If a business provides certain benefits to staff, or their associates, the business taxpayer may be up for fringe benefits tax (FBT). But there seems to remain ongoing misconceptions, or at worst misinformation, among many in business about the exemption or otherwise of certain benefits provided to employees.
Generally, a condition of exemption is that the benefit is primarily used to enable employees to do their job. In determining an item’s “primary use”, the ATO bases its decisions on the employee’s “intended use” at the time the benefit is provided. Then there are benefits that can be provided that are deemed FBT exempt (click here to go to the ATO’s list of FBT-exempt items and other FBT concessions).
It may seem obvious, but salary of course is not a fringe benefit, and neither is a superannuation contribution. Entitlements under employee share acquisition schemes are not deemed to be a fringe benefit, nor are termination payments.
But a business is giving a fringe benefit if, for example, it allows a staff member to use a work car for private purposes, provides one of them a cheap loan, reimburses another for a private expense, such as school fees, or generally provides entertainment or recreation — and for FBT purposes, this would include, for example, taking clients to a sporting event.
For businesses, it makes no difference whether they are structured as a sole trader, partnership, trustee, corporation, unincorporated association or government body, or whether they pay other taxes such as income tax. As an employer providing remuneration in a form other than cash, they have to pay FBT, even if the benefit is provided by an associate or by a third party. For example, a business may deal with a supplier that, in turn, provides free goods to that business’s employees.
All that is required is that the employee receives the benefit in their capacity as an employee of the business. Furthermore, an employee is deemed to have received a fringe benefit if that benefit is directly received by the employee’s “associates” — in the main, these would be family members and relatives. So this catches the school fees paid for the staff member’s kids or the interest-free loan made out in the wife’s name.
The ATO recently released the following points for business owners to keep in mind to avoid what it has found to be the most common FBT mistakes made over recent financial years. The circumstances to be wary of include:
- A business vehicle garaged at an employee’s residence may be deemed a car fringe benefit.
- A logbook is required to be kept when using the operating cost method for calculating vehicle benefits. The logbook must be maintained for a continuous period of at least 12 weeks. Unless circumstances materially change, the same logbook may be relied upon for five years before another 12-week period must be recorded.
- When you use the operating cost method, the luxury car tax threshold does not apply when calculating the deemed interest and depreciation.
- Contributions an employee makes to the employer to reduce the taxable value of a fringe benefit
- are assessable income for income tax purposes
- are possibly taxable supplies for goods and services tax (GST) purposes.
- If employees have incurred any fuel and oil expenses they need to provide the employer with a declaration to substantiate these expenses.
- Directors running their business through a company may be regarded as employees. This may mean that fringe benefits provided to directors result in the company having FBT obligations.
- When a business includes reportable fringe benefits on an employee’s payment summary, the business will be expected to lodge an FBT return.