As the end of the FBT year approaches, it is time to consider the lodgment of your 2018-19 FBT returns. FBT compliance is a common source of frustration among organisations, particularly since the costs of compliance have been shown to be disproportionately high compared with the actual tax collected. FBT can be a tricky tax—so we’re here to help you by identifying the areas of FBT that are currently attracting the most attention from the ATO and discussing how to get them right!
An employer must lodge an FBT return if they are providing fringe benefits, unless the taxable values of those benefits have been reduced to nil.
The ATO is currently concerned that employers are failing to identify fringe benefits that they are providing to employees. Where a fringe benefit has been identified, some employers are incorrectly calculating the taxable values of those benefits, including both the gross value and application of any reductions. Accordingly, where employers are providing benefits other than salary and wages to employees, they should ensure that they review how the benefit should be treated for FBT purposes.
Certain types of employers are eligible to qualify as rebatable employers and claim a rebate to reduce their FBT liability.
Claiming the FBT rebate is a very visible area of your FBT return, so employers should take care in this area. For example, if the rebate being claimed is conditional on the employer being an endorsed income tax exempt charity, the employer needs to ensure that such endorsement is both held and current. This is particularly relevant for employers that self-assess the FBT rebate (for example, community service organisations, sporting organisations etc.) Such entities should ensure the ongoing entitlement to the rebate is periodically reviewed.
An employee contribution may be paid to an employer to reduce the FBT liability the employer would otherwise pay in relation to the benefit provided. Where the contribution is paid directly to the employer, the employer needs to include that amount in their assessable income.
Alternatively, an employee contribution may be paid directly to a third party. In this case, the amount would not be assessable to the employer. An example of this is where an employee pays a third party for some of the running costs of their employer-provided car and aren’t reimbursed by the employer. However, where an employer reimburses an employee for their contribution, it will no longer be considered an employee contribution and the amount reimbursed will be an expense payment fringe benefit.
The ATO’s increasingly sophisticated data matching tools mean that employers need to take extra care when disclosing employee contributions because the ATO compares employee contributions shown on the FBT return to the employer’s income tax return.
The ATO is focusing on employers that are failing to correctly identify and report fringe benefits arising from the private use of employer-provided vehicles by employees.
- Where an employer provides a motor vehicle for the private use of an employee, a fringe benefit will arise. However, it may not necessarily be a car fringe benefit:
- If an employer holds (i.e. either owns or leases) a car and makes it available for the private use of an employee, the employer will be providing a car fringe benefit.
- Where an employer is providing a motor vehicle that is not a car, a residual benefit will arise.
An expense payment fringe benefit will arise where an employer reimburses an employee for their lease payments or running expenses for a motor vehicle or where it pays the third-party lease provider in satisfaction of the employee.
The ATO has also noted that employers are applying exemption provisions incorrectly. Two exemptions related to employer-provided vehicles are contained in sections 8(2) and 47(6) of the FBTA Act. These sections state that where a current employee is provided with an eligible vehicle, the benefit will be exempt where private use is limited to work-related travel, and other private use that is ‘minor, infrequent and irregular’.
The ATO issued PCG 2018/3 (the Guideline) to address inconsistencies in the methods used by employers to ensure compliance with these exemptions. If an employer meets the requirements of the Guideline and chooses to rely on it, the employer will not need to keep records to demonstrate that an employee’s private use of the vehicle is ‘minor, infrequent and irregular’ and the Commissioner will not devote compliance resources to review whether those employees can access the exemptions under sections 8(2) and 47(6).
Sufficient substantiation of the valuation basis used for car parking fringe benefits is a significant compliance risk for employers. The ATO has stated that they are focusing on the validity of car parking benefit valuations.
One of the areas that attract the ATO’s attention is when market valuations for a car parking benefit are significantly less than fees charged within a one kilometre radius of the premises where the car is parked. Accordingly, where an employer uses the market value method to calculate the taxable value of their car parking benefits, they will need a valuation report from a valuer that is suitably qualified to sufficiently substantiate the market value used.
