As we approach the end of another FBT year on 31 March 2018, employers should be gearing up for this season’s reporting obligations.
To help keep you up to date and not left out on the fringe, we present to you our top five issues to keep you in the know in 2018.
1. New 2018 FBT rates and gross-up rates
Following the removal of the Temporary Budget Levy, the FBT rate has reverted back to 47% for the 2018 FBT year onwards. The associated Type 1 and Type 2 gross-up rates have also reduced.
Other important rates and thresholds that have been updated for the year ending 31 March 2018 include:
- Car parking threshold: $8.66
- Statutory benchmark interest rate: 5.25%
- Reasonable food and drink amounts for employees living away from home (per week):
- $247 for one adult;
- $371 for two adults; and
- $495 for two adults and two children
- Reportable fringe benefits threshold: Taxable value exceeding $2,000 (i.e. grossed-up value of $3,773).
The 2018 FBT lodgement due date is 21 May 2018, however, Cooper Partners as tax agent can access an extended lodgement date of 25 June 2018. Regardless of which lodgement date applies, the FBT payment due date is 28 May 2018.
Where employers are registered for FBT and the FBT payable is nil, we recommend that employers still lodge an FBT return to commence the three year amendment period (which is otherwise unlimited if a notice for non-lodgement is submitted).
2. Travel related benefits – new ATO guidance
The ATO has recently set out its view on travel related benefits provided to employees in Draft Taxation Ruling TR 2017/D6. While this ruling has not been finalised, it is expected that once finalised it will apply to both previous and future years. With the withdrawal of previous rulings on this issue, employers should consider the impact of the draft ruling in the 2018 FBT year and whether, in light of the changes, employee travel is in performing the employee’s work activities (and therefore not subject to FBT).
Some of the key observations of the new ruling include:
- Travel benefits such as flights, accommodation and meals are subject to FBT unless it can be shown that the benefits are ‘otherwise deductible’;
- The previous 21 day rule of thumb for distinguishing travelling for work versus living away from home has been withdrawn with no new replacement safe harbour time period;
- New concepts of ‘special demands travel’ and ‘co-existing work locations travel’ with key factors such as the remoteness of the work location and the requirement to move continuously between changing work locations;
- Scenarios have been provided to illustrate when travel related benefits are deductible for income tax purposes and therefore whether subject to FBT.
In determining whether transport expenses relate to travel undertaken in performing an employee’s work activities, the following factors should be considered:
- whether the work activities require the employee to undertake the travel;
- whether the employee is paid, directly or indirectly, to undertake the travel;
- whether the employee is subject to the direction and control of their employer for the period of the travel; and
- whether the above factors have been contrived to give a private journey the appearance of work travel.
In relation to the accommodation, meal and incidental expenses incurred, these expenses are generally deductible where:
- the employee’s work activities require travel to be undertaken;
- the work requires the employee to sleep away from home overnight;
- the employee has a permanent home elsewhere; and
- the expenses are not in the course of relocating or living away from home.
If you would like to read our detailed newsletter on the new ATO guidelines on travel expenses please click here.
3. Relaxation of exempt vehicle record keeping requirements
In a recently issued draft Practical Compliance Guideline (PCG 2017/D14), the Commissioner aims to relax the current FBT record keeping requirements for certain vehicles (panel vans, single cab utes and dual cab utes not designed principally to carry passengers). The draft PCG states that where certain conditions are met, no records are required to be maintained by the employer each year to demonstrate that the work-related FBT exemption applies to the vehicle provided to an employee.
Under the current FBT rules, where such a vehicle is provided to an employee for work related purposes and any private use is limited to ‘minor, infrequent and irregular’ travel, the vehicle is an exempt fringe benefit and not subject to FBT.
There has always been uncertainty on what exactly is ‘infrequent and irregular’ private use and how much private travel is more than ‘minor’, particularly because records such as odometer readings and logbooks are not mandatory for exempt vehicles.
The PCG now stipulates stringent conditions to permit an exemption for records required to be maintained by the employer.
- The vehicle provided to a current employee is an ‘eligible vehicle’ and is provided to the employee to perform their work duties. Please click here to view eligible vehicles.
- The employer takes all reasonable steps to limit private use of the vehicle and has measures in place to monitor such use;
- The vehicle has no non-business accessories;
- The vehicle’s GST inclusive value is less than the luxury car limit;
- The vehicle is not provided as part of a salary packaging arrangement;
- The employee uses their vehicle to travel:
- Between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip;
- No more than 750 kilometres in total for each FBT year for multiple journeys taken for a wholly private purpose; and
- No single, return journey for a wholly private purpose exceeds 200 kilometres.
Once finalised, the guidelines will apply from 1 April 2017 and are therefore applicable to the 2018 FBT year.
Although the draft guidelines are well intended, the difficulty with applying the guidelines is that an employer must still be able to demonstrate that the use of any relevant vehicles provided to employees meet the above eligibility criteria at all times. This in itself requires record keeping. Click here to read more on what to do next and see our full article on the draft guidelines.
4. Small Business Entity FBT concessions
The Small Business Entity (SBE) turnover threshold for the 2018 FBT year is $10 million (increased from $2 million). As a result, entities meeting this new threshold (i.e. turnover less than $10 million for the year ended 30 June 2017) will be able to access the small business car parking exemption and extended work-related items exemption from 1 April 2017. We believe this exemption will now extend to a larger number of employees.
The small business car parking exemption applies to an SBE where an employee’s car is not parked at a commercial car parking station and the employer is not a public company (or subsidiary) when the benefit is provided.
The exemption in respect of work-related items extends to SBE’s that provide employees with more than one work-related portable electronic device in an FBT year – including where devices have substantially identical functions. It is important to note that the condition that the items must be primarily used for the employee’s work purposes in order to access the exemption.
5. ATO areas of focus
In 2018, the ATO have announced that it will be paying particular attention to:
- Cars valued under the statutory formula method – The ATO will be focusing on whether the car’s base value, reduction of days available for private use and application of employee contributions have been correctly calculated;
- Weekend conferences and staff retreats – In relation to offsite retreats and workshops, employers need to closely consider the activities undertaken to assess whether they have the character of recreation and whether meal entertainment benefits have been provided;
- Employer declarations – The ATO will be targeting employers claiming deductions under the otherwise deductible rule without complying with the documentation requirements;
- Benefits provided by contractors, clients and suppliers – An ongoing area of ATO focus is non-cash benefits provided to employees and / or associates by third parties (such as clients, suppliers or contractors). In many cases it may be difficult for, employers to argue that they were unaware of the benefits being provided. Employers need to consider their obligations in respect of these benefits;
- Amounts reported at certain labels of income tax returns and BAS such as Fringe Benefit employee contributions, contractor expenses, motor vehicle expenses, superannuation expenses and salary and wage expenses. Where no FBT return has been lodged, this may increase the risk that the employer entity is selected for an ATO audit or review.