As you may be aware, 31 March 2016 marks the end of the 2016 FBT year and with FBT on everyone’s minds we list our top 5 trending topics to prepare you for the FBT season.
# 1. Cooper Partners 2016 FBT Tips
Follow our tips below and you will be sure to save in FBT.
- Utilise technology to its potential
You can avoid paying excess FBT by ensuring that employees maintain logbooks, odometer readings (for car fringe benefits) and declarations.
There are many electronic logbook software providers available and implementation of electronic record keeping can dramatically reduce the time and effort required by employees and the employer to maintain records.
- Put procedures in place now in readiness for the following year.
This will avoid the ‘last minute rush’ to obtain documentation by the correct date from employees to ensure that you are cashing in all of the FBT concessions and reductions that are available to be claimed.
- Adopting the actual method for meal entertainment benefits
While the 50/50 split method is much simpler in terms of the record keeping process, many employers are missing out on key exemptions and ultimately pay much more FBT in most cases. The actual method will in most cases significantly reduce the FBT payable in respect of meal entertainment, due to access to the minor benefits exemption and property provided on work premises on a working day exemption.
- Plan future events to meet the definition of an “eligible seminar”
Ensure that conferences, seminars and training days meet the definition of an ‘eligible seminar’ in order to reduce FBT costs.
- Evidencing a work-related trip
Work trips must be evidenced by a travel diary in order to meet the requirements of the “otherwise deductible rule” where the employee is required to travel for six nights or more.
- Claim input tax credits (“ITC”) for GST purposes correctly
It is a timely reminder that ITCs may only be claimed in respect of entertainment where the expense is subject to FBT. Accordingly, where the 50/50 split method is elected to be used, 50% of ITCs relating to entertainment are not claimable for GST purposes.
- Consider if the motor vehicle provided is a ‘car’
If the motor vehicle is a ‘car’, does it fall within the definition of an exempt car and not subject to FBT? If the vehicle is not considered to be a ‘car’ for FBT purposes, consider how the vehicle may be assessed as a residual benefit, as there is no blanket FBT exemption for vehicles that are not cars (e.g. workhorse vehicles).
- Consider whether motor vehicle financing agreements constitute genuine novated leases
Has the employer simply taken responsibility for the payment of lease instalments without assuming all the other risks and obligations of the arrangement? We have seen increased ATO scrutiny regarding novated lease arrangements in recent months.
- Maintain appropriate records for car (and other motor vehicle) benefits
Obtain odometer readings and logbooks when using the operating cost method, obtain receipts from employees in relation to car expenses (other than fuel and oil) and obtain fuel and oil declarations in order to reduce FBT on cars by employee contributions.
- Ensure that previously maintained logbooks are valid
Once maintained by the employee, the logbook business use percentage is generally valid for a period of five years, unless there are variations in the pattern of the business use of the car.
- Be aware of timing requirements regarding employee contributions
Under the FBT rules, the taxable value of a fringe benefit may be reduced by post-tax contributions made by an employee. Such contributions must be made by 31 March 2016.
- Maintaining appropriate records for car parking benefits
Use a valuation method that requires determination of the actual number of car bays provided to employees and ensure the appropriate record keeping is in place. Maintaining these records will often provide a better FBT result for employers. Source the lowest fee charged by a commercial car parking station with a one kilometre radius of the premises. This can significantly reduce the FBT cost.
- Review LAFHA and employment contracts in light of the 12 month rule
For example, the LAFHA concessions are now only available for 12 months per employee per location.
- Ensure correct LAFHA documentation maintained
Both the accommodation and food component (where it is above the reasonable food and drink rates) must be substantiated in order to access the LAFHA concessions.
- Avoid having incomplete or incorrect LAFHA declarations
Different declarations are required to be completed depending on the type of employee (e.g. FIFO/DIDO employees). No declaration means no FBT exemption!
- Consider whether an employee is genuinely living away from home
As distinguishable from employees who have relocated permanently to another location which are not subject to the LAFHA concession.
- No tax deduction does not mean no FBT
You cannot mitigate your FBT exposure by not claiming a deduction for the private use percentage of employee benefits or entertainment expenses. The FBT rules apply regardless of the income tax treatment.
