One of the topics we discussed in the August LET’S TALK FBT & SALARY PACKAGING webinar was ATO focus on Small Business, their Tax Agents, and FBT Audit activity.
I wanted to share with you important information to provide “real life” context to the topic. Whilst many people believe that the ATO do not conduct FBT audits – this is a very old myth. The ATO are actively conducting FBT Audits.
Who do the ATO select for an FBT Audit?
Here are some common examples of businesses that are selected for FBT Audit, including:
Businesses with one or more registered motor vehicles
Businesses who are not registered for FBT
Businesses who have not lodged FBT returns
Businesses who have not declared employee contributions in their income tax returns
Businesses who have not remitted GST on employee contributions in their BAS
What information do the ATO require for the FBT Audit?
The ATO information request for an FBT Audit can be extensive. Some of the information requested is often not even directly related to FBT. Examples of the information requested by the ATO for an FBT Audit, includes:
Reason why you have not lodged FBT returns
Financial Statements
Detailed tax reconciliation of accounting profit to taxable income
Depreciation schedule and calculations for motor vehicles
Motor vehicle information including purchase invoices, leasing documentation, service records, logbook records, odometer records including opening and closing odometer records for each FBT year, driver name, address where the motor vehicle is normally garaged, sale date and sale information if relevant
Details of employee contributions including journal entries and general ledger accounts
Many employers have
mobile employees. This can be as simple as having employees undertaking regular
business travel, or can be more extensive with employees relocating temporarily
or permanently, employees on Living Away From Home arrangements, employees
living and working in Remote Areas or on FIFO in to Remote and Non Remote
areas, and international assignments.
Did you know that
Relocations are the most popular topic for seeking ATO advice by way of Private
Binding Rulings? So why is this…
Relocations is an FBT area that is not necessarily specific to a benefit
category but is analysed based on an individual employee’s circumstances.
Depending on the employee’s circumstances, there are a number of scenarios (and
FBT exemptions and concessions) that may apply, as follows:
Business Travel
Personal Travel
Mix of Business and Personal Travel
Temporary Relocation
Permanent Relocation
Fly in Fly Out
Remote Area residence
Temporary Resident (Expatriate)
For each
of the above scenarios (employee’s), it is necessary to understand what
financial assistance has been / will be provided?
Reimbursement of employee
expenses
Paid direct to supplier
Provided directly by
employer or related employer
Allowance, whether taxed or
tax free
Reimbursed or paid and Salary
Packaged
Paid by a related employer
(local or offshore)
It is important to
understand ATO guidance. Recently the ATO has released three draft public
rulings in relation to Employee Travel expenses and Employee work expenses –
these rulings whilst subject to finalisation, provide a degree of uncertainty.
In the table below,
we summarise the rulings. For each of these draft rulings we are not aware of
the intended finalisation date by the ATO, noting that TR2017/D6 has been in
draft format for nearly 3 years.
Draft ruling
Issue date
Notes
TR 2017/D6 –
Income tax and fringe benefits tax: when are deductions allowed for
employees’ travel expenses
Minor benefits are exempt
benefits. A minor benefit is a benefit which is both:
less than $300 in value (before 1 April 2007
the amount was less than $100), and
unreasonable to treat as a fringe benefit.
Less than $300 in value
A minor benefit is a benefit
which has a ‘notional taxable value’ of less than $300. The notional taxable
value of a minor benefit is, broadly, the amount that would be the taxable
value if the benefit was a fringe benefit.
Where you provide an
employee with separate benefits that are in connection with each other (for
example, a meal, a night’s accommodation and taxi travel) you need to look at
each individual benefit provided to the employee to see if the notional taxable
value of each benefit is less than $300.
When determining if the
notional taxable value of the benefit is less than $300, benefits provided to
associates are not included.
If the notional taxable
value of a benefit is less than $300, you then need to determine if it would be
unreasonable to treat the benefit as a fringe benefit.
Special rules that apply to
car benefits
There are different rules
for car benefits. The notional taxable value of a car benefit is determined by
applying the residual fringe benefit rules – that is, to determine whether a
car benefit is less than $300, you may either:
apportion the operating costs of the vehicle, or
apply the cents per kilometre method.
