1. Key 2017 rates, dates and thresholds
For the second year in a row, the FBT rate will remain at 49% for the year ending 31 March 2017 to reflect the Temporary Budget Repair Levy. However, the 2017/18 FBT year will see the FBT rate and associated type 1 and type 2 gross up rates fall as follows:
The 2017 FBT lodgement date is 21 May 2017. However, employers on a tax agent list by 21 May will be eligible for a lodgement extension date to 25 June 2017. Any FBT liability is payable on 28 May 2017, regardless of whether an employer is on a tax agent list.
Other key rates and thresholds include:
- Car parking threshold: $8.48
- Statutory benchmark interest rate: $5.65%
- Reasonable food and drink amounts for employees living away from home (per week)
- $242 for one adult;
- $363 for two adults; and
- $485 for two adults and two children
- Reportable fringe benefits threshold: Taxable value exceeding $2,000 (i.e. grossed-up value of $3,921).
2. Handy exemption for small businesses providing multiple electronic devices
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 (such as laptops, tablets, GPS navigation devices or mobile phones), even when the devices may have overlapping functions. To access this concession, it is important that the device be primarily used for use in the employee’s employment.
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.
3. Restrictions on reducing FBT on car expense payments
From 1 April 2016, the “otherwise deductible” rule has changed for car expense payment fringe benefits (i.e. where an employer meets or reimburses an employee for fuel or other running expenses).
Previously, employers could elect to reduce the taxable value of car expense 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 lower of 33.33% and the estimated work-related use percentage. The estimated work-related use percentage is determined by forming a reasonable estimate based on the employee’s odometer records maintained throughout the FBT year and the patterns of use of the car during the FBT year.
Under the logbook method, the work-related use percentage is determined by maintaining records of the car’s use in a logbook for a minimum of 12 consecutive weeks.
Basically, where no logbook is kept, the work-related use percentage will be limited to 33.33%. In order to reduce FBT exposure on car expenses, the onus is on employers more than ever to ensure that staff are keeping accurate records of their personal car usage.
Note that these changes have no impact on car fringe benefits and are applicable only to the provision or reimbursement of car expenses.
4. New changes to salary packaged entertainment
From 1 April 2016, all employers providing salary packaged meal entertainment or entertainment facility leasing expenses (EFLE) benefits to employees will be unable to use the 50/50 split method and 12 week register method for valuing the salary packaged benefits. Only the actual method can be used to determine the FBT on these benefits. This has created an extra burden on employers who usually apply the 50/50 split method for non-salary packaged entertainment benefits provided to employees, increasing the amount of record keeping required. However in our experience, employers that are not FBT exempt or FBT rebatable do not typically provide salary packaging to employees for entertainment expenses, so this recent change is not likely to impact many taxable employers.
Salary packaged meal entertainment or EFLE benefits provided to employees of FBT exempt and FBT rebatable employers are now subject to a separate single grossed-up cap of $5,000. This means that these employers now have to include salary packaged entertainment in their capping thresholds to determine whether they are subject to FBT on any excess of the cap.
5. Good news for employers with fleet vehicles
The ATO released Practical Compliance Guidelines in late 2016 which provides a concession for FBT record keeping in relation to logbooks held by employees driving fleet vehicles. Under the new Guidelines, the ATO have accepted that employers may use an ‘average business use percentage’ by taking the average of the valid logbook percentages for each car in the fleet, provided that at least 75% of the cars in the fleet have a valid logbook.
The average business use percentage can be used for a period of five years in respect of the fleet – including replacement and new cars, provided that the fleet remains at 20 cars or more. The Guidelines may also be used as a basis for determining each relevant employee’s reportable fringe benefits amount.
There are a number of requirements in order to access this FBT concession however:
- The cars are ‘tool of trade cars’ – e.g. cars used for a predominant business purpose. The position of the employee is also relevant as key executives are unlikely to be considered to have a tool of trade car;
- The employees are mandated to maintain logbooks in a logbook year;
- At least 75% of the cars have valid logbook maintained by the employer;
- The cars are of a make and model chosen by the employer, rather than the employee (or the employee has a choice of a limited range of cars);
- Each car in the fleet has a GST-inclusive value less than the luxury car limit applicable at the time the car was acquired (currently $64,132); and
- The cars are not provided as part of the employee’s remuneration package (i.e. not salary packaged).
Employers should consider whether they can qualify for the simplified record keeping concession in light of the above requirements and do comparisons to actual logbook work-related percentages recorded by employees to determine whether an average percentage is more favourable.
6. Luxury cars create issues for senior executives
FBT reporting on car fringe benefits is always a focus area for the ATO, however employers providing luxury vehicles to employees (often business principals and executives) will attract particular attention. The provision of company cars to senior executives will always be a common remuneration incentive, however there are a number of issues which may arise when providing a luxury vehicle to an employee.
