March 31 and the end of the FBT year is around the corner, so to help practitioners get things right for their clients, the ATO has made public the fringe benefits tax issues that attract its attention.
Broadly (not just in relation to FBT), it says the following behaviours and characteristics tend to raise a red flag:
- tax or economic performance not comparable to similar businesses
- low transparency of tax affairs
- large, one-off or unusual transactions, including transfer or shifting of wealth
- tax outcomes inconsistent with the intent of tax law
- lifestyle not supported by after-tax income
- accessing business assets for tax-free private use
- poor governance and risk-management systems.
But focusing on FBT in particular, the ATO says there are specific behaviours and characteristics that attract its attention, especially in relation to certain areas of the FBT rules. These include issues involving aspects of the living-away-from-home allowance (LAFHA), car parking, employer-provided vehicles and more. The areas the ATO has stated it will be focusing on with regard to FBT are listed below.
Living-away-from-home allowance (LAFHA)
LAFHA is an allowance an employer pays to employees to compensate for additional expenses incurred and any disadvantages suffered because the employee’s duties of employment require them to live away from their normal residence.
The taxable value of the LAFHA benefit may be reduced by the exempt accommodation and food components of the allowance (see link below).
Common errors that the ATO says attracts its attention include:
- claiming reductions for ineligible employees
- failing to obtain required declarations from employees
- claiming a reduction in the taxable value of the LAFHA benefit for exempt accommodation and food components in invalid circumstances
- failing to substantiate expenses relating to accommodation and, where required, food or drink.
Car parking valuations
The ATO will focus on the validity of valuations provided in relation to car parking fringe benefits. The common errors that attract its attention include:
- market valuations that are significantly less than the fees charged for parking within a one kilometre radius of the premises on which the car is parked
- the use of rates paid where the parking facility is not readily identifiable as a commercial parking station
- rates charged for monthly parking on properties purchased for future development that do not have any car park infrastructure
- insufficient evidence to support the rates used as the lowest fee charged for all day parking by a commercial parking station.
See the ATO’s guide for employers on car parking fringe benefits here. Also see our recent article “Small business car parking FBT exemption”.
Provided motor vehicles
Another area of focus will be on situations where an employer-provided motor vehicle is used, or available, for private travel of employees. The ATO says this constitutes a fringe benefit and needs to be declared on the FBT return (if lodgment is required). There are circumstances where this may be exempt, such as where the entity was tax exempt or the private use of the vehicle was exempt (see more about exempt vehicles here).
The ATO has found that some employers fail to identify or report these fringe benefits or incorrectly apply exemption provisions.
A red flag is also raised in situations where employee contributions that have been paid by an employee to an employer (which reduces the FBT liability of the employer) are declared on both the fringe benefits tax return (if lodgment is required) and the employer’s income tax return. This helps to ensure that the employer does not:
- fail to report these contributions as income on their income tax return
- incorrectly overstate employee contributions on their fringe benefits tax return to reduce the taxable value of benefits provided.
Another hot spot for the ATO is whether a fringe benefits tax rebate can be claimed. A taxpayer must be a rebatable employer to claim a fringe benefits tax rebate, but the ATO has found that some ineligible employers incorrectly claim this rebate.
Employers should ensure that they are eligible to receive the rebate (see more of these here).
Non-lodgment of FBT returns
Of course non-lodgment of fringe benefits tax returns is of concern to the ATO. Employers that provide fringe benefits must lodge an FBT return unless the taxable value of all benefits has been reduced to nil.
Common errors that attract ATO attention include:
- failure to identify fringe benefits provided
- incorrect calculation of benefit values or reduction amounts.