ASK US HOW | Fringe Benefits Tax
Posted by Michael Derin
Published on October 16, 2013 under NSW Business Chamber Partnership
There are many challenges small business owners have when it comes to FBT.
The term ‘There are many challenges small business owners have when it comes to FBT.
WHAT IS FRINGE BENEFITS TAX
Fringe Benefit Tax (FBT) is a tax paid on certain benefits you provide to your employees or their associates. It’s separate from income tax and is based on the taxable value of the different fringe benefits you provide. The FBT year runs from 1 April to 31 March and returns are due on 23 May.
FBT AND MOTOR VEHICLES
One of the biggest issues for small business owners is motor vehicles, as many don’t realise FBT is attached or might apply.
The Australian Tax Office has been targeting motor vehicle usage for quite some time now and it’s quite easy to audit whether small business owners take their vehicles home or not. The golden rule is the moment you drive your car home, you’re using it for private purposes.
Many small business people simply think of their tax as annual tax obligation. They just lodge an annual return and think they will be okay. They don’t realise they should be attending to FBT. When they get to the end of the year, they simply say to their advisor, can you please claim all my motor expenses?’ And the advisor accepts that advice and simply lodges it on that basis.
There are two methods used to calculate the taxable value of car benefits. Firstly is the operating cost or logbook method which is based on the percentage of the total cost of operating a car during the FBT year. For this method a logbook must be maintained to record the business and private use of the car for a minimum of 12 weeks during a year (this calculation can apply for five years before a new logbook must be kept).
The second method is the statutory formula method, based on the number of days during the during the FBT year the car is available for an employee’s private use. It is calculated based in a percentage of the car’s cost base and the number of kilometres the car travelled during the FBT year.
FBT AND BUSINESS LUNCHES
It’s common for many small business people to think that if they take a client out to lunch that it’s classed as a business lunch. However, what they don’t realise is because the company has incurred a cost for their own half of the meal, as well as the client’s, the meal is now an entertainment expenditure.
Small businesses that do entertainment, might only pay $1500 every year for a couple of lunches each month. But the truth is it’s not a business expense, that’s entertainment and that’s subject to FBT.
FBT AND EMPLOYEES SALARY SACRIFICE ARRANGEMENTS
It's important to note that there are some items under salary sacrifice arrangements which may you may need to pay FBT for.
According to the ATO website, a salary sacrifice arrangement takes place between you and an employee where the employee agrees to forgo part of their salary in return for you providing benefits of a similar cost. This may include health insurance, a laptop or motor vehicle.
|
Fringe benefit |
Generally exempt from fringe benefit tax (FBT) |
|
Use of a company vehicle |
Yes - only usage related to work activities is FBT exempt; FBT applies to personal use of vehicles by employees |
|
Laptop primarily used for work |
Yes - classed as a portable electronic device, only one device (for items that have a substantially identical function) can be claimed per FBT year, unless the item is a replacement |
|
Relocation expenses for work purposes |
Yes |
|
Food hamper as a Christmas gift (under $300) |
Yes* |
|
Gym membership |
No* |
|
Fees for employee’s children’s education |
No* |
|
Mobile phone primarily used for work |
Yes - classed as a portable electronic device, only one device (for items that have a substantially identical function) can be claimed per FBT year, unless the item is a replacement |
|
Private health fund membership expenses |
No* |
|
Flu shot for employees (carried out at work premises) |
Yes* |
|
Association membership fees and training/development directly related to the employee’s profession |
Yes |
|
Car park at business premise |
Yes - if the business is a small private business with a turnover less than $10 |
*Minor benefits under $300 may be exempt if it is a benefit that is infrequently provided and/or difficult to record and value. Relatively inexpensive Christmas gifts of food or drink (eg. fFood hamper, bottle of whiskey) that will be consumed by the employee at home are not regarded as the provision of entertainment. Expenditure incurred on such gifts is treated as an allowable income tax deduction for the employer, not subject to FBT.