In our last article on FBT, we sought to identify all the hidden (and not so hidden) benefits that you might be giving your employees that could attract FBT.
Having considered that, you’ve arrived at the conclusion that maybe you do have a FBT liability – so, now what? Well, it depends on the type of benefit.
Motor Vehicle Benefits
The most common type of benefit we see is in relation to motor vehicles.
But before we get calculating, there are a couple of exceptions to consider. There is no FBT on:
- An electric car; or
- A vehicle commonly referred to as a “workhorse, which is a single-cab Ute, or possibly a dual-cab Ute provided it is designed to carry a load rather than passengers.
However, if you don’t meet those exemption categories, and the company vehicle does attract FBT, there’s two ways to measure it:
The Operating Cost Method, which requires you to:
- Get the employee to keep a log book, where they record all their travel for a continuous period of at least 12 weeks, distinguishing between personal and business travel.
- Take odometer readings at the start and end of the FBT year (or the first and last dates when the car was available for private use. (With a new FBT year about to start, its probably a good idea to get all those odometer readings on the evening of 31st march (or first thing in the morning of 1st April – no fooling!) just in case you need them next year).
- Operating costs incurred (e.g. insurance, servicing) during the year.
The Statutory Formula Method.
- There are less record-keeping requirements here – you just need to know the original cost of the car, and the start & end dates of when it was available for private use.
If you’re not sure which method is best, it’s a good idea to keep a log book and odometer readings anyway. You don’t have to use them if the Statutory Formula works out better for you, but you won’t lose anything.
Other Benefits
And what about other types of benefits?
In our last article, we mentioned that there might be all sorts of fringe benefits hidden in your P&L (entertainment, travel, personal expenses). But its not all bad news, because some benefits are exempt.
Again, before you start calculating, consider whether the benefits offered are:
- Personal electronic equipment;
- Tools or protective equipment used for work.
As these are exempt benefits.
However for benefits that are not exempt, the taxable value of the benefits is usually just simply the value of the benefit received by the employee. For example, if you spent $500 on entertainment for the employee, then the taxable value of the benefit is $500.
In some cases, there may be some market-rate estimations (e.g. car parking benefits), but nothing like the statutory & operating cost formulas that apply to motor vehicles.
Again, keep those receipts and make sure the record keeping is as detailed as possible. For example, suppose that the $500 entertainment bill was not only for a staff member, but a customer as well. In that case, the benefit to the employee would only be half that amount, with the other half being a marketing expense for the business. But you wouldn’t remember that if you hadn’t been keeping good records.
How Much is this Going to Cost?
The basic formula for fringe benefits tax is:
- For benefits that include GST, multiply the Taxable Value of the Benefits x 2.0802
- For benefits that don’t include GST, multiply the Taxable Value x 1.8868
Fringe benefits tax is then levied at 47% of the grossed-up amount (yeah, that’s a lot!)
Imagine again that $500 entertainment benefit provided to an employee. It would likely have incurred GST, so the grossed-up value would be $1,040. The 47% FBT levied on that would be $488.
That’s right – a $500 benefit incurs $488 tax!
That’s why its so important to stay vigilant with this.
Employee Contributions
One way to reduce FBT liabilities for employers is to have employees contribute to the cost.
This can be a simple cash reimbursement of the tax payable, or can be through wages, dividends (if the employee owns shares) or offset against existing employee loans.
Employee contributions can be for some or all of the FBT payable amount.
Note that if your employees do make a contribution directly to you and the benefit you provide is a taxable supply (i.e. includes GST), then the employee contribution will be deemed to have GST on it as well
Nil Returns
What if you’ve given out fringe benefits, but they are all exempt (e.g. the vehicle used was a workhorse, the vehicle was used exclusively for business purposes, or the benefits given were for work tools), or you have been fully reimbursed by your employee(s)?
Do you still bother lodging a FBT return, even though you owe nothing?
Yes, you do!
Why? If you’ve lodged returns, even if they are “nil” returns, and you get audited by the ATO, they can only go back 2 years as part of their audit.
However, if you haven’t lodged an FBT return, the ATO can go back as far as they want.
For our Friends in the NFP Industry
Oh… one final thing.
For any not-for-profit employees that have salary-packaging arrangements, make sure you use these last few days of the FBT year to maximise the FBT-free threshold (currently $30,000 (grossed-up) per employee). There is no “carry-forward” to next year, so maximise your benefits today!
Questions regarding fringe benefit tax? Please don’t hesitate to talk to us about it to get more information and advice.