…higher rates and more exposure
As the calculation of a Fringe Benefits Tax (FBT) liability is not always straightforward, we have collated some timely reminders and commentary on potential opportunities to reduce your exposure. FBT returns are required to be lodged by 23 May 2016 (if lodging yourself) or by 27 June 2016 (if lodging electronically through Fordham), and payments are due by 30 May 2016.
New rates for 2016
As a result of the recent legislation introduced regarding the Temporary Budget Repair Levy, in the 2016 FBT year, the FBT rate has increased from 47% to 49% on the grossed-up taxable value of fringe benefits provided by employers. In line with this change, the Type 1 and Type 2 gross up rates have increased to 2.1463 and 1.9608 respectively. This means that the cost of providing Fringe Benefits to your employees is higher than ever!
Why records are important?
In order for your FBT liability to be calculated, there is a strong reliance on records and as such, appropriate record-keeping is of great importance.
For example, if you’re an employer who provides a car fringe benefit, using the log book / operating cost method, it is necessary to appropriately calculate the percentage of private use, and a log book must be kept for a continuous period of 12 weeks.
From the date the FBT return is lodged, records must be kept for five years.
Some common types of fringe benefits
It is important to note that when considering the various categories and classifications of fringe benefits, each fringe benefit will have diverse valuation rules, exemptions and reductions. It is vital to classify each fringe benefit into the correct category.
Fringe benefits that employers regularly provide to employees are shown below.
CAR FRINGE BENEFIT
For example Employees are able to use a work car for private purposes.
RESIDUAL FRINGE BENEFIT
For example Employees are allowed to use a motorcycle for private purposes (benefits that don’t fall into any other specific category).
CAR PARKING FRINGE BENEFIT
For example Employees are provided with a parking space either at or near work.
EXPENSE PAYMENT FRINGE BENEFIT
For example Employees health insurance premiums are paid for or reimbursed by the employer.
ENTERTAINMENT FRINGE BENEFIT
For example This may include providing food and drinks to employees at staff parties or by providing free tickets to concerts.
PROPERTY FRINGE BENEFIT
For example Employees are provided with goods at a lower price than is available to the public.
LOAN FRINGE BENEFIT
For example Employees are provided with loans cheaper than accessible though financial institutions.
LIVING-AWAY-FROM-HOME-ALLOWANCE (LAFHA FRINGE BENEFIT)
For example Employees are compensated and provided an allowance for the inconvenience of living away from their normal residence.
SALARY SACRIFICE AGREEMENT
For example Employees may receive a benefit which will in turn reduce their salary.
There may be instances where the provision of one benefit may fit into more than one fringe benefit category, for example the provision of food, drink and recreation to employees can give rise to either the meal entertainment fringe benefit, expense payment fringe benefit, property fringe benefit or residual fringe benefit. Therefore, it’s important to distinguish between the circumstances under which the benefit was provided, as this may impact the ultimate FBT liability.
Approaches to reduce FBT Liability
PROVIDE ALTERNATIVE BENEFITS THAT ARE NOT SUBJECT TO FBT
Whilst fringe benefits may be more attractive to employees, specifically those high income earners as a means of reducing income tax, the tax is burdened on the employer, rather than the employee. The simplest means to avoid an FBT liability as an employer is to not provide the actual fringe benefit, and instead provide the employee with an increase in salary or a cash bonus.
UTILISE EMPLOYEE CONTRIBUTIONS
Another means of reducing an employer’s FBT liability is through employee contributions. This is where an employee pays from their salary (after tax), the cost of the employer providing the benefit. For example, requiring employees to make weekly contributions in exchange for allowing them to use a company vehicle.
CONSIDER PROVIDING EXEMPT BENEFITS
The FBT liability may be reduced through certain exempt benefits which include:
Minor and infrequent benefits
If the value of the fringe benefit is under $300 per benefit, it may be exempt.
Portable electronic devices used for work purposes (limited to one of each item per FBT year). From April 1 2016, small businesses (aggregate turnover of less than $2 million) will qualify for an exemption to provide more than one of the various work related items including laptops, computers, mobile photos and portable printers to be primarily used in the employee’s employment.
Property provided and consumed on the employer’s premises
Lunches/after work drinks (consumed in the office).
STRATEGICALLY PROVIDE TAX DEDUCTIBLE FRINGE BENEFITS
If an employer provides a benefit that otherwise could have been deducted if it was paid for by the employee (such as sending employees to specific courses, or additional education that is in connection with employment), the “otherwise deductible rule” applies, and the employer will not be subject to FBT for provision of that benefit. Other FBT reductions may also be available for the provision of certain benefits.
CAR FRINGE BENEFITS – COST PRICE
The ATO with TR 2011 / 3 has identified potential savings for motor dealers providing fringe benefits to their employees. The ATO’s view is that sales incentives, manufacturer’s rebates and fleet discounts effectively reduce the cost price of the car when considering the value of the benefit being provided.
Like to know more?
Download Hot Topic-FBT-April 2016
This publication has been prepared by Fordham Business Advisors Pty Ltd. Perpetual Private advice and services are provided by Perpetual Trustee Company Limited ABN 42 000 001 007, AFSL 236643. This information is believed to be accurate at the time of compilation and is provided in good faith. However, it contains general information only and is not intended to provide you with advice or take into account your personal objectives, financial situation or needs. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional advice. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.