- Remit GST on employee contributions
# 2. Developments in 2015/16
The latest trends in ATO activity
We are witnessing a strong ATO focus on monitoring employers’ compliance with their FBT obligations by:
- Identifying employers who are not currently within the FBT system –
the ATO are contacting non registered employers to assess non compliance. Employers are identified through the use of third party data matching information, such as vehicle purchases and registrations. If not already registered for FBT, it is prudent that you consider whether your entity should be registered for FBT in order to avoid ATO compliance activity with respect to non-registration.
- Ensuring employers continue to lodge on time and are up-to-date with compliance obligations –
the ATO have more recently been increasingly issuing Failure to Lodge on Time (“FTL”) penalties for any FBT returns which are outstanding or were lodged late. The current penalty is $900 (for a small withholder, larger entities are subject to higher penalties) for each FBT return lodged late plus the imposition of General Interest Charge (“GIC”) on late payments.
- Undertaking FBT audits –
on motor vehicles, LAFHA, fringe benefits provided by third parties and the failure to disclose entertainment in respect of business conferences and seminars. The ATO advises that one in three audits result in an audit adjustment.
Fly-in fly-out (‘FIFO’) home to work travel – John Holland case
It is the longstanding view of the courts that costs relating to the travel between a person’s home and work are not deductible for tax purposes on the basis that such costs are considered private in nature. Where an employer meets such costs, they are fully subject to FBT.
However in June 2015, the Full Federal Court distinguished the facts in the John Holland case from the position that home to work travel is non-deductible, by finding that the FIFO workers were not travelling to work in Geraldton, but rather, their employment duties commenced when the workers arrived at Perth Airport – that is, before the workers flew to Geraldton.
This decision radically widens the application of the “otherwise deductible” rule in situations where it can be evidenced that flight costs to and from a work site were incurred as part of the employee’s employment duties and that such costs do not constitute home to work travel.
The Commissioner did not lodge an appeal and therefore is bound by the decision. You should consider whether the rationale in John Holland may be applicable to your FIFO arrangements and disclosures in the FBT return for the year ending 31 March 2016 and prior years. Ask your Cooper Partners’ contact to conduct a detailed review of your current arrangements relating to FIFO workers.
As FBT returns generally afford a three year amendment period, you may qualify to amend your prior FBT returns.
Mobile phones, land lines & internet
Late last year, the ATO released Guidelines which focus on the substantiation requirements for individuals claiming work-related deductions in respect of their mobile phones, land lines and internet. These requirements are also relevant for employers providing phones or covering mobile and internet costs of their employees under the FBT rules.
In determining the taxable value of these benefits and whether they are eligible to be reduced under the “otherwise deductible” rule, employers must ensure that they are satisfied with how their employees have determined their work-related use percentage.
Under the ATO Guidelines, the work-related use of internet and phones must be determined under a reasonable basis:
- work calls made as a percentage of total calls;
- the amount of data downloaded for work purposes as a percentage of total data downloaded; or
- diary records of phone usage based on a 4-week representative period.
For FBT purposes, once this work-related use percentage has been determined, the employer must then obtain a declaration from the employee confirming this percentage.
It is prudent that employers have appropriate internal policies in place to ensure that employees are maintaining the necessary record keeping. Where the employee does not satisfy the substantiation requirements, the employer is at risk of a greater FBT liability where the “otherwise deductible” rule is not available.
Nil discount options not subject to FBT
Under previous law, where employee options issued to employees had a nil discount as determined under the Employee Share Scheme (“ESS”) valuation tables, the options did not technically fall within the ESS provisions. However, the ATO had previously expressed the view that the “market value” of the option determined under alternate valuation methods, should still be considered in determining whether a benefit arises to the employee under the FBT rules. Accordingly, there was a risk that employers were subject to FBT on options issued to employees at no discount for ESS purposes.
Under new legislation, such nil discount options now fall within the ESS provisions and the FBT provisions do not apply. This change applies retrospectively from the 2011-12 year of income onwards.
