ATO’s target areas for employer FBT non-compliance
The Fringe Benefits Tax (FBT) year has ended with some hot issues targeted by the ATO. In this year’s updated ATO ‘hit list’, “What attracts our attention”, there are six items that specifically relate to FBT.
What is Fringe Benefits Tax (FBT)?
FBT is payable by employers when certain benefits are provided to former, current, or future employees in addition to salary or wages. These benefits might be provided directly or through a third party.
FBT was introduced to prevent employers from reducing the tax liability of employees by providing benefits not recognised as income. Most employers who provide fringe benefits to employees during the course of the year need to register and pay FBT.
The ATO’s focus issues for Fringe Benefits Tax
The FBT focus issues mentioned in the ATO’s list are:
- failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles, or incorrectly claiming reductions for these benefits
- mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer’s tax return
- claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising
- incorrectly calculating car parking fringe benefits due to:
- significantly discounting market valuations
- using non-commercial parking rates
- not being supported by adequate evidence
- not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates
- not lodging FBT returns (or lodging them late) to delay or avoid payment of tax.
Are you liable for FBT?
If you are not sure whether your business is providing fringe benefits to employees, here are some key questions you should ask yourself:
- Do you make vehicles owned or leased by the business available to employees for private use?
- Does your business provide loans at reduced interest rates to employees?
- Has your business forgiven any debts owed by employees?
- Has your business paid for, or reimbursed, an employee’s private expenses?
- Does your business provide accommodation to your employees, i.e., a house or unit?
- Does your business provide employees with living-away-from-home allowances (LAFHA)?
- Does your business provide entertainment – food, drink or recreation activities? For example, if you had a Christmas party then the business probably provided entertainment to employees.
- Do any employees have a salary package (salary sacrifice) arrangement in place?
- Has your business provided employees with goods at a lower price than they are normally sold to the public?
Common areas of FBT confusion
A common area of confusion is motor vehicles. Where a motor vehicle owned or leased by the business is used by an employee or director for private purposes (including travelling between home and work), then FBT is an issue that needs to be managed.
Another common area of confusion is entertainment. Entertainment can be almost anything from food, drink, recreation activities such as movie tickets, through to non-work-based travel. If you provided any entertainment benefits to employees, such as an employee attending a business lunch or party, then FBT may apply. Entertainment is an area of continued focus for the ATO as the FBT treatment also interacts with the treatment of these expenses for income tax and GST purposes.
Third party pitfalls
For FBT to apply, the conventional wisdom is that the benefits involved are provided instead of cash salary and that such benefits are usually paid in respect of an employment relationship. Hence the pool of accepted FBT-attracting items — laptops, cars, entertainment expenses and so on — that an employer may provide to staff.
However, where some businesses trip up is where the source of benefits provided is not clear cut — that is, where non-cash components of remuneration are sourced not directly from an employer, but from an associate, a related company or from a third-party provider.
An employer can be liable for FBT even if benefits are provided to staff by third parties or by an “associate” of a business. For example, arrangements to which these provisions might apply would include employees who receive goods directly from your business’s suppliers.
For a liability to arise, it is generally accepted that the employer must have been party to the arrangement or had been knowingly facilitating the provision of the benefit. In some cases, allowing an employee to receive a benefit in these circumstances may be sufficient to result in it being considered an arrangement for FBT purposes.
How can Greenwich & Co help you?
We encourage business owners to consider their FBT liabilities and to ensure their business is compliant with its obligations. FBT liabilities need to be paid by 21 May 2019.
Greenwich & Co can assist with strategies for minimising your FBT liability, reviewing your business’s FBT position and lodging FBT returns.
If you have any queries or concerns about the issues raised in this article, or about FBT in general, please just contact us. We would be happy to talk through the issues with you.