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Why should you register for FBT?

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I was recently asked – What are some practical tips on how to get my clients to take the need to register for FBT seriously?

My suggestions regarding the implications of not being registered and reasons for being registered:

  1. If your not registered for FBT then you won’t be thinking about FBT – ie there is no annual obligation. By registering for FBT, you need to be thinking about FBT at least once a year (hopefully more frequently)
  2. ATO are actively FBT auditing Small Businesses
  3. The ATO have identified a $1 billion FBT gap and attribute this loss of revenue to small business
  4. The ATO are extracting vehicle registration in each State and Territory and checking against FBT registration – this is real low hanging fruit
  5. If an employer is not registered for FBT, then the ATO has unlimited powers to audit past years – we are seeing some audits going back up to 12 years and in one current FBT audit 16 years
  6. If registered for FBT, the ATO will generally only look back at 2-3 years and be more accepting of genuine mistakes
  7. In addition to FBT liabilities, the ATO will charge penalties (up to 200%), accrued interest and failure to lodge penalties
  8. The ATO will expect any past Reportable Fringe Benefit obligations to be complied with in relation to current and former employees – this can get messy very quickly. Employees (and former employees) will expect the employer to foot the bill of any personal income tax return amendments, and request other compensation
  9. From the FBT audits we have been involved with, the ATO are also raising concerns with Income Tax deductibility and entitlement to claim GST credits
  10. There are 13 defined fringe benefit categories – FBT is not just about Motor Vehicles and Entertainment
  11. The grossed up value of Fringe Benefits must be included in the calculation of Taxable Wages for Payroll Tax liability calculation and calculating Workcover premiums
  12. The ATO are actively encouraging Tax Agents to ensure they have a “FBT Service Line” offering and that Tax Agents are engaging with their clients on FBT
  13. Reputational Risk and Business Disturbance, High Stress Levels

I hope the above helps. Happy to discuss further.

Removal and relocation – obtaining a tax deduction via Salary Packaging

Employee Expenses, Exempt Benefits, Relocations, Salary Packaging, Uncategorized
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Removal and relocation expenses are those costs you incur to transfer or relocate for a work purpose. You can’t claim a deduction for removal or relocation costs. Even if relocating is a condition of your employment when you take up:

  • a transfer in an existing employment
  • new employment with a different employer.

Removal and relocation expenses never have a sufficient connection to earning your employment income or income producing activities. You incur these expenses to start earning employment income so they are private or domestic expenses.

However, Salary Packaging is a mechanism whereby you (the employee / individual) can claim a deduction for relocation expenses.

The ATO do not conduct FBT Audits. True or False?

ATO Audits, Australian Taxation Office, Employer Obligations, FBT Returns, Uncategorized
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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.

Here is a link to the webinar recording: Let’s Talk FBT & Salary Packaging

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:

  1. Businesses with one or more registered motor vehicles
  2. Businesses who are not registered for FBT
  3. Businesses who have not lodged FBT returns
  4. Businesses who have not declared employee contributions in their income tax returns
  5. 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:

  1. Reason why you have not lodged FBT returns
  2. Financial Statements
  3. Detailed tax reconciliation of accounting profit to taxable income
  4. Depreciation schedule and calculations for motor vehicles
  5. 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
  6. Details of employee contributions including journal entries and general ledger accounts
  7. Details of GST remitted on employee contributions

To download the sample ATO FBT Audit letter, please click here: Sample ATO FBT audit letter

To download the  ATO FBT Checklist, please click here: Sample ATO FBT audit letter

Understanding the FBT implications and opportunities of mobile employees

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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?

  1. Reimbursement of employee expenses
  2. Paid direct to supplier
  3. Provided directly by employer or related employer
  4. Allowance, whