2017 Fringe Benefit Tax (FBT)
2017 Fringe Benefit Tax (FBT) – What employers need to know?
The 31st of March 2017 marks the end of another FBT year and in which employers are left wondering what they are required to do to meet ATO obligations or if these obligations apply to their business.
As the ATO will be looking at FBT closely this year, we want to ensure that employers have all the relevant information to complete the FBT returns correctly and do not neglect their responsibilities which could lead to an ATO audit and additional penalties.
Should your business be registered for FBT?
Fringe Benefit Tax is the tax obligation that most people are aware exists, but most do not understand if it applies to their business.
If you have employees or are the director in a business and you are providing benefits, it is possible that you will need to be registered for FBT. When we use the word “benefits” we are generally referring to items that are not exempt from FBT which can include cars, car spaces, entertainment (food & drink), discounts to employees, reimbursement of private expenses etc.
We note that not every benefit that can be received will be treated as FBT, there is a list of exemptions where FBT does not apply. These can include, portable electronic devices such as laptops & iPads (however there is a limit on how many), protective clothing etc. Where your business only provides these types or items or provides infrequent benefits which are valued under $300, it may be possible that you do not have an FBT obligation.
New Rates for 2018 FBT Year
The ATO FBT rate will decrease on 1st April 2017. The decrease has occurred due to the 2% Debt Tax (Temporary Budget Repair Levy) on high income earners that have been imposed by the ATO. The FBT rate was brought into line with the Debt Tax to discourage high income earners from using the FBT system to lower their taxable income. Assuming the Debt Tax does end on 30th June 2017 as anticipated and not extended, the FBT and gross up rates will decrease to previous levels from 1st April 2017.
|FBT year||FBT Rate||Type 1 Gross Up rate||Type 2 Gross Up rate|
|1 April 2015 to31 March 2017||49%||2.1463||1.9608|
|1 April 2017 onwards||47%||2.0802||1.8868|
Salary packaging & the opportunity for high-income earners
Salary packaging has been less enticing over the last few years with the higher FBT rate and restrictions being placed on some of the popular FBT concessions. As always it is important to review all existing arrangements and make sure that the arrangement is correct when the rate decreases on the 1st April 2017 as the new FBT year begins. In general, salary packaging will become less expensive to provide once the FBT rate goes down again, so look for the opportunities to save.
For high income earners earning above $180,000, you have a one-off opportunity to reduce your taxable income when the FBT rate is reduced from 1st April 2017 until the Debt Tax is removed on 30th June 2017. Just be certain that any arrangements put in place are executed correctly. The ATO will be looking closely at any packaging arrangements that reduce an individual’s income below the Debt Levy threshold level.
So what does an effective salary sacrifice arrangement include?
- Forms part of the employee’s remuneration, i.e. the benefits are replacing amounts that would have been payable as salary.
- Is documented in writing. The employee needs to agree in writing to forgo a certain amount of income before that income has been earned, in return for benefits of a similar value. If the ATO want to clarify this point there will need to be documentation and a trail – paperwork and transactions – backing it up.
- Is not reimbursed to the employee’s bank account. The salary sacrificed amount needs to come out of the salary or wages.
What the ATO are targeting this FBT year – businesses that have bought cars and living away from home allowances
Data matching has become a great resource for the ATO over the years to the point where there are very few transactions you can make without the ATO knowing about it. If you or your business comes up on one of these lists the first thing that will happen is that the ATO will reach out and start asking for more information to validate your position. It is important that you retain documentation to be able to justify your position; if you don’t have records validating your position the next step might be an audit.
With the ATO using data matching, it is possible that the ATO can determine that in that FBT year a business has purchased vehicles but fringe benefits have not been reported to the ATO. While this position might be genuine, it’s important to have the documentation to substantiate this claim.
While the changes to the living away from home allowance (LAFHA) rules have been in place for a few years now, it is still an area that the ATO is concerned. One of the key issues is whether the employee is actually living away from home, as opposed to simply travelling in the course of their work or relocating. Where you provide these benefits to employees, you need to ensure you have sufficient evidence to support any exemption claimed, and that the employee has met the relevant conditions necessary.
It’s up to the employer to not only obtain the signed LAFHA declaration from the employee, but also to verify and maintain records to evidence that the employee or their spouse has retained an ownership interest in the home that they are living away from and that it remains available to them while they were required to work in another location by the employer.