Whether you are an employer who provides benefits to employees, or a tax professional attempting to help out a client, we have taken the time to compile a helpful list of new rules, old regulations and, importantly, reminders to ensure that you beat the deadline and get the most out of your FBT return this year.
Let’s get started.
1. New rule for multiple work-related electronic devices
From 1 April 2016, an employer can now provide more than one portable electronic device even if they have similar functionalities. This, however, applies to small business employers exclusively, and the device must be provided to employees principally to enable the employees to do their job. Remember that the ‘work-related use test’ must be satisfied for each device provided.
2. New FBT meal entertainment benefit changes
The Government has introduced a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses for employees of FBT-rebatable employers. The ‘Actual Method’ must be used for valuing salary packaged meal entertainment. This change is relevant when dealing with not-for-profit organisations.
3. Check last year’s FBT return and relevant rates
Further to the two aforementioned updates, there are no other significant legislative developments that impact on the 2017 FBT return compared to the 2016 return. This means that the 2016 FBT return can be used as a guide. Note that there are still both court and ATO decisions that you need to be mindful of. We encourage you to check the ATO website for further information. The FBT rate, the FBT rebate rate and Type 1 and Type 2 gross-up rates still take into account the temporary budget repair levy of 2%. Refer to this up-to-date summary of the rates applicable for the FBT.
4. No need to lodge: should you lodge anyway?
The ATO now accepts that employers that have no FBT liability do not need to lodge an FBT return – even if they provide fringe benefits to their employees. If you choose not to lodge, you may need to have evidence that supports your ‘nil’ FBT payable position in the event of an ATO audit. Be aware that by not lodging, the taxpayer will have an unlimited amendment period in relation to that FBT year. This could potentially cause issues for employers down the track.
5. Cars – minimising your FBT liability
Any car (owned or leased) that is given to employees for private purposes, including travelling between home and work, creates FBT exposure. What can you do to minimise your FBT liability in these circumstances? Some strategies include:
- Look at the operating cost method versus the statutory formula – be aware that for the operating method you need a logbook for each car;
- Consider whether ‘after-tax employee contributions’ could provide a better outcome for both employee and employer; and
If you have cars held for more than four FBT years, apply the 1/3 reduction to the cost base if you use the statutory method.
6. Distinguish ‘meal entertainment’ and ‘recreation’
It is vital to correctly distinguish ‘meal entertainment’ and ‘recreation’, as meal entertainment is subject to different valuation methods (such as 50/50 split) while ‘recreation’ is not. In addition, ‘recreation’ may need to be reported on the individual’s’ payment summary while entertainment is not reportable.
7. Contractors and FBT
As part of the overall FBT compliance, employers must ensure that any contractors are genuine contractors. A good starting point is to complete the ATO employee contractor decision tool for each new contractor engaged. Any non-cash benefits paid to a contractor who is deemed to be an employee could trigger FBT liabilities (on top of all the other issues). It may be worth spending the time to review all engagements with contractors.
8. Obtain FBT Declarations
It is important to obtain all employees’ declarations before the lodging of your FBT return. This is particularly relevant for any ‘otherwise deductible amounts’, living away from home allowances and remote area concessions. For a complete list of declarations required, we encourage you to refer to the ATO website.
9. GST payable on cash contributions
If employees are making after-tax contributions in respect of their car benefits, don’t forget that GST is payable on cash contributions. This must be remitted by the employer to the ATO. There is no GST payable on unreimbursed petrol costs.
10. Do you have everything covered?
Ensure that you have considered all FBT benefits and that you have managed your FBT exposure accordingly (aside from car and entertainment).
FBT benefits to consider include:
- Are there loans to employees at concessional rates?
- Has there been a waiver of a debt owed by an employee?
- Has the employer paid for any private expenses of an employee e.g. gym membership, health insurance or school fees?
- Is the employee living away from home due to work arrangements and the employer is paying an allowance?
- Are there any salary packaging arrangements in place?
- Has the employee been provided with goods or services from the employer?
If you have answered yes to one or more of these questions, or would like further clarity or advice on any of the topics discussed in this article, we recommend you contact your adviser for further guidance.