The ATO has indicated that it is concerned by employers not lodging these returns in time (or at all) in order to avoid paying tax and has warned that it will be paying close attention to those businesses during this tax season.
What is a fringe benefit?
A fringe benefit is a 'payment' to an employee, but in a different form to salary or wages.
Examples of fringe benefits include:
- allowing an employee to use a work car for private purposes
- giving an employee a discounted loan
- paying an employee's gym membership
- providing entertainment by way of free tickets to concerts
- reimbursing an expense incurred by an employee, such as school fees
- giving benefits under a salary sacrifice arrangement with an employee.
Here’s what to look out for when calculating your FBT liability for 2022
Assistance and benefits provided due to COVID-19
In addition to some recent updates and rule changes, COVID-19 has necessitated some different fringe benefits being offered to support employees through the pandemic, which can make it quite difficult to judge when FBT should apply.
As a rule, minor benefits should be FBT exempt where their individual cost is under $300. Outside of this and in many cases, there are specific FBT concessions that could be available, but it is important to work through these concessions carefully.
Working from home: When it comes to portable electric devices such as laptops and mobile phones, these devices shouldn’t trigger a FBT liability, as long they are primarily used by your employees for work.
Protective equipment: If your business provided protective equipment to allow your employees to safely continue to work, this benefit may be exempt from FBT. Typically, an FBT exemption for protective equipment would be available if your employees are involved in cleaning premises or are required to be in close proximity with customers or clients.
Rapid antigen testing: The government has proposed changes to the rules to make work-related COVID-19 testing benefits FBT exempt. If the rules are passed, the changes are intended to apply retrospectively to include benefits provided in the 2022 FBT year.
Emergency assistance: If your business provided emergency assistance to employees as a result of COVID-19, then fringe benefits tax is unlikely to apply. While we doubt anyone would be thinking about FBT during a crisis, it’s good to know that the tax system does not disadvantage your generosity.
Examples of the kinds of benefits exempt from FBT include immediate relief your business provides to an employee:
- for them to relocate back toAustralia, including flights and transport of household goods (e.g., due to health risks around COVID-19); and
- on clothing, food and temporary accommodation if an employee is stranded due to travel restrictions or is required to self-isolate or quarantine
First aid or other emergency healthcare you provide to an employee is also exempt if it is provided by an employee (or a related company employee), or is provided at your premises (or those of a related company), or at or near an employee's worksite.
Motor vehicle problem area
Just because your business buys a motor vehicle and it is used almost exclusively as a work vehicle, that alone does not mean that the car is exempt from FBT. If you use the car for private purposes - pick the kids up from school, do the shopping, use it freely on weekends, garage it at home, your spouse uses it - FBT is likely to apply. The private use of work vehicles is firmly in the sights of the ATO and has been for some time.
Private use is when you use a car provided by your employer (this includes directors) outside of simply travelling for work related purposes.
While there are two methods to calculate the FBT liability on the private use of a car, the choice of method can result in very different FBT liabilities. Using the logbook method may provide a better result especially this year if the work vehicle has not been used at all and garaged at or near the employee’s home.
This is because if your business keeps a valid logbook/odometer records and is eligible to use the logbook method, the ATO will accept that a FBT liability won’t arise if the car:
- Has not been driven at all during the period even if it has been garaged at home; or
- Has only been driven briefly to maintain the car.
Instead, by comparison if the statutory method is used, the FBT liability could be much higher. This is because the FBT calculation under this method will include the days which the car has been garaged at home and is taken to be available for private use of the employee (regardless of whether or not the employee has permission to use the car privately). Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.
Mismatched FBT and income tax amounts
The ATO is picking up mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer's tax return.
In particular, what concerns the ATO is where the employer has incorrectly overstated the employee contributions that they have received on their fringe benefits tax return to reduce the taxable value of the fringe benefits provided (and thereby, the employer’s FBT liability).
The ATO's approach is very evidence-based, there needs to be documentation to back up whatever the business is claiming.
Business assets personally used by owners and staff
Private use of business assets is an area that crosses a whole series of tax areas: FBT, GST, Division 7A and income tax.
Take the ATO’s example of the property company that claimed deductions for a boat on the basis that it was used for marketing the company. This attracted the ATO’s attention and a review was carried out.
The ATO discovered the boat was used by the director and other employees for private trips and to host parties for people who had paid to attend the company's property seminars. The ATO determined the director had purchased the boat primarily for their own private use and disallowed the deductions. The company had to lodge an FBT return and pay the resultingFBT liability, as well as the income tax shortfall, interest and penalties.
If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), remember to have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car, or missing records where employees forget.
Salary sacrifice and superannuation guarantee
From 1 January 2020, new rules came into effect to ensure that an employee’s salary sacrifice superannuation contributions cannot be used to reduce the amount of superannuation guarantee (SG) paid by the employer.
Under previous rules, some employers were paying SG on the salary less any salary sacrificed contributions of the employee. Previously, employers were required to contribute a percentage of an employee’s Ordinary Time Earnings (OTE) and they could choose whether or not to include the salary sacrificed amounts in OTE.
Under the new rules, the SG contribution is a percentage (from 1 July 2021, this is 10%) of the employee’s 'ordinary time earnings (OTE) base’. The OTE base is the employee’s OTE and any amounts sacrificed into superannuation that would have been OTE, but for the salary sacrifice arrangement.
Car parking changes
A controversial ruling from the ATO expands the scope of the FBT rules dealing with car parking benefits. This is because the ruling changes the ATO’s view on what constitutes a commercial parking station.Where an employer provides:
- Car parking facilities for employees within 1km of a commercial parking station, and
- That commercial car park charges more than the car parking threshold ($9.25 for the year ended 31 March 2022)
- a taxable car parking fringe benefit will normally arise unless the employer is a small business and able to access the car parking exemption.
- The ruling is now finalised but the ATO has stated it will apply the new expanded definition of a commercial parking station from 1 April 2022.
If you provide car parking facilities to team members, it is important that you either:
- have certainty that you are able to access the small business exemption which has a more generous turnover threshold of less than $50m from 1 April 2021 onwards; or
- understand the implications of the ruling to the car park facilities you provide.
Travel allowances vs living away from home allowances
Historically, travel allowances have caused confusion for many businesses.
Also with the ATO recently finalising its key guidance on travel costs, the ATO is likely to focus on benefits relating to transport, meals and accommodation.
If your business provides travel allowances to its employees, you will normally need to consider whether they are living away from home or just travelling overnight in the course of work.
Where your employees are travelling overnight in the course of work, travel allowances paid in relation to such travel are normally assessable to your employees. However, they might be entitled personally to claim deductions for some of their travel expenses.
For employees that are living away from home, these living away from home allowances are dealt with instead through the FBT system as a fringe benefit.
While the taxable value of the benefit is usually the amount paid, there are some generous concessions that can allow for some or all of the allowance to be FBT exempt if certain conditions are met.
Therefore, making this distinction is important.
The ATO has recently finalised its guidance in TR 2021/4 on when allowances should be classified as a travel allowances or a living away from home allowance. Helpfully, the ATO has also finalised a ‘safe harbour’ style approach in PCG 2021/3 which can used specifically for this purpose.
Retraining or re-skilling benefits
The government has passed new rules that provide a specific FBT exemption for employers that provide retraining and re-skilling benefits to employees whose jobs were made redundant. Importantly, this FBT exemption can apply even if your employees are being redeployed to another part of your business and has been applied retrospectively to include the 2022 FBT year.