The Fringe Benefits Tax year is now here which runs from 1st of April to 31st of March. Any taxes applicable are due in May. With the arrival of the FBT year, it’s important to consider some common FBT issues that may affect SME’s and how they can affect you.
Cars
You may have to pay FBT if your employees take home cars and garage them overnight or they use the car for private use. Proving the vehicle is not available for private use overnight by employees if they keep it at or near their home can be a challenge and the ATO have won many cases on this point. If you opt to use the operating cost (logbook) method to determine your FBT liability on a company car, the logbook must meet all the requirements under tax law. This includes sufficiently detailed descriptions of the use of the vehicle in order to meet FBT requirements. If sufficient records aren’t kept, the benefit is likely to be taxed under the statutory formula. Also, it’s important to mention the tax advantage of new salary packaging arrangements for cars would be practically eliminated from 1 April 2014.
Entertainment
Meal entertainment costs can be valued based on the actual cost to employees and associates, or by using the 50/50 spilt or register method. Recreational entertainment costs must declare these based on the actual costs relating to employees and associates.
Portable electronic items
Functionality of portable electronic items is key for FBT. If you provide two devices in the one FBT year with different functionalities, both can be exempt. For example, a laptop and an iPhone have two very different functionalities. If both devices have the same functionality, the second one is subject to FBT. For the FBT to apply, the item must be primarily used for employment purposes. For example, it may be difficult to prove an iPad provided to staff is used primarily for employment purposes.
Utes
Majority of the time, utes and similar vehicles provided by an employer are exempt from FBT. This allows the home-to-work trip to be classified as a business trip. However, the exemption will only apply where other private use of the vehicle is minor, infrequent and irregular. The burden of proof here rests on the tax payer. For example, it may be difficult to prove the use is infrequent if the employee does not have another vehicle of their own.
Christmas parties
Christmas parties are not classified as a separate type of fringe benefit. Due to the nature of a Christmas party, it may fall under a number of different categories of fringe benefits. A tax deduction for a party is generally only available if the party is subject to FBT. The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. Gifts to employees may still be tax deductible even if they are treated as an exempt minor gift if the gift is less than $300.
Otherwise deductible rule
The otherwise deductible rule allows the taxable value of a fringe benefit to be reduced to the extent the recipient of the benefit would have been entitled to a tax deduction for the expense. However, this must only be a once off deduction and can’t be spread over a number of years. For example, if an employee claims a deduction for depreciation, the otherwise deductible rule won’t be available. This rule also only applies where the recipient of the benefit is an employee (not their associate or spouse).
Small business car parking
An exemption from FBT applies to eligible small business car parking benefits. In order for the exemption to be available, the employer must firstly be either a small business entity or have an income of less than $10 million in the income year before the current FBT year started. Also, the parking cannot be provided at a commercial parking station. This can be a valuable exemption for smaller businesses. If you do apply for the car parking benefit rules, you must consider whether there is a commercial parking station located within 1km.
Fringe benefits tax rates
As mentioned the FBT year runs from 1 April to 31 March. The rates are as follows: 46.5% for year ending 31 March 2014 and 47% for the FBT year ending 31 March 2015. It’s important to be aware of this rate increase.
Lodging your FBT Return
If your business doesn’t have a FBT payable, you may not be required to lodge a FBT return. However, you should consult your accountant and consider if you should still lodge one. If you don’t lodge a FBT return to the taxpayer, you will have an unlimited amendment period for FBT matters relating to that particular year. If you are lodging electronically, the due date for FBT returns is 25 June. If you are not lodging electronically, the statutory date of 21 May still applies. Self-assessed deferral requests are no longer available, however, you can lodge a request for additional time to lodge through the ATO when exceptional or unforeseen circumstances prevented lodgement by the due date.
Should you require any further information about these issues or changes, please feel free to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
