Fringe Benefits Tax (FBT) 2019
Your Helpful Guide
The FBT year ends on 31 March 2019 and it is time to turn your attention to ensuring that you have the appropriate paper trail to support the FBT return. The following are a few issues that you should watch out for as well as a checklist of items subject to FBT.
Motor Vehicle Log Book
Log books are valid for five years. If your log book is older than that, then you should consider doing a new one now. It must run for twelve consecutive weeks to be valid. If you don’t have a valid log book then you have no choice but to use the statutory formula method for calculating your FBT – possibly to your detriment.
Motor Vehicle Odometer Readings
For all motor vehicles provided to employees who use the log book method we require odometer readings on 31 March 2019 for our records. If you purchased or sold any vehicles during the year make sure that you obtain their odometer readings on those dates as well. Without odometer readings, a motor vehicle will be deemed to be 100% private and taxed accordingly.
Tax Office Activity
With the increase in employees working from home and the employer paying for their home internet, this has become a target for the Tax Office to review. The payment of home internet and phone is an expense payment fringe benefit. To reduce the benefit the employer needs to have written declarations from the employee of their business use. Business use can be determined by keeping a record over a four week period on either hours of use or on a data download basis. The employer should also obtain a copy of the receipt, invoice or similar document that verifies the actual expense paid.
Another area the Tax Office is looking more closely at is where employer motor vehicles are taken home overnight by employees as a security measure. The Tax Office deems a car to be available for the private use of an employee even if the car is not used for private purposes when it is parked at or near the employees premises overnight. Accordingly as the car is ”available” for private use it will be caught for fringe benefits tax.
A reminder that a common area of non-compliance found during audits is incomplete or missing declarations. It is important to ensure all declarations are completed correctly and on file in case of a review. Remember FBT is an employer’s tax and if employees have not completed the declarations and kept relevant receipts it will be the employer who will be penalised.
ATO confirms major problems with employers paying LAFHA’ – Don’t be caught out
The Tax Office changed the concessions governing a LAFHA (living away from home allowance) from 1 July 2014. From this date the concessional treatment has been reduced to only the following situation:
- Employees are generally required to maintain a home in Australia and the LAFA is being paid whilst away from that home. The employee’s home must continue to be maintained by them for their immediate use and enjoyment during the period they are living away from home. It cannot be rented out.
- This concession in now limited to a period of 12 months. New substantiation rules apply and a LAFH declaration is required.
All entertainment is potentially subject to FBT. Unless you have a detailed breakdown of all these expenses (i.e. staff/clients entertained on each occasion), a flat 50/50 apportionment of eligible entertainment expenses will apply. Note that you are only entitled to GST input credits in the same proportion as the deductibility of your entertainment expenditure. You should ensure that your Business Activity Statements (BAS) reflect your actual entertainment deductibility.
The annual staff Christmas party will be exempt from FBT if the all-inclusive cost is less than $300 (including GST) per person attending. However if using the 50/50 method, this exemption does NOT apply and 50% of the Christmas party will be subject to FBT.
Entertainment provided on an infrequent or irregular basis (for example, once per quarter), may qualify for the $300 minor benefits exemption. With this in mind there may be significant FBT savings in keeping detailed records of entertainment provided to employees.
Loans made to employees at less than ATO benchmark interest rate (5.20% for the 2019 year) are subject to FBT. Any such loans should be well documented with interest charged at least every six months otherwise FBT will be charged on the interest discount.
Expense Payments / Reimbursements
As an employer you should be careful that you are seen to be making expense reimbursements and not paying an allowance. Allowances are subject to PAYG withholding and no input credit is available on the payment of an allowance. Where paying amounts on employees’ credit cards, you should also be careful that the payments are reimbursements of the underlying expense and not payments of the “balance” of the credit card itself, in which case input credits will be denied.
Most expenses which are reimbursed will include GST. In order to be able to claim the input credit the employer must hold a tax invoice. As a matter of policy you should ensure that you don’t reimburse employees’ expenses unless they provide a tax invoice at the time of reimbursement.
GST Effect on Fringe Benefits
Fringe benefits tax is calculated on the GST inclusive cost of expenses. As your financial accounts are prepared exclusive of GST we cannot directly rely on the accounts to calculate FBT payable. It is necessary to increase the relevant expenses by 10% to account for the GST, or work off the original invoices.
Employee Contributions and GST
In many cases, employees make a payment to their employer in order to reduce the taxable value of fringe benefits. This will be deemed to be a separate taxable supply by the employer which is itself subject to GST. If your employees make such a payment, either in cash or via a journal entry to their loan account, you must remember to include this amount on your BAS and remit the GST to the Tax Office.
Some employees may pay car expenses such as petrol or repair costs themselves, for a vehicle provided by the employer. This also represents a contribution which will reduce the taxable value of the fringe benefit. However as this payment is made to a third party and not to the employer, it is not a taxable supply made by the employer and is not to be shown on the BAS.
TIP: Employees whose salary after salary packaging is less than $180,000 should be encouraged to pay for some of their car running costs themselves as this will create a saving in FBT.
Payment and Lodgement of FBT
Payment of FBT is either by instalments (where the annual FBT liability is $3,000 or more) or annual (if the annual FBT liability is less than $3,000). FBT instalments are payable on a BAS or IAS depending on whether you are registered for GST.
If you prepare the return yourself the due date for lodgement and payment is 21 May 2019. If you use us to lodge the return the due date for lodgement is 25 June 2019, however payment is still required by 28 May 2019. Please ensure that you budget a payment into your cashflow – perhaps using last year’s payment as a guide.
Effective Salary Sacrifice
It is important to remember that a salary sacrifice is only effective if it is prospective. In other words the salary must not yet be earned at the time when the decision to package the salary is made. For instance, it is not possible to package a bonus into superannuation unless the decision is made before the time at which the employee has an actual entitlement to receive the bonus.
Ineffective salary sacrifices could leave the employer exposed to additional PAYG Withholding tax, Superannuation Guarantee Charge, WorkCover, Payroll Tax as well as fines and penalties.
Not all benefits provided to employees are taxable benefits. The following are examples of exempt benefits if they are provided to an employee primarily for work related purposes;
- Portable electronic devices (Mobile phones, laptops, PDAs, IPads)
- One item of computer software
- One item of protective clothing
- A briefcase
- Tools of trade
- Minor benefits of less than $300 provided on an irregular and infrequent basis (also available to associates)
These exemptions apply to only one item per employee per FBT year where items are substantially identical in functionality. In other words, providing multiple laptops to an employee will result in the exemption applying to only one laptop.
We will be in contact with you shortly to discuss your fringe benefits tax liability and the preparation of the annual return for 2019. However should you have any queries, please call your usual HMH contact on +61 3 9840 2200.
Download our 2019 FBT Checklist
Download our 2019 Motor Vehicle Odometer Declaration