Criteria for determining
whether it would be unreasonable to treat the minor benefit as a fringe benefit
The following five criteria
need to be considered when deciding if it would be unreasonable to treat the
minor benefit as a fringe benefit:
1
The infrequency and irregularity
with which associated benefits, being benefits that are identical or similar
to the minor benefit and benefits given in connection with the minor benefit,
are provided. The more frequently and regularly associated benefits are
provided, the less likely that the minor benefit will qualify as an exempt
benefit.
2
The total of the notional taxable
values of the minor benefit and identical or similar benefits to the minor
benefit. The greater the total value of the minor benefit and identical or
similar benefits, the less likely it is the minor benefit will qualify as an
exempt benefit.
3
The likely total of the notional
taxable values of other associated benefits – that is, those provided in
connection with the minor benefit. For example, where a meal, which is a
minor benefit, is provided in connection with a night’s accommodation and
taxi travel, which themselves may or may not be a minor benefit, the total of
their taxable values must be considered. The greater the total value of other
associated benefits, in this case being the accommodation and the taxi
travel, the less likely it is that the minor benefit will qualify as an
exempt benefit.
4
The practical difficulty in
determining what would be the notional taxable value of the minor benefit and
any associated benefits. This would include consideration of the difficulty
for you in keeping the necessary records in relation to the benefits.
5
The circumstances in which the
minor benefit and any associated benefits were provided. This would include
consideration as to whether the benefit was provided as a result of an
unexpected event, and whether or not it could be considered principally as
being in the nature of remuneration.
If, after considering the
five criteria, you conclude that it would be unreasonable to treat the benefit
as a fringe benefit, the benefit will be an exempt benefit.
In determining if the minor
benefit exemption applies, you need to examine the nature of the benefit
provided and consider each of the various criteria – value, frequency and
regularity of provision, and recording and valuation difficulties – before
concluding whether the exemption should apply to a minor benefit.
Very broadly, a car parking fringe benefit may
arise for each day on which you (the employer) provide a car parking space for
the use of an employee.
Specifically, a car parking fringe benefit arises
during a FBT year only if all of the following conditions are satisfied:
a car is parked at premises
that are owned or leased by, or otherwise under the control of, the
provider (usually you as the employer)
within a one-kilometre
radius of the premises on which the car is
parked, there is a commercial parking station that charges a fee for all-day
parking , which is more than the car
parking threshold
the car is parked for a
total of more than four hours between 7.00am and 7.00pm on the day
the car is owned by, leased
to, or otherwise under the control of, an employee, or is provided by you
the parking is provided in
respect of the employee’s employment
the car is parked at or near
the employee’s primary place of employment on that day
the car is used by the
employee to travel between home and work (or work and home) at least once
on that day
the commercial parking
station referred to above must also, on the first business day of the FBT
year, charge a representative fee for all-day parking that is more than the car
parking threshold, $8.95 for the 2020 FBT year.
The one-kilometre
distance is measured not by radius but by the shortest practicable direct route
(by whatever means this route is travelled, for example, by foot, car or boat).
The distance is not a straight line or “as the crow flies”, but a practicable
route that can easily be accessible at all times.
Importantly the
distance is not measured from the employers street address.
The distance begins at the entry point where the employer
provides the car parking, and ends at the entry point to the commercial car
parking station. Any route mapped, must have permanent access way and cannot be
closed off after working hours or business hours.
Where an employer provides parking at multiple facilities at
any one location, then it is necessary to measure from the entry point of each
of those parking facilities.
It is important to remember that the measuring is generally
most important on:
The first day of the FBT year, to determine if a FBT
liability exists;
The first day of the FBT year, to determine the lowest daily
rate, if using average cost method;
The last day of the FBT year, to determine the lowest daily
rate, if using average cost method;
Records must be maintained to support the measurements and
assessment of whether a FBT liability exists. If a FBT liability does exist,
then records must be maintained to support the measurements and assessment of the
lowest daily rate at beginning and end of the FBT year.