Some employers have insufficient evidence to support the rates used to determine the lowest fee charged for all-day parking. In particular, there are a few things employers need to remember when using the commercial parking station method to value their car parking fringe benefits:
- Not all parking stations that exceed the car parking threshold figure will be considered commercial parking stations. TR 96/26 provides a list of car parking facilities that it does not consider to be commercial parking stations.
- There is often confusion among employers regarding the meaning of all-day parking. In ATO ID 2014/12, the Commissioner clarifies that a fee charged by the operator of a commercial parking station for vehicles entering the station from 1 pm is not a fee charged for ‘all-day parking’ as defined in s. 136(1) of the FBTA Act. This is because after 1 pm it is impossible to park for a continuous period of six hours of more during a ‘daylight period’ on that day.
- When determining the lowest fee charged for all-day parking, the ATO has confirmed in TR 96/26 that where parking is provided by a commercial car park on a weekly, monthly, yearly or other periodic basis, the operator is taken to charge, on any particular day, a daily rate equivalent.This is calculated by use of the following formula:
Total fee / Number of business days in period
Living-away-from-home allowances (LAFHA)
Whether an allowance is considered a LAFHA and potentially entitled to FBT concessions to reduce the taxable value remains a difficult area for some employers.
Following the changes to the LAFHA rules in 2012, one of the ATO’s focus areas is where these concessions are claimed for ineligible employees. Therefore, it is important that an employer firstly check that an employee meets the eligibility requirements for the LAFHA concessions before providing that employee with the allowance.
Where a LAFHA is made to an eligible employee, the FBT treatment of the LAFHA allows housing and food costs (which are fundamentally private in nature and not deductible) to be paid tax-free in certain circumstances. The taxable value of a LAFHA can be reduced by the exempt accommodation and exempt food amount component. However, the substantiation and calculation requirements to determine these components can be tricky.
The exempt accommodation component is the amount the employee actually spends on accommodation. However, all accommodation expenses must be substantiated by the employee giving the employer:
- documentary evidence of the expense, or a copy of such documentation; or
- a declaration in the approved form which sets out information about the expense.
The declaration or evidence must be given to the employer before the due date for the employer’s FBT return. If the employee gives a declaration, the employee must also retain documentary evidence of the expense for a period of five years from the lodgement date.
The steps to calculate the exempt food component can be found in section 11.6 of the FBT Guide for Employers and has been reproduced below:
- Establish the food component.
- Subtract the applicable statutory food total from the food component.
That is: Food component – applicable statutory food total.
From the amount calculated at step 2, determine how much of that amount was incurred by the employee on food and drink.
The exempt food component is so much of the result of step 3 that can be substantiated if required.
For the purposes of the calculation, the key terms have the following meanings:
- Food component: the amount that is reasonable to compensate for food and drink expenses of the employee and any eligible family members. This involves comparing the usual cost of food at the employee’s usual residence to the cost of food while living away from home.
- Applicable statutory food total: sum of the statutory food amounts of the employee and any eligible family members, less any amount that might reasonably be expected to be the total normal food or drink expenses for the family had they remained living in their normal residence during the period.
- Statutory food amount: $42 per week for an adult and $21 per week for a child under 12 years.
To assist employers with the above, every year, the Commissioner releases determinations that set out the reasonable food and drink amounts for a LAFHA (see TD 2018/3). Where the total food and drink expenses don’t exceed the reasonable amounts outlined in the determination, those expenses don’t need to be substantiated by the employee. However, where they exceed the reasonable amounts, all expenses must be substantiated, not just the amount in excess of the reasonable amount.
Need some assistance?
As can be seen from the matters discussed above, complying with your FBT obligations can be more complex than you may realise. Given the ATO’s focus on this area, care and consideration needs to be given when trying to meet your obligations. If you need any assistance with the matters discussed in this article, or any other area of FBT, we are here to help!
This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. Webb Martin Consulting Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.