With the 2022 FBT year coming to an end, it’s that time of the year when employers need to consider whether they have provided any fringe benefits during the FBT year and gather information for their FBT returns.
To assist you as an employer, or your clients with this process, we have prepared a summary of key FBT considerations, including recent FBT developments, reminders of possible concessions and exemptions in light of the continuing impacts of the pandemic, and key areas attracting ATO audit activity.
The FBT rates for the year ended 31 March 2022 are as follows:
- FBT rate: 47%
- Statutory benchmark interest rate: 4.52% (down from 4.80% in the 2021 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 (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 2021 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
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.
With borders reopening and travel once again becoming a part of business, employers need to correctly classify whether their employees are travelling on work, living away from home (LAFH), or have relocated for work.
Under the new Tax Ruling 2021/4, this distinction is important for FBT purposes because the type of travel undertaken will determine whether the provision of meal and accommodation will create a FBT liability. Where an employee is travelling on work, meal and accommodation benefits will generally be FBT exempt under the ‘Otherwise Deductible Rule’. Whereas, LAFH and relocations scenarios will likely create FBT liabilities for the employer.
To assist employers with determining whether an employee is travelling on work, the ATO’s new ‘rule of thumb’ in PCG 2021/3 provides that an employee may be regarded as travelling overnight on work where the below requirements are satisfied:
- The employer provides an allowance or pays/reimburses accommodation and meal expenses for the employee.
- The provision of the benefit is not part of a salary packaging arrangement.
- The employee does not work on a FIFO or DIDO basis.
- The employee is away from their normal residence, for work purposes, for a period that is:
- No more than 21 calendar days at a time continuously
- No more than 90 calendar days, in total, in an FBT year (Note – the 90-day requirement resets each FBT year)
- The employee must return to their normal residence as soon as practicable (allowances are made for mandatory quarantine due to Covid-19)
- The employer obtains and retains the relevant documentation to substantiate the fact that all of the above requirements are met.
It’s worth noting that the above requirements will need to be considered by employers for each period of time that an employee is away.
TIP: If an employer chose not to rely on the ‘rule of thumb’, it would be necessary to analyse and document the factors in Tax Ruling (TR) 2021/4 to determine the employee’s travel status. Substantiation is also required to support how the taxable value of the resulting benefit was determined.
With car supply shortages and rising prices, employers and employees are increasingly deciding to re-lease their cars before the initial lease period expires, instead of paying the residual value to acquire the vehicle at the end of the lease (as was traditionally the case).
Where employers or employees do so, there may be unintended FBT consequences if the vehicle is no longer able to be classified as a car fringe benefit (concessional treatment) and must instead be treated as a property or residual fringe benefit, likely resulting in a higher FBT liability.
In order for a leased vehicle to be treated as a car fringe benefit, it must be a ‘bona fide’ lease. To be ‘bona fide’, one of the requirements is that the residual value meets the prescribed minimum value set by the ATO (which is effectively a deemed market value threshold test).
To assist employers with determining whether a re-leased vehicle can be treated as a car fringe benefit, the ATO has made several clarifying amendments to Tax Determination (TD) 93/142, including confirmation that the ATO’s prescribed minimum lease residual values are calculated based on the total period the asset is leased for, regardless of whether this consists of a single lease term or multiple lease periods.
Further, the ATO has also denounced the use of back-to-back one-year (‘rolling)’ leases that are often promoted by financiers to reduce the residual value of a lease arrangement and maximise the tax deductibility of lease payments.
TIP: Note that the taxable value of a car fringe benefit arising in respect of a luxury car is calculated by reference to the GST-inclusive cost of the car (statutory method) or value of the lease payments (logbook method) (i.e., the taxable value is not calculated based on the luxury car limit). Further, special rules apply for leased luxury cars which effectively limit the employer’s tax deduction to the depreciation cost limit plus notional interest, with the lease payments being non-deductible.
With lockdown periods continuing into the 2022 FBT year, commercial car parking stations continued to see periods of temporary closure, offering free all-day parking or charging heavily discounted fees. As a result, an employer may avoid a FBT liability with respect to car parking provided to employees where all commercial parking stations within a 1km radius of the employer-provided car park charged a $nil or discounted fee (lower than the 2022 car parking threshold of $9.25) on 1 April 2021 for all-day parking due to COVID-19.
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 2021 and the 4 weeks after 1 April 2021.
