Common FBT errors and how to avoid them.

Work from Home Arrangements and FBT

With so many of us working from home and in flexible work arrangements, it’s crucial to understand and be on the lookout for work-related items that may trigger FBT liabilities.

Whilst most home-office items provided to employees should not attract FBT if they are primarily used for work purposes, there are certain scenarios where FBT may apply.

For example, work-related items (e.g. office furniture) or services (e.g. home internet) may attract FBT if they are also used for personal purposes.

So make sure you have clear guidelines and policies in place regarding the use of home-office items to minimise the risk of FBT liabilities. Additionally, keeping accurate records of usage and distinguishing between work-related and personal usage can help ensure compliance with FBT regulations.

As always, if you need a hand or clarification, contact your advice team.

Motor Vehicle Classifications

Another area to pay close attention to is motor vehicle classifications.

Ensure that vehicles are correctly categorised and be sure to maintain proper records, such as valid logbooks to avoid compliance issues.

Moreover, if you’re wondering about whether your electric vehicle is subject to FBT, check out the recent guidance and criteria from the Australian Tax Office (ATO).

Contractor or Employee Classification

One of the most common FBT errors we see is the classification of workers.

Understanding whether your workers are employees or contractors is crucial, as FBT typically applies to benefits provided to employees and certain office holders, like directors, but not to genuine independent contractors.

Recent rulings by the High Court have prompted the ATO to issue a definitive ruling (TR 2023/4) to help clarify this distinction. 

Specifically, the ruling emphasises that while a written contract is a key focal point, merely labelling someone as an independent contractor isn’t sufficient if the contract’s terms suggest an employment relationship.

For businesses engaging contractors, establishing robust processes to determine classifications and assess ATO risk ratings is essential. Moreover, you should regularly review your arrangements to ensure ongoing compliance. 

Lastly, it’s also vital to recognise that even genuine independent contractors may trigger certain employment-like obligations, such as superannuation guarantee and payroll tax.

Mismatched Information for Entertainment Expenses

Mismatched information between entertainment expenses claimed as deductions and those reported for FBT purposes can attract unwanted attention from the ATO. 

Claiming deductions for entertainment without acknowledging them as fringe benefits for employees can create discrepancies. Employers must accurately identify and report entertainment expenses subject to FBT. Checking for consistency between claimed deductions and FBT reporting is a great place to start to avoid discrepancies.

Employee Contributions and FBT

Effective management of after-tax employee contributions is vital for reducing the taxable value of fringe benefits.

Employers should ensure proper documentation and adherence to guidelines regarding both the timing and method of employee contributions.

Incorrectly reporting employee contributions – or omitting them altogether – can lead to underreporting of FBT liabilities and trigger reviews or audits.

Non-Lodgment of FBT Returns

Failure to lodge FBT returns when required can lead to penalties and compliance issues. 

Employers should review their FBT obligations and ensure timely lodgment to avoid potential repercussions.

Poor FBT Record-Keeping

Failing to maintain proper records, such as valid logbooks for vehicles or documentation for employee contributions, can result in inaccurate reporting and discrepancies that can trigger audits with the Tax Office. So keep meticulous records to support your FBT calculations and claims.

Maintaining accurate records of fringe benefits can be challenging, especially concerning vehicles and odometer readings. So make sure you have effective processes in place and training for staff, where required.

This will not only help you to accurately report your FBT liabilities, but it will also help you streamline your FBT reporting and compliance efforts.

Avoiding common FBT errors

By avoiding these common FBT errors and maintaining diligent record-keeping practices, you can ensure compliance with regulations and mitigate the risk of penalties, fines and audits. 

If you need assistance navigating your FBT requirements or addressing any compliance concerns, get in touch.