Fringe Benefits Tax – The 2024 FBT Season is here!

09 May 2024

As the 2024 FBT year has ended, employers will be in the process of reviewing benefits provided during the year and ensuring they obtain and keep the appropriate records to support both the calculation of fringe benefits and the exemptions and reductions that are available.

We provide you with the latest updates and tips to assist you in managing FBT compliance obligations and completing 2024 FBT returns.

Who needs to lodge an FBT Return?

As a reminder, employers who have an FBT liability must lodge an FBT Return. If FBT instalments were paid during the year and the employer does not have an FBT liability for the year, an FBT return must be lodged to obtain a refund of the FBT instalments.

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– If an employer does not have an FBT liability, we still recommend an FBT return is lodged to ensure commencement of the three-year amendment period for which the Commissioner can generally amend FBT returns.

Increased ATO audit activity

Focus on Exempt Vehicles and Calculation of Car Fringe Benefits

The Australian Taxation Office (ATO) has recently seen a significant level of non-compliance in reporting car fringe benefits and has intensified its focus on car fringe benefits.

In particular, the ATO is paying close attention to employers who:
– Classify vehicles as an exempt eligible vehicle for FBT purposes.
– Have not considered if private use of the exempt vehicle during the FBT year was limited to work related travel and other private travel that is ‘minor, infrequent and irregular’.
– Allow employees to claim 100% business use of vehicles which are garaged at home.
– Do not obtain valid logbooks from employees.
– Incorrectly apply employee contributions to reduce the taxable value of car fringe benefits to nil.

The ATO has increased its efforts to identify employers providing utes, dual cabs and similar workhorse vehicles through its extended motor vehicle registries data-matching program with information obtained from states and territories regarding vehicles with a purchase price or market value of at least $10,000 that are transferred or newly registered.

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In our view, at a minimum, employers should ensure the following records are retained:
– Opening and closing on odometers for each vehicle.
– Employee declarations supporting the private use is no more than 1,000kms in total and no return journey exceeds 200 kms.
– evidence that the employers policy regarding limited private travel is enforced.

Common Errors
The ATO has also reminded taxpayers of the following:
– FBT applies regardless of tax deductions or GST credits claimed.
– In relation to salary packaging arrangements, employers remain accountable for accuracy and any underpayment of FBT, penalties or interest charges so should not rely solely on estimates provided by a salary packaging provider.
– A travel diary (instead of an employee declaration) is required to be obtained from an employee who undertakes extended business travel during the FBT year (i.e. travel for more than five consecutive nights overseas or more than five nights within Australia if there is also a private purpose to the travel).

With increasing ATO activity, careful attention must be given to FBT compliance and lodgement of correct FBT returns, on the same basis as other tax liabilities. Misunderstanding how certain rules apply or inadequate record-keeping can draw ATO attention and trigger compliance action.


Recent Developments 1. Identifying Employees versus Contractors Employers are well aware that FBT is payable in resect respect of taxable fringe benefits provided to employees (and their associates) and that FBT is not payable in respect of benefits provided to independent contractors. Therefore, the distinction is very important from an FBT perspective. Further to the two High Court decisions in the Personnel Contracting and Jamsek cases which changed the tests to be applied in determining whether the individuals concerned were employees or contractors, the ATO released the following: – Taxation Ruling TR 2023/4 Income tax: pay as you go withholding – who is an employee? – Practical Compliance Guideline PCG 2023/2 Classifying workers as employees or independent contractors – ATO compliance approach. The purpose of TR 2023/4 and PCG 2023/2 is to provide guidance regarding the ordinary meaning of the term ‘employee’ and provide guidance to employers to assess the level of risk associated with classifying workers as employees or contractors. As expected, the Ruling reflects the High Court’s decisions in Personnel Contracting and Jamsek stating that whether a worker is an employee is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute the relationship. This classification is important from an FBT perspective in order to ensure that employers are correctly considering fringe benefits in respect of individuals who would be considered employees as a result of the High Court decisions, TR 2023/4 and PCG 2023/2. We will be releasing a separate newsletter covering this important issue in more detail. 2. Electric Cars Use of the FBT exemption for electric vehicles has increased significantly since the exemption became available during the 2023 FBT year. As a recap, to access the exemption, the following conditions must be met: – The vehicle must meet the definition of a ‘car’ under the FBT rules and therefore, cannot be a motorbike, e-bike or vehicle designed to carry a load greater than one tonne. – The car must be a battery electric, hydrogen fuel cell or plug-in hybrid electric vehicle. – The car must have been first ‘held and used for the first time’ on or after 1 July 2022. – The original retail sale price must be below the luxury car tax threshold which is $89,332 for 2023/24. Calculating Electricity Cost The ATO has recently issued Practical Compliance Guideline 2024/2, Electric vehicle home charging rate – calculating electricity costs when a vehicle is charged at an employee’s or individual’s home which offers a shortcut method of 4.2 cents per kilometre for calculating electricity costs incurred when charging electric vehicles at employees’ homes, specifically in relation to zero-emission vehicles. Home charging costs for plug-in hybrid vehicles must still be calculated using the actual cost. The ATO has further clarified that providing an employee with an electric vehicle charging station at their home constitutes a property fringe benefit that may be subject to FBT. TIPS – Electric cars which are exempt from FBT must still be disclosed as a reportable fringe benefit if the taxable value of an employee’s fringe benefits amount for the FBT year (including the exempt car benefit) exceeds $2,000. – Employers can choose between the shortcut method outlined in PCG 2024/2 or the actual cost method for each car when calculating an employee’s electricity costs for charging a zero-emission vehicle at home. – Where a choice is not made or where the vehicle is a plug-in hybrid vehicle, the actual cost method is required to be used to calculate an employee’s electricity costs. – Where an employer chooses to apply the shortcut method, an employer needs to ensure records are still maintained, particularly distance travelled (e.g. odometer records) and an employee declaration for the electricity costs.