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 are due to take effect from 1 April 2022 (i.e. this will apply for the 2023 FBT year onwards). 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. However, the Government has also announced that it will be conducting a consultation to identify appropriate modifications to the legislative definition of “commercial parking station” with a view to restoring the previously understood interpretation of FBT to car parking benefits. Specifically, car parks that effectively charge penalty rates for all-day parking do not represent genuine alternative parking arrangements for commuters and should not trigger FBT liabilities.
Additionally, employers in the transportation industry will need to consider whether they have provided car parking fringe benefits to employees following the Federal Court’s decision in Virgin Australia Airlines Pty Ltd v FCT  FCA 523. The verdict confirmed that a car parking benefit is provided at an employees’ primary place of employment. For employees working in the transportation industry, their ‘primary place of employment’ on a given day may be the terminal that a flight crew member departs from or the depot that a bus driver departs from, despite the employee travelling to several locations throughout their working day.
TIP: Employers should consider whether their FBT liability can be reduced due to lockdowns or early bird rates, 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.
As part of the 2020/21 Federal Budget, the Government announced new FBT concessions to encourage employers to reskill or retrain staff who have been made redundant or are soon to be made redundant.
Under the new s58ZE exemption, a retraining or reskilling benefit provided on or after 2 October 2020 is an exempt benefit if all of the following apply:
- The benefit is provided in respect of training or education undertaken by an employee of the employer. Note, the training/education does not need to have a connection to the employee’s current income-earning employment.
Note – the exemption is not available for benefits provided under a salary packaging arrangement, benefits relating to certain Commonwealth-supported student assistance or to certain related employees.
- The employee is redundant, and the employer has complied with any Fair Work Act 2009
Note – Where an employee is not made redundant (e.g. due to the employer restructuring to retain employees), the FBT exemption will not be denied for benefits provided while the employer intended for the employee to be made redundant.
- The training or education is for the primary purpose of enabling the employee to gain any employment to which the training relates.
TIP: The otherwise deductible rule will generally not apply to reduce the taxable value of the reskilling or retraining benefits provided to employees who have been or are soon to be made redundant as this is typically undertaken to obtain new employment or income-earning activities (and is not therefore ordinarily deductible to the employee).
If you have already lodged and paid your 2021 FBT return, you will need to amend your return to reduce the FBT paid for any exempt retraining and reskilling benefits.
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, as summarised below.
Providing FBT-Exempt Car Parking
Eligible employers will not be subject to FBT on car parking benefits provided where the below requirements are satisfied:
- The car is not parked at a commercial parking station.
- The employer is not a public company or a subsidiary of a public company on the day that the benefit is provided.
- The employer is a SBE for the income year ending before the start of the FBT year (i.e., 30 June 2020 for the 2022 FBT year). Alternatively, where the benefit arose on or after 1 April 2021, the employer would have been a SBE for the income year ending most recently before the start of the FBT year (i.e. 30 June 2020) if the applicable aggregated turnover threshold was less than $50 million.
Providing Multiple Portable Electronic Devices to Employees
Where an employee has been provided with the same or similar eligible work-related item as that provided to them earlier in the same FBT year and the item is primarily for use in the employee’s employment (i.e., a portable electronic device including mobile phones, laptops, tablets etc.), an FBT exemption is available where one or more of the following applies:
- Only the use of the second item is provided (i.e. residual benefit; ownership does not pass to the employee)
- The second item is a replacement of the earlier item.
- The employer is a SBE for the income year starting or ending most recently after the start of the FBT year (i.e., 30 June 2021 or 1 July 2021 for the 2022 FBT year). Alternatively, where the benefit arose on or after 1 April 2021, the employer would have been a SBE for the income year starting or ending most recently after the start of the FBT year (i.e., 30 June 2021 or 1 July 2021 for the 2022 FBT year) if the applicable aggregated turnover threshold was less than $50 million.
TIP: For audit purposes, where multiple electronic devices have been salary packaged in the one FBT year, the ATO may question whether these devices are primarily for use in the employee’s employment. Employers may consider preparing additional documentation supporting how this requirement is satisfied before applying this exemption.
- 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 has recently announced the three-year extension of its data-matching program, whereby 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.
- The Administrative Appeals Tribunal’s (AAT) recent decision 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 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 2022 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 2022. 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 2022 FBT year must not have been completed before 1 April 2017). 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.
- As part of the 2020-21 Federal Budget, the Government announced that it will provide the Commissioner of Taxation with the power to allow employers to rely on alternative records to finalise their FBT returns (i.e., an alternative to employee declarations). At present, no legislation has been introduced to Parliament, meaning the change cannot apply any earlier than 1 April 2022 (i.e., the 2023 FBT year).
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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