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Fringe Benefits Tax (FBT) in 2023: key issues

Fringe Benefits Tax (FBT) Sweater
30 March 2023 Read time: 8 min

 

It’s that time of year again. Yes – it’s sweater weather (in Melbourne at least)… and in our world, that means it’s also time to turn our minds to Fringe Benefits Tax. So if you’re wondering what’s new in the world of FBT, you’re in luck. Dive in as we take a closer look at Fringe Benefits Tax in 2023.

We chat through the key considerations for employers. From electric cars to working-from-home arrangements, we cover some of the latest FBT updates and the things you should have on your radar this year.

But first off… a refresher…

 

What are fringe benefits?

 

Fringe benefits are ‘payments’ or other perks that are provided to your employees or their associates (e.g. their family), over and above their regular salary or wages. 

Fringe benefits include things like company cars, health insurance, gym memberships, and some entertainment.

 

What is Fringe Benefits Tax (FBT)?

 

Fringe Benefits Tax (FBT) is a tax levied by the Australian Taxation Office (ATO) on these non-cash benefits.

 

How is Fringe Benefits Tax (FBT) calculated?

 

Fringe Benefits Tax (FBT) is calculated on the taxable value of these non-cash benefits. This is usually the employer’s cost to provide the benefit, less any amount paid by the employee towards the benefit.

The FBT rate is currently 47% of the taxable value of the benefit.

It’s important to note that not all benefits are subject to FBT. Some exemptions and concessions may apply. For example, certain work-related items or benefits provided to employees in some non-profit organisations.

FBT is generally the responsibility of the employer. They’re required to register for FBT with the ATO and lodge an annual FBT return. The FBT year runs from 1 April to 31 March.

FBT in 2023: the key issues.

 

FBT compliance is complex and time-consuming. So we recommend you work with the pros to minimise errors and costly penalties.

This is especially true this year; the ATO remains focused on fringe benefits reporting in 2023. For the most part, they’re concerned with employers who incorrectly report the taxable value of their fringe benefits and those who fail to declare any at all.

To ensure you’re meeting your FBT reporting obligations in 2023, keep these key issues in mind: 

FBT exemption for electric cars.

 

Electric cars are a small but growing proportion of the new car market in Australia. To encourage Australians to make the shift, the Government passed legislation providing an FBT exemption for certain no or low emissions vehicles from 1 July 2022.

This means that providing your team members with the use of electric cars, hydrogen fuel cell electric cars or plug-in hybrid electric cars can now potentially qualify for an FBT exemption. 

The FBT exemption should normally apply where:

  • The value of the car is below the luxury car tax threshold for fuel efficient vehicles ($84,916 for the 2022-23 financial year); and
  • The car is both first held and used on or after 1 July 2022. 

 

If your business provides these benefits to employees your business will still need to work out the taxable value of the car benefit as if the FBT exemption didn’t apply. This is because the value of this exempt car benefit is still taken into account in the reportable fringe benefits amount of the employee. While income tax is not paid on this amount, it can impact the employee in a range of areas (such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments).

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FBT and work from home arrangements.

 

Post pandemic, many workplaces have shifted to hybrid remote/in-office schedules. Further, many employers have provided their teams with work-related items like laptops and mobile phones. 

Such devices shouldn’t trigger an FBT liability, as long they are primarily used for work. Where multiple similar items have been provided during the FBT year, the situation becomes more complex unless your business is a small business (i.e. has an aggregated turnover of less than $50m).

If an FBT exemption isn’t available, it is often worth considering whether the FBT liability on these items could be reduced by the employee purchasing the item themselves and claiming a once-only deduction in their personal return.

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More workplaces caught by car parking changes.

 

A controversial ruling from the ATO has expanded the scope of the FBT rules dealing with car parking benefits. This means more employers will be seen to provide car parking benefits to staff.

The ruling expands the definition of what constitutes a commercial parking station. It can now include parking stations that charge penalty rates for all-day parking to the public, such as those normally located in shopping centres.

Where an employer provides: 

  1. Car parking facilities for employees within 1km of a commercial parking station, and 
  2. That commercial car park charges more than the car parking threshold ($9.72 for the year ended 31 March 2023)

A taxable car parking fringe benefit will normally arise unless the employer is a small business and able to access the car parking exemption.

This new expanded definition of a commercial parking station applies from 1 April 2022.

