The Fringe Benefits Tax (FBT) year ends on 31 March. We've outlined the key hot spots for employers and employees.
Just because your business buys a motor vehicle that is used as a work vehicle does not mean that the car is exempt from FBT. If you also use the car for private purposes – pick the kids up from school, do the shopping, use it freely on weekends, garage it at home, or your spouse uses it – FBT is likely to apply. While we're sure the old, "what the ATO doesn't know won't hurt them" mentality often applies when FBT returns are completed, it might not be enough. The private use of work vehicles is firmly in the sights of the Australian Tax Office (ATO).
Private use is when you use a car provided by your employer (this includes directors) outside of simply travelling for work-related purposes.
If the work vehicle is garaged at or near your home, even if only for security reasons, it is taken to be available for private use regardless of whether or not you have permission to use the car privately. Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.
However, the FBT Act contains some exemptions which can apply in situations where certain vehicles (utes and other commercial vehicles for example) are provided and the private use of the vehicles is limited to work-related travel, and other private use that is 'minor, infrequent and irregular'.
A car parking fringe benefit arises where employer-provided parking facilities are made available to an employee (or associate) and certain additional conditions are satisfied.
However an exemption from FBT is available if all the following conditions are satisfied:
- the parking is not provided in a commercial car park
- you are not a government body, a listed public company, or a subsidiary of a listed public company
- either your gross total income for the last income year before the relevant fringe benefits tax (FBT) year was less than $10 million, or you were a small business for the last income year before the relevant FBT year.
The ATO has noticed that where car parking benefits are being declared (that is, where an employer provides parking to an employee), the value of what is being declared is significantly less than what you would expect to pay.
Living Away From Home Allowances (LAFHA) continue to cause confusion for both employers and employees.
A LAFHA is an allowance paid to an employee by their employer to compensate for additional expenses they incur, and any disadvantages suffered because the employee's job requires them to live away from their normal residence.
As a starting point, FBT applies to the full amount of the allowance that has been paid.
However, if certain strict conditions can be satisfied, the taxable value of the LAFHA fringe benefit can be reduced by the exempt accommodation and/or food component.
To be an effective salary sacrifice arrangement (SSA), the agreement must be entered into before the employee becomes entitled to the income (e.g., before the period in which they start to perform the services that will result in the payment of salary).
Where an employee has salary sacrificed on a pre-tax basis towards the fringe benefit provided – laptop, car, etc., they have agreed to give up a portion of their gross salary on a pre-tax basis and receive the relevant fringe benefit instead.
As a starting point, the taxable value of the fringe benefit is the full value of the expense paid by the employer.
The employer recognises a lower cost of salary and wages provided to the employee as their 'cost saving', which results in lower PAYG withholding and superannuation contribution obligations, but they still recognise the full value of the fringe benefit as part of their taxable fringe benefit which is subject to FBT.
The employee recognises that they have a reduced amount of salary and wages, and a non-cash benefit in the form of the fringe benefit.
If you have any questions about how FBT may apply to your circumstances, please contact us.