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Fringe Benefits Tax – Year-End Roundup
March 31st is right around the corner – and therefore so is the Fringe Benefits Tax (FBT) year-end date. With that in mind, it is worth a quick look into a few key points regarding FBT, particularly what can attract it, as well as the application of salary sacrifice. Note this article explores some of the more common benefits provided by employers, and there are certainly more that may attract FBT.
Using Company Vehicles Outside of Work
When it comes to company vehicles, FBT is likely to apply if there is any personal use involved. This can be as simple as taking it to do the groceries; dropping a friend off at the airport; even garaging it at home. These simple (and seemingly harmless) applications still qualify as personal use, and as such the provision of a company car is regarded by the Australian Taxation Office (ATO) as a fringe benefit.
While it could be tempting to sweep these things under the carpet, and assume that the ATO won’t be able to find out, it is worth noting that it is not particularly difficult to determine whether or not a vehicle has been used for any personal journeys.
FBT Implications for Utes and Commercial Vehicles
The Fringe Benefits Tax Act contains some exemptions, which can apply to situations when certain types of vehicles (e.g. utes) are provided, and the “private use” of the vehicles is limited to work-related travel, and infrequent personal use. Businesses are expected to keep records that show a reasonable effort has been made to ensure private use is monitored and restricted, and this can include odometer log books, GPS tracking or travel journals. Satisfying the ATO’s specifications in this area and keeping relevant records will reduce the likelihood of the exemption usage being investigated. It is also worth a reminder to take odometer readings on any applicable vehicles at 31 March.
Living Away From Home Allowance (LAFHA)
A LAFHA is an allowance paid to an employee, where they have to live away from their normal residence in the course of work. The allowance is to cover the additional expenses and any disadvantages suffered as a result of this. In general, FBT applies to the full amount paid to the employee, however the taxable amount can be reduced by the exempt accommodation and/or food component of the allowance.
A few common errors when applying these allowances include:
- Mischaracterising an employee as living away from home when they are only travelling in the course of their work
- Failing to obtain the necessary declarations (receipts etc.) from the employee in question
- Claiming a reduction in the taxable value of the benefit for exempt accommodation and food that do not satisfy the criteria
- Failing to substantiate expenses, particularly accommodation.
Salary sacrifice vs. employee contribution
A simple way to look at the FBT-related difference between salary sacrifice and employee contribution is that salary sacrifice arrangements are made pre-tax; whereas employee contributions are made post-tax. The ATO looks closely at these two arrangements, as both attract different GST and PAYG obligations. For salary sacrifice, the taxable value of a fringe benefit is the full value of the expense paid by the employer, and the employer recognises a “cost saving” due to lower wages, and therefore lower PAYG withholding and super contributions. As for employee contributions, the employer would still be subject to the “standard” PAYG withholding and superannuation contribution obligations.
Whichever way a business provides Fringe Benefits to employees, it is extremely important to know all the related tax implications, and how to remain compliant with the ATO. Failure to do so can potentially result in unexpected FBT obligations, particularly at a time where the ATO is keen to identify anybody not following the rules. If you are unsure if you are providing Fringe Benefits to employees, or even their family members, please contact us for assistance.
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