘commercial parking station’. A dual-purpose car parking facility is one that makes parking available to the public in the ordinary course of business, as well as some other purpose (i.e. staff or commuter parking).

Eligible FBT-Exempt Electric Vehicles

From 1 July 2022, an FBT exemption became available for eligible electric cars that are provided by an employer to their employees (or their associates).

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

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

* Including electricity at the employee’s home, the employer’s premises or at a commercial charging station.

TIP: The cost of the electric charging station itself is not considered a car expense, and will be either a property or expense payment fringe benefit that may be subject to FBT.

The inclusion of the cost of electricity associated with charging the battery of an electric car has presented some compliance challenges, specifically in being able to separately identify and value the cost of the electricity.

The ATO has released Practical Compliance Guideline (PCG) 2024/2 to provide compliance relief effective from 1 April 2022. The PCG provides a shortcut method that can be used to calculate the electricity costs when an electric car is charged at a residential premises.

TIP: The shortcut method outlined in PCG 2024/2 cannot be applied to plug-in hybrid electric vehicles (which are low emissions vehicles and are eligible for the exemption until 31 March 2025), as the PCG only applies to zero emissions vehicles.

The shortcut method prescribed by the ATO is as follows:

‘Electric vehicle home charging rate’ x Total number of relevant kilometres travelled by the electric car in the FBT year

The ‘electric vehicle home charging rate’ from the 2023 FBT year is 4.20 cents per kilometre.

As the above method takes into account all relevant kilometres travelled by the electric car in the FBT year, an employee must disregard any costs incurred at a commercial charging station for FBT purposes.

In order to rely on the shortcut method, the employer will need to obtain odometer records in the applicable FBT year. Transitional rules allow a reasonable estimate to be used where actual readings have not been maintained at the start of the 2023 or 2024 FBT years.

No compliance resources will be directed towards employers that use the shortcut method to:

Calculate the taxable value of a car fringe benefit (in circumstances where the electric car FBT exemption does not apply);
Calculate the reimbursement of electricity costs to an employee for the purposes of charging an electric car;
Calculate the reportable fringe benefit amount.

TIP / REMINDER: 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.

Employee Education

It is becoming more common for employers to pay for or reimburse self-education or external training costs of employees, particularly following the introduction of the temporary ‘skills and training boost’.

Barring the limited application of the ‘retraining and reskilling exemption’ (for redundant employees) or the minor benefits exemption, employers often seek to utilise the ‘otherwise deductible rule’ in minimising the FBT exposure on these costs.

Taxation Ruling (TR) 2024/3 sets out the principles for deducting self-education expenses. These principles are discussed below:

Principle 1

If an individual’s income-earning activities are based on the exercise of a skill or having specific knowledge, then self-education expenses incurred to maintain or improve that knowledge, or the ability to exercise those skills, are deductible.

Principle 2

Where an individual’s self-education objectively leads to, or is likely to lead to, an increase in their income from their current income-earning activities, then the self-education expenses are deductible. Consider:

Whether there is a clear and proximate link between the current income-earning activities and the self-education undertaken.
Whether there is a real opportunity for promotion to a more highly paid position, and whether that new position is materially different to the current position.
Whether or not the advancement of employment grade and / or salary is a substantial element of the individual’s motive for undertaking the self-education.

TR 2024/3 identifies the following specific scenarios where self-education expenses are non-deductible:

Costs were incurred to get employment, obtain new employment, or open up a new income-earning activity. These costs are incurred at a ‘point too soon’.
The individual is not undertaking income-earning activities to produce assessable income.
The self-education expenses are specifically non-deductible, for example, a course that is a Commonwealth-supported place (CSP).

The payment or reimbursement of a principal amount borrowed to fund course fees (e.g. under a FEE-HELP loan) is also not ‘otherwise deductible’.

TIP: Employers should also be mindful that the ‘otherwise deductible rule’ does not apply on an ‘all in all out’ basis. For example, one or more subjects within a course may satisfy Principle 1 or Principle 2 of TR 2024/3, but the course in its entirety may not (and vice versa).

Employee Travel

The recent Federal Court decision in Bechtel’s case has highlighted the importance of the distinction between an employee travelling ‘on’ work or travelling ‘to’ work.

Whilst the distinction is often considered from an income tax perspective, there are FBT consequences associated with same where the employer is relying on the ‘otherwise deductible rule’ in seeking to eliminate or reduce any FBT liability associated with paying or reimbursing an employee’s travel expenses.

Travel between home and work is generally not deductible for income tax purposes (and as such is not ‘otherwise deductible’ for FBT purposes) as it is considered to be preparatory or a prerequisite to earning income.

However, where the travel is part of the employee’s work activities, then such travel is considered to be ‘on work’ rather than ‘to work’, as it is incurred in the course of gaining or producing income. This would the case where:

The employee is ‘rostered on’ whilst travelling;
The travel was undertaken on the employer’s time for which the employee was being paid; and
The employee was under the direction and control of the employer during the travel.

Travel in such circumstances would be deductible for income tax purposes and ‘otherwise deductible’ for FBT purposes.

TIP: Bechtel’s case has highlighted that a mere requirement to follow the employer’s code of conduct whilst travelling does not amount to being under the employer’s direction and control.

It would be prudent for employers to review existing arrangements and policies in respect of paying for or reimbursing employee travel to ensure that any FBT exposure is minimised.