# 3. 2017 FBT year and beyond – get ready now
There are changes to FBT which will commence in the FBT year beginning 1 April 2016, which we wish to draw to your attention to, so you can consider updating salary packaging or advising employees with effect from 1 April 2016:
Changes to FBT exemption for ‘work-related portable electronic device’
From 1 April 2016, small businesses with an aggregated annual turnover of less than $2 million, will enjoy an extended concession on all the qualifying work-related portable electronic devices provided to employees (common items include a laptop, tablet or mobile phone) even when the devices may have overlapping functions.
All other employers are limited to the FBT exemption only applying to one device per employee where a device of each kind has a substantially similar function. For example, the ATO’s view is that a tablet and a laptop have substantially similar functions, such that only one of these devices can be provided to an employee inan FBT year under the exemption.
Changes to car expense payment benefits – ‘otherwise deductible’ rule
From 1 April 2016, the application of the “otherwise deductible” rule for FBT purposes in respect of car expense payment benefits is changing where an employer will meet or reimburse an employee for fuel or other running expenses.
Previously, employers could elect to reduce the taxable value of car expenses benefits under one of three methods. The new rules now limit the calculation of the work-related use percentage of the expenses to either the logbook method or the business use method.
Under the business use method, the work-related use percentage of the car expenses is taken to be the lesser of 33.33% and the estimated work-related use percentage. In determining the estimated work-related use percentage, odometer records must be maintained throughout the FBT year and regard should be had to the odometer records, along with the patterns of use of the car in order for the employee to formulate a reasonable estimate which is recorded in the employee declaration.
Note that these changes have no impact on car fringe benefits and are applicable only to the provision or reimbursement of car expenses.
Salary packaged entertainment and entertainment facility leasing expenses (“EFLE”)
From 1 April 2016, employers will no longer be able to determine the taxable value of salary packaged entertainment or EFLE under either the 50/50 split method or 12 week register method. Accordingly, where employers do not currently have the record keeping procedures to report under the actual method, such procedures will need to be implemented in respect of those employees who are salary packaging entertainment and EFLE.
For PAYG payment summary purposes, salary packaged entertainment and EFLE will be classified as a reportable fringe benefit for the year ended 30 June 2016 and onwards.
# 4. Key 2016 rates and thresholds
With effect from 1 April 2015, the FBT rate has increased as a result of the increase to the Medicare levy.
Lookout for salary packaged employees and whether you need to advise them of the upcoming rate change.
Car parking threshold
The car parking threshold for the FBT year commencing 1 April 2015 is $8.37.
Benchmark interest rate
The benchmark interest rate for the FBT year commencing 1 April 2015 is 5.65%, down from 5.95% in the previous FBT year (most commonly relevant for car fringe benefits or loan fringe benefits).
Living away from home allowance (‘LAFHA’) reasonable food amounts
See Tax Determination TD 2015/7 for the reasonable food and drink amounts in relation to LAFHA. The reasonable food and drink amount for one adult living away from home in Australia is $241. Where the employee is living away from home overseas, different amounts will apply as outlined in TD 2015/7.
FBT exemption threshold
The FBT record keeping exemption for the 2016 FBT year is $8,164.
Reportable fringe benefits
Where the aggregate taxable value of fringe benefits provided to an employee exceeds $2,000, the benefits are reportable fringe benefits (resulting in this example in a grossed up value of $3,922).
The good news is meal entertainment and car parking are excluded from reportable benefits.
# 5. Lodgement and payment due dates
FBT returns for the 2016 FBT year are due to be lodged with the ATO by 28 May 2016.
If you think you will be running out of time, why not lodge through Cooper Partners to obtain an extended due date of 25 June 2016*. Any payments in respect of an outstanding FBT liability are still due by 28 May 2016.
*In order to be eligible for the concessional lodgment date, the taxpayer is required to be on our tax agent lodgment list by 23 May 2016.
The contents of this paper are for general information only. They are not intended as professional advice and should you wish to discuss any of the issues raised in this paper, or require any further information as to your business’ FBT compliance obligations, please do not hesitate to contact Michelle Saunders, Marissa Bechta or Rachel Pritchard at email@example.com or by phone on (08) 6311 6900.
This paper is general in nature and is not intended to cover all FBT issues which may be relevant to your business. No responsibility can be accepted by Cooper Partners for those who act on its content without first consulting us and obtaining specific FBT advice.