Recent Developments

1. Identifying Employees versus Contractors

Employers are well aware that FBT is payable in resect respect of taxable fringe benefits provided to employees (and their associates) and that FBT is not payable in respect of benefits provided to independent contractors. Therefore, the distinction is very important from an FBT perspective.

Further to the two High Court decisions in the Personnel Contracting and Jamsek cases which changed the tests to be applied in determining whether the individuals concerned were employees or contractors, the ATO released the following:
– Taxation Ruling TR 2023/4 Income tax: pay as you go withholding – who is an employee?
– Practical Compliance Guideline PCG 2023/2 Classifying workers as employees or independent contractors – ATO compliance approach.

The purpose of TR 2023/4 and PCG 2023/2 is to provide guidance regarding the ordinary meaning of the term ‘employee’ and provide guidance to employers to assess the level of risk associated with classifying workers as employees or contractors.

As expected, the Ruling reflects the High Court’s decisions in Personnel Contracting and Jamsek stating that whether a worker is an employee is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute the relationship.

This classification is important from an FBT perspective in order to ensure that employers are correctly considering fringe benefits in respect of individuals who would be considered employees as a result of the High Court decisions, TR 2023/4 and PCG 2023/2.

We will be releasing a separate newsletter covering this important issue in more detail.

2. Electric Cars

Use of the FBT exemption for electric vehicles has increased significantly since the exemption became available during the 2023 FBT year. As a recap, to access the exemption, the following conditions must be met:
– The vehicle must meet the definition of a ‘car’ under the FBT rules and therefore, cannot be a motorbike, e-bike or vehicle designed to carry a load greater than one tonne.
– The car must be a battery electric, hydrogen fuel cell or plug-in hybrid electric vehicle.
– The car must have been first ‘held and used for the first time’ on or after 1 July 2022.
– The original retail sale price must be below the luxury car tax threshold which is $89,332 for 2023/24.

Calculating Electricity Cost

The ATO has recently issued Practical Compliance Guideline 2024/2, Electric vehicle home charging rate – calculating electricity costs when a vehicle is charged at an employee’s or individual’s home which offers a shortcut method of 4.2 cents per kilometre for calculating electricity costs incurred when charging electric vehicles at employees’ homes, specifically in relation to zero-emission vehicles.

Home charging costs for plug-in hybrid vehicles must still be calculated using the actual cost.

The ATO has further clarified that providing an employee with an electric vehicle charging station at their home constitutes a property fringe benefit that may be subject to FBT.

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– Electric cars which are exempt from FBT must still be disclosed as a reportable fringe benefit if the taxable value of an employee’s fringe benefits amount for the FBT year (including the exempt car benefit) exceeds $2,000.
– Employers can choose between the shortcut method outlined in PCG 2024/2 or the actual cost method for each car when calculating an employee’s electricity costs for charging a zero-emission vehicle at home.
– Where a choice is not made or where the vehicle is a plug-in hybrid vehicle, the actual cost method is required to be used to calculate an employee’s electricity costs.
– Where an employer chooses to apply the shortcut method, an employer needs to ensure records are still maintained, particularly distance travelled (e.g. odometer records) and an employee declaration for the electricity costs.

3. Car Fringe Benefits

Employee Acquires Leased Car From Employer

The ATO has clarified there are no FBT implications when:
– an employee pays the residual value to acquire a car at the end of a novated lease agreement; or
– when an employer acquires a car at the end of an operating lease for its residual value and provides the car to an employee for the same value;
provided the lease in each scenario is a bona fide lease. This will be the case even if the market value of the car at the end a novated lease or operating lease period is higher than the residual value of the car.

In contrast, an employer will have an FBT liability if a car is acquired under a hire purchase agreement and the market value of the car exceeds the residual value paid by an employee to purchase the car from the employer at the end of the hire purchase agreement. In this scenario, a property fringe benefit will arise and the taxable value of the benefit is equal to the market value of the car minus the residual value paid by the employee (or employee contribution).

Calculation of Car Fringe Benefits

The ATO has also updated its FBT guidance in relation to the following areas:
– Employers can elect to use the operating cost method to calculate the taxable value of a car fringe benefit even if a valid log book is not maintained. However, where this choice is made, the business use percentage of the car will be nil and no reasonable estimate of business kilometres can be used in the calculation. This method can sometimes result in a lower taxable value than the statutory method.
– A car fringe benefit is not taken to arise where a company car is undergoing extensive repairs, for example following a car accident. This concession does not extend to routine servicing, maintenance or minor repairs.

TIPS
– Consider whether the novated lease or operating lease is a bona fide lease for tax purposes.
– Exclude the days or period a car was in a mechanic’s workshop for extensive repairs when calculating the taxable value of a car fringe benefit.
– When providing a hire car as a replacement, employers can rely on the usual car’s logbook for business use confirmation.

4. ‘Otherwise Deductible’ Travel 2

The recent case of Bechtel Australia Pty Ltd v Commissioner of Taxation [2023] FCA 676 highlighted the critical difference between FIFO employees travelling ‘on’ work versus ‘to’ work. Understanding this distinction is vital for employers when assessing the ‘otherwise deductible’ nature of travel expenses and therefore, whether the expenses are subject to FBT.

The Federal Court distinguished the circumstances in Bechtel against the previous leading case of John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82 by concluding that FIFO travel costs were incurred in respect of travel from home to work and were not ‘otherwise deductible’ to the Bechtel employees.

In arriving at this decision, the Court considered the following factors:
– Employees were not rostered on duty until they started work at Curtis Island, near Gladstone in central Queensland (which was not a ‘remote area’).
– The complicated travel route to get to the project (by sea and air) did not demonstrate the employees were travelling in the course of work.
– Adherence to a code of conduct whilst travelling did not mean that the employees were under the ‘direction and control’ of the employer.
– A project allowance paid to employees was not a travel allowance and the employees were not paid whilst travelling.

In our experience, many employers take the approach that the employee travel expenses are ‘otherwise deductible’ without reviewing contractual arrangements and considering the factors outlined above.

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– It is important that employers consider existing contractual arrangements with employees, particularly in respect of the point of hire and time at which employees are ‘rostered on’ and paid for travelling time.
– Employers should have well-documented working arrangements and policies regarding travel protocols, particularly regarding the direction and control the employer exerts over employees during the travel period.

5. Proposed record keeping concessions for 2025 FBT year

A series of legislative instruments have been released by the ATO to simplify FBT record keeping for 2025 FBT year and reduce compliance costs for employers for certain benefits.

From 1 April 2024 (ie the 2025 FBT year), employers have the option to use alternative records (as determined by the Commissioner) instead of traditional travel diaries or employee declarations.

We will be releasing a separate newsletter providing more details on the alternative record keeping requirements

Next steps

If you would like further information on FBT, employment taxes or assistance with your FBT obligations, please contact our FBT Team.

Authors:
Rachel Pritchard, Associate Director
Annie Barrett, Senior Manager
Monqiue Eeson, Experienced Consultant

This newsletter is current as of 09 May 2024, however, please note that announcements and changes are being made by the Government and the ATO regularly. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.

Contact our FBT Team:

Rachel Pritchard
Associate Director
Head of Human Capital & Corporate

An nie Barrett
Senior Manager
Human Capital

Mikaella Hooker
Senior Consultant
Corporate & Private Client Groups

Monique Eeson
Experienced Consultant
Tax Advisory

This information is general advice only and neither purports, nor is intended to be advice on any particular matter.
No responsibility can be accepted for those who act on the contents of this publication without first contacting us and obtaining specific advice.
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