If you provide car parking facilities to team members, it is important that you either:

  • Have certainty that you are able to access the small business exemption (which has a more generous business turnover threshold of less than $50m from 1 April 2021 onwards); or
  • Understand the implications of the ruling to the car park facilities you provide.

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Mismatched information for entertainment claimed as a deduction and what is reported for FBT purposes.

 

One of the easiest ways for the ATO to pick up on problem areas is where there are information mismatches. 

When it comes to entertainment, employers are keen to claim a deduction but mightn’t recognise it as a fringe benefit. 

Expenses related to entertainment such as a meal in a restaurant are generally not deductible. Further, no GST credits can be claimed unless the expenses are subject to FBT.

For example:

Let’s say you take a client out to lunch and the amount per head is under $300. If your business uses the ‘actual’ method for FBT purposes, then there should not be any FBT implications. This is because benefits provided to clients are not subject to FBT and minor benefits (i.e. value of less than $300) provided to employees on an infrequent and irregular basis are generally also exempt. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either.

If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the business would be able to claim 50% of the GST credits.

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Business assets personally used by owners and staff.

 

Private use of business assets brings a whole range of tax implications: FBT, GST, Division 7A and income tax.

Take the ATO’s example of a property company that claimed deductions for a boat. These deductions were made on the basis that the boat was used for marketing the company. Large deductions were claimed relating to running the boat. This attracted the ATO’s attention and a review was carried out.

The ATO discovered the boat was used by the director and other employees for private trips. They also used it to host parties for people who paid to attend the company’s property seminars.

When looking at the overall business activities, the ATO determined the director purchased the boat primarily for their private use.

As a result, they disallowed the deductions and determined the private use of the boat was a fringe benefit for the employees of the company. The company had to lodge an FBT return and pay the resulting FBT liability. They also had to pay the income tax shortfall, interest and penalties.

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Employee contributions for FBT purposes and salary sacrifice.

 

The difference between an employee salary sacrificing in order to receive a fringe benefit and making a contribution towards the value of that fringe benefit frequently causes confusion.

To be considered a salary sacrifice arrangement (SSA), the employee and employer must enter into agreement before the employee becomes entitled to the income (e.g. before the period in which they start to perform the services that result in the payment of salary etc.).

Where an employee has salary sacrificed on a pre-tax basis towards the fringe benefit provided (e.g.  laptop, car, etc.), they have agreed to give up a portion of their gross salary on a pre-tax basis to 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 salary sacrifice arrangement doesn’t reduce the FBT liability for the employer.

The employer recognises a lower cost of salary and wages as their ‘cost saving’. This results in lower PAYG withholding. In most cases, it also results in lower superannuation guarantee obligations. However, the employer still recognises 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.

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Not lodging FBT returns.

 

The ATO is concerned some employers are not lodging FBT returns or lodging late to avoid paying tax. 

So they pay close attention to any employer that:

– Is registered for FBT but lodges late.

If your business is likely to face delays in lodging the FBT return, get in touch with your adviser (or the ATO). If you get in early, you can ask for an extension request.

Is not registered for FBT.

If your business employs staff (even closely held staff like family members), and is not registered for FBT, be on alert. Review your position and confirm you do not have an FBT liability. If your business provides cars, car spaces, reimburses private (not business) expenses, provides entertainment (food and drink), employee discounts etc., then you’re likely to be providing a fringe benefit.

For more information, review the FBT client questionnaire we sent you (or contact us to request one).

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Travelling or living away from home.

 

The ATO has recently finalised their guidance on travel costs and will be looking closely at transport, meal and accommodation benefits.

Travel allowances often cause confusion for many businesses. If your business provides travel allowances to employees, you normally need to consider whether they are living away from home or just travelling overnight in the course of work.

Where your employees are travelling overnight in the course of work, these travel allowances are normally assessable to your employees. However, they might be entitled to personally claim deductions for some of their travel expenses.

For workers that are living away from home, these allowances are dealt with instead through the FBT system as a fringe benefit. While the taxable value of the benefit is usually the amount paid, there are some generous concessions that can allow for some or all of the allowance to be FBT exempt if certain conditions are met.

As a result, getting the distinction right between travelling overnight for work and living away from home is important.

The ATO explains in Tax Ruling TR2021/4 when allowances are consider a travel allowance or a living away from home allowance. Helpfully, the ATO has also finalised a ‘safe harbour’ style approach in PCG2021/3 which can be used specifically for this purpose.

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