I recently hosted a webinar “Let’s Talk FBT with the ATO” – in this webinar the ATO provided insight to the their approach to FBT, ranging from helping employers through to FBT audits and non-compliance.
If your new to FBT (or a bit stale on the latest FBT rules) or not sure about your own FBT obligations or your clients FBT obligations, I highly recommend you invest the time (90 minutes) to watch this webinar recording – it’s free. (Link to recording is below.)
To a large extent the content covered was based on webinar registrants own FBT issues and challenges. Further, regular Live Q and A was provided throughout the webinar for the highly engaged audience.
The ATO discussed:
1. FBT Pillars – the 4 steps to getting FBT right
2. FBT and our changing environment
3. The role of the ATO
4. ATO resources
5. The use of third party information and data matching to target FBT non-compliance
6. Guidance on the distinction between meal entertainment and sustenance
The ATO highlighted common mistakes employers make in relation to:
1. Employee Contributions
2. Consolidated FBT returns
3. Reportable Fringe Benefits amounts
4. Passenger cars and misunderstandings around private use
5. Utes and other non-passenger vehicles – myths and defining limited private use
The ATO also provided examples of recent FBT audit activity, including:
1. Invalid Logbooks and private use;
2. Ineffective Employee Contributions by way of journal entry
3. Incorrectly claiming exemption on Dual Cab Utes;
4. Capping the FBT base value at the luxury car limit
Finally, we discussed FBT Registration – when registration is required and why registration is important – even when you may think registration is not required.
A big thank you to Jennifer Madigan and her team for an insightful and well received FBT presentation.
Please copy the following link to your browser to access the recording: https://attendee.gotowebinar.com/recording/4232469289267235247
If there was any doubt that Motor Vehicles is the biggest issue, the ATO have confirmed their concerns and provide examples where based on ATO data and risk models, they will select an employer for a FBT car review to check if the company is meeting its FBT obligations.
We see a significant level of non-compliance in situations where an employer provides a motor vehicle to an employee (or their associate) for their private travel or makes it available to use privately.
Situations that concern us include when employers:
- treat cars as 100% business use, even though they are used or available for private purposes
- don’t have a valid log book, or the log book is not a representative sample of actual travel
- treat all eligible commercial vehicles as FBT exempt, without considering if the private use of the vehicle was limited.
ATO Example One: identifying private use
Eve is the owner and sole director of a company, Eve’s Consultancy Business Pty Ltd (ECB). Eve arranges for ECB to purchase a car, which she uses to visit clients and for other work-related travel.
Eve considers the car to be a business car because it is owned by the company and has a sign on the side with the business name. Therefore, ECB does not keep a log book and does not lodge an FBT return.
Based on our data and risk models, we select ECB for an FBT car review to check if the company is meeting its FBT obligations.
During the review, Eve explains that the car is garaged at her home and she uses it for her daily commute to the office.
We advise Eve that:
- home to work travel is private use
- when a car is garaged at an employee’s home (as a director of ECB, Eve is considered an employee for FBT purposes), the car is considered to be available for their private use
- in both instances a car fringe benefit has been provided and FBT applies.
We provide Eve with information about how to calculate FBT using the statutory formula method (she can’t use the operating cost method because there is no log book). She agrees to lodge an FBT return for ECB.
ATO Example Two: limited private use of eligible vehicles
BTE is an engineering business. It has a fleet of dual cab utes (with a carrying capacity of less than 1 tonne) and sedans, which its employees use to attend business sites and visit clients.
BTE considers that FBT doesn’t apply to the vehicles because the utes are eligible commercial vehicles and the sedans are only used for business purposes. Therefore, BTE does not lodge an FBT return.
Based on our data and risk models, we select BTE for an FBT car review to check if the business is meeting its FBT obligations.
The review identifies that the sedans remain at the office and the utes are taken home by employees and used for private purposes (such as weekend sport and camping trips).
We advise BTE that the private use of the utes must be limited to be an exempt benefit (see PCG 2018/3 Exempt car benefits and exempt residual benefits: compliance approach to determining private use of vehicles). The utes were used for extensive private purposes therefore these conditions have not been met. In this situation a car fringe benefit has been provided and FBT applies.
We provide BTE with information about how to calculate FBT. The business lodges an FBT return.
Now is the right time
There has never been a better time to engage with your clients (and new clients) in relation to FBT. The ATO want Tax Practitioners to engage with their clients on FBT.
Some startling facts that highlight the risk for Small Business Employers – and the opportunity for Tax Practitioners:
- There are 900,000 active employers in Australia – 80% have tax practitioners, 12% (108,000) are registered for FBT, 50% (54,000) are small business
- 180,000 active employers are not supported by a tax practitioner
- 792,000 active employers are not FBT registered – most, if not all, are small business – failure to register means there is no ATO FBT audit time limit
The facts don’t lie. The ATO want to remove the registration / compliance blockers that exist for Small Business Employers and their Tax Practitioners.
When an Employer owns or leases, even a small number of motor vehicles (and has not considered FBT previously), the FBT liability exposure can quickly run in to tens of thousands dollars or even hundreds of thousands dollars over multiple FBT years – plus penalties, interest and FTL. We are seeing ATO FBT Auditors requiring FBT Returns to be lodged going back 3 to 4 years.
Find out more about getting your “Practice Certificate in FBT Services” (“PC in FBT”) by clicking here: PRACTICE CERTIFICATE IN FBT SERVICES