- Whether the vehicle is an exempt vehicle for FBT purposes: FBT can be avoided where the vehicle falls within the definition of an exempt vehicle. That is, it is broadly not a ‘car’ with the principle purpose of carrying passengers – i.e. a workhorse vehicle with a carrying capacity of over one tonne. There is a wide misconception that any SUV or vehicle with the employer’s logo or signage would qualify as an exempt vehicle, however the specifications of each vehicle provided to employees should be considered to determine whether it qualifies;
- Whether private use of the vehicle is limited: The provision of a workhorse vehicle is only FBT exempt if the private use of the vehicle during the year is limited to ‘minor, infrequent or irregular’ use (other than travel or and from work). Use on the weekends is therefore likely to attract FBT. Employers should review their employee handbook and policies relating to private use of company cars.
7. New safe harbours for private use of workhorse vehicles on the horizon
The ATO is currently drafting guidelines which may provide a safe harbour for certain private use of workhorse vehicles. As noted above, the FBT exemption for private use of these vehicles is extremely strict. The purpose of the guidelines is to develop safe harbours that align the tax treatment with commercial realities and provide appropriate risk mitigation to employers. As this is at proposal stage only, it is not known to what extent the ATO is willing to accept private use by employees of these vehicles however any relaxing of the current rules will be a welcome change.
8. Salary packaging still tax effective
With many households feeling the squeeze of financial pressure, employers may find that their staff are enquiring about their salary packaging options. Salary packaging is still a tax effective option for both employees and their employers, however caution must be had as to the types of benefits that are packaged. The packaging of FBT exempt benefits, such as laptops, mobile phones, briefcases and other portable tools of trade will still provide a benefit to both parties.
Salary packaging superannuation is not considered a fringe benefit and will not attract any FBT, however care should be taken in relation to the employee’s contribution limits.
Salary packaged cars continue to remain popular, with employees on income of $87,000 or more receiving the most benefit. When structuring the employee’s salary package, employee contributions are still popular as they usually provide the greatest cash benefit to the employee. It is important that employee contributions to reduce any FBT are reviewed by employers, as often the salary packaging provider may not appreciate the FBT risks involved where contributions are not paid on time, or where there is a deficit or excess in contributions made by the employee compared with the FBT liability.
9. ATO areas of focus – employers and benefits in the spotlight
In 2017, the ATO will be paying particular attention to:
- Public Benevolent Institutions (PBI) and FBT-rebatable employers: Charities, not-for-profit organisations, religious institutions and sporting clubs claiming FBT exemptions or rebates are all in the spotlight in the 2017 FBT year. The ATO will be actively checking whether these entities are in fact eligible to claim the concessions which significantly reduce or eliminate their FBT bill.
- LAFHA benefits: The ATO is concerned that employers are incorrectly providing living away from home allowances to employees who are not ‘living away from home’ but are instead travelling for work or have permanently relocated. Broadly, LAFHAs (which also includes reimbursed accommodation expenses) are taxed under the FBT regime – often at concessional rates due to a number of reductions available, such as the 12 month rule. However allowances paid to employees who are not living away from home temporarily, but are instead travelling or who have permanently relocated, are not taxed as fringe benefits but are generally taxed to the employee personally at their marginal tax rate. LAFHAs have historically been used by employers as a remuneration incentive to attract key staff to move for work as the allowance was usually tax-free. While there have been significant measures to restrict the concessions, the ATO believes that too many employers are accessing the LAFHA concessions for situations not intended under the FBT rules.
10. Manage your risk – data matching still capturing non-lodgers
Data matching in the following areas is being conducted by the ATO to identify employers not lodging FBT returns. The ATO is now regularly imposing Failure to Lodge on Time penalties and interest charges on employers.
- Motor vehicle purchases and registrations: The ATO is continuing to undertake data matching to identify employers who have purchased cars, but have not disclosed car fringe benefits in their FBT return, or appropriate employee contributions in their income tax return. Where the FBT on a car fringe benefit is reduced in full by employee contributions, while there is no obligation to lodge an FBT return, employers should still weigh up whether a nil return is lodged in order to reduce future compliance risks. This is because the amendment period is three years from the lodgement date of a return. Where no return is lodged, this exposes the employer to an unlimited time period of review;
- Year end PAYG payment summaries: The ATO is actively checking situations where reportable fringe benefits are disclosed on an employee’s group certificate at 30 June but no FBT return has been lodged, in assessing which employers are possible targets for further review or audit;
- Tax return – employee contribution disclosures: Where employer companies or trusts file tax returns with employee contributions disclosed, but no FBT return has been lodged, this is will raise the risk of the employer entity being considered for ATO audit or review.