Employers should start planning the preparation of their annual Fringe Benefits Tax (“FBT”) return now that another FBT year has come to an end, being 31 March 2014. Some tips that may help employers plan their annual return are set out below.
An employer is required to pay the FBT and lodge a return with the Australian Taxation Office in such case’s where they provide fringe benefits to their employees. The 2014 FBT year includes the period 1 April 2013 to 31 March 2014. The due dates for lodgement of the 2014 FBT returns are:
- 21 May 2014 – if the return is lodged by paper; and
- 25 June 2014 – if lodged electronically via a tax agent.
The due date for payment will remain 28 May 2014.
Planning for Year End
- In the 2014 FBT year, a 17% statutory rate is available for cars that were acquired, purchased, or leased for the first time by an employer, after 10 May 2011, where the annualised kilometres travelled is greater than 40,000km. In the case of a lower number of kilometres, the statutory method will remain at the 20% rate;
- The “old” statutory rates will still apply to cars acquired, purchased, or leased for the first time prior to 10 May 2011. Cars are governed by the “old rules” until the employer ceases to provide the car or there is a change in the original commitment;
- From 1 April 2014 (ie the 2015 FBT year), the transitional rules cease to apply and all cars governed by the new rules will be required to apply the 20% statutory formula regardless of the distance travelled;
- Odometer readings should be obtained from employees to ensure a record of each vehicle’s odometer at 31 March 2014 is on file which is required for the operating cost method;
- Employers should collate receipts and/or records relating to any unreimbursed employee expenditure incurred in respect of car fringe benefits. Such Goods & Services Tax (“GST”) inclusive amounts can be used to decrease the taxable value of the car fringe benefit;
- Employers should also review general ledger accounts to identify potential benefits paid to employees.
Areas that employers should be mindful of when preparing their FBT returns include:
Entertainment Fringe Benefits
- Meal entertainment benefits are usually classified and valued separately from non-meal entertainment benefits;
- Employers should consider if a different valuation method could result in FBT savings. Options include the 50/50 split method, the 12 week register method or the actual method;
- Only 50% of input tax credits can be claimed under the 50/50 split method. If the actual method is used an employer is generally only entitled to credits on that portion of entertainment subject to FBT;
- Many employers assume the 50/50 split method provides the best outcome, however it is often the actual method that produces the lowest tax cost.
- A minor benefit is exempt from FBT if its value is less than $300 and the benefit is provided infrequently and irregularly. This is often referred to as the “minor and infrequent rule”;
- The exemption is particularly useful in reducing fringe benefits associated with entertainment expenses;
- The exemption can not be applied to entertainment related benefits provided under a salary-packaging arrangement, in-house fringe benefits or benefits valued under the 50/50 split method.
Car Fringe Benefits
- A car benefit arises only if the car is “held” by the employer such as via a hire-purchase in the employer’s name or a novated lease. Vehicles that are purchased or leased under the employee’s name are expense payment fringe benefits, therefore there is limited scope to reduce the taxable value;
- In relation to cars under a novated lease, a valid novation agreement should be held. For new employees to an organisation, the current market value (rather than the original cost) of a car can be used in the calculation of the taxable value thus providing a lower cost to the employer;
- Employers should ensure the base value is not overstated by reviewing the car acquisition documentation. The base value excludes stamp duty and registration costs but includes GST and dealer delivery costs;
- Where a car has been held for a minimum of 4 years before the beginning of the applicable FBT year, a one-third reduction in the base value can be applied;
- Generally the only time an employer is entitled to annualise kilometres travelled is when a car has been first acquired or disposed of in the FBT year;
- Certain conditions must be met for an employer to demonstrate a car was not available for private use during the year (thereby reducing the taxable value). Detailed records must be maintained in order to apply a reduction of the private use days during the year;
- To reduce the taxable value of the benefit all employee contributions, such as cash contributions, indirect third party payments by the employee (eg fuel paid by the employee), or journal entry arrangements must be substantiated;
- Valid logbooks should be obtained from employees when using the operating cost method;
- Employers should compare both valuation methods to determine the lowest taxable value of the car fringe benefit. There are some situations in which the operating cost formula may result in a lower taxable value when compared to the statutory formula method;
- Employers should consider the treatment of vehicles that have been treated as FBT exempt in the past and ensure certain conditions are met in order to classify them as exempt vehicles (eg utes and panel vans);
- E-tags/road tolls are expense payments or residual fringe benefits that should not be included in car expenses for the purpose of the operating cost method.
Living away from Home (“LAFH”) Allowance Fringe Benefit
Changes were made on 1 October 2012 to the FBT rules in relation to concessional tax treatment of LAFH benefits:
- The access to the FBT concessions was drastically limited by these reforms. Furthermore, substantiation of expenditure is now required for the accommodation component;
- In most cases, the concessional FBT treatment for certain LAFH benefits will cease to apply after the employee has been living away from home for more than 12 months;
- A review of each employee living away from home is highly recommended.
- New rules introduced were designed to remove many of the FBT concessions associated with in-house benefits, provided after 22 October 2012, under a salary packaging arrangement;
- Some concessions removed include the concessional taxable value rules (ie 75% of lowest fee charged) and removal of $1,000 reduction concession;
- Employers are entitled to continue using the old concessional rules for-house benefits provided under arrangements entered before 22 October 2012, so long as the benefit is provided before 31 March 2014;
- It is highly recommended to review arrangements in place to determine the effect of these new rules.
- For travel greater than five nights travel diaries are required for:
a) All travel overseas, regardless of purpose;
b) Domestic travel in which the trip is not exclusively for business purposes.
- Where a business is eligible to claim a GST input tax credit, the GST inclusive value should be used when calculating the taxable value of the benefit;
- Employers should also review whether they are classifying the benefits correctly as either Type 1 or Type 2 as this effects fringe benefits tax payable.
For further information, please contact WMS.
DISCLAIMER: This article is intended to provide a general summary only and should not be relied on as a substitute for professional advice.