It should be noted that the Federal Court’s decision in Bechtel’s case has been appealed.

Employees vs Contractors

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.

The ATO has recently released guidance in this area, namely:

TR 2023/4 (which finalises TR 2022/D3 discussed in our 2023 FBT article); and
PCG 2023/2 (which replaces draft PCG 2022/D5 discussed in our 2023 FBT article).

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.

Some key takeaways from the guidance are as follows:

If parties have entered into a comprehensive written agreement, the employee versus contractor distinction is now made by considering the legal rights and obligations in the contract that the parties entered into (i.e. a formative over substantive test).
The written agreement is to be construed at the time it was entered into by the parties. The subsequent conduct of the parties generally cannot be taken into account.
The legal rights and obligations of the written agreement are assessed with respect to the factors of employment identified in case law and discussed in our 2023 FBT article.
Parties can apply the risk framework in PCG 2023/2 to understand the likelihood of the ATO applying compliance resources to review the arrangement. The four risk zones in the ATO’s risk framework are:
- Very low risk zone (no further compliance resources)
- Low risk zone (generally no further compliance resources)
- Medium risk zone (low priority of the ATO in applying compliance resources)
- High risk zone (high priority of the ATO in applying compliance resources)
The PCG outlines seven criteria that must be present in order for the arrangement to fall within each of the four risk zones.

ATO Audit ‘Hot Spots’

Workhorse Vehicles

A well-known exemption for employers that provide utes and other similar vehicles to their employees is the ‘workhorse vehicle exemption’.

The exemption applies where the following conditions are satisfied:

The motor vehicle is an eligible type of vehicle, which can include panel vans or utes and certain other commercial vehicles.
Any private use of the vehicle must be limited to ‘work-related travel’ and other private use that is ‘minor, infrequent and irregular’.

It is the second condition that employers often overlook when applying the exemption. Employers that apply this exemption should ensure they are satisfied that all conditions of the exemption are met to avoid any ATO scrutiny.

Work-Related Travel

For the purposes of applying this exemption, work-related travel includes travel between an employee’s work and home, and other travel that is incidental to travel in the course of performing employment-related duties.

Minor, Infrequent and Irregular

Unfortunately, this concept is not defined in the FBT Act. However, it is generally accepted that minor, infrequent and irregular private use is use that satisfies all of the following:

Travel that is small or insignificant in distance and time compared to business travel.
Travel that does not happen very often, or is not the norm.
Travel that does not happen regularly or at fixed intervals.

To alleviate uncertainty, the ATO has provided a ‘safe harbour’ rule in PCG 2018/3.

An eligible workhorse vehicle must meet all of the following requirements to be eligible for this safe harbour treatment.

The vehicle must have been provided to the employee for use in the performance of work duties.
The vehicle had a GST-inclusive value less than the luxury car tax threshold applicable at the time it was acquired.
The vehicle cannot be provided under a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle.
The employer has a policy in place that limits private use of the vehicle and obtains an assurance from the employee their private use is limited to use outlined in (e) and (f) below. The employer must be satisfied (on reasonable grounds) as a result of this assurance that the private use of the vehicle was limited.
The employee uses the vehicle to travel between their home and their place of work, and any diversion adds no more than two kilometres to the ordinary length of that trip.
The total private use of the vehicle (other than home to work travel) in the FBT year must not exceed 1,000 kilometres, with no return private journey exceeding 200 kilometres.

Where an employer satisfies the above criteria, they do not need to keep further records about an employee’s use of the vehicle to demonstrate that the private use of the vehicle is ‘minor, infrequent and irregular’. Furthermore, the ATO has advised it will not devote compliance resources to review whether the exemption applied for the vehicle provided to that employee.

Corporate Sponsorship

Businesses often engage in corporate sponsorship opportunities as a means of marketing. From an income tax and GST perspective, these are generally deductible and creditable transactions.

However, where businesses receive non-marketing related benefits in exchange for their corporate sponsorship, and such benefits are provided to employees, the FBT provisions require consideration.

Common examples include free tickets to sporting events, invitations to social functions or free attendance at a corporate box function, which often amount to meal entertainment or recreation.

In such cases, the cost of the sponsorship package must be apportioned to appropriately recognise any meal entertainment or recreation component. Income tax deductions and GST input tax credits are generally only available on these components where FBT has been paid.

Documentation and Declarations

Documentation and declarations continue to be at the forefront of the ATO’s focus.

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/
Valid logbooks must be maintained in order to substantiate an employee’s business use percentage (other than 0%) when adopting the Operating Cost Method to value a car fringe benefit.

Other Points to Note

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’, ‘Small business skills and training boost’, ‘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 obtained 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.
The ATO’s motor vehicle registries data-matching program has been extended to 30 June 2025. Under this program, the ATO will gather information from state and territory motor vehicle registry authorities where their records indicate that a vehicle has been transferred or newly registered in the 2023-2025 income years and the purchase price or market value is $10,000 or more.
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 2024 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 2024. 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 2024 FBT year must not have been completed before 1 April 2019). 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.

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.

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Fringe Benefits Tax 2024 | What You Need to Know

Category

Related Topics

Want to know more?

FBT Rate, Gross-Up Rates and Capping Thresholds

Balancing Payment Due Date

ATO’s Guidance on Critical FBT Issues

Car Fringe Benefits

Car Parking Fringe Benefits

Eligible FBT-Exempt Electric Vehicles