We all know that FBT is not payable on salary & wages.
However, in some situations, employers will unknowingly (and sometimes knowingly) pay an amount to an employee that is salary & wages, and there subject to the PAYG withholding rules.
The difficulty lies in the employer not always realising this until a much later date, and this failure to withhold is identified by the FBT return preparer.
This is risky business as the ATO could take the following action:
- Penalise the employer for failing to withhold
- Penalise the employee for failing to disclose in their personal income tax return
Cars, being the most common and highest valued benefit, continue to be a major ATO focus. The ATO are targeting cars on a number of fronts….
Luxury cars and use of logbook
The ATO have focussed closely on the use of log books in respect of luxury vehicles, especially high end luxury sports cars.
We highlight the following key action items:
- Do you have logbooks for every car where the logbook method has been adopted historically? If there is no logbook, then revert to the statutory formula method for 2012. Consider the exposures you may have for the earlier years, not just the FBT liabilities, but also payment summary reporting errors and underpayment of payroll tax
- Do you have a process in place for reviewing & approving logbooks or do you accept the word of your employee?
- Does the business percentage make sense? Is it realistic given the employee’s role and responsibilities?
- Assuming the business percentage is high (80% plus), then what are the nature of the business trips and why have they been undertaken?
- Make sure you have original signed versions of logbooks on file and check that they have not expired or that the employee role / duties remains the same as when the logbook was originally prepared.
Documentation of the above should be included on the employee’s personal payroll file, especially where the car is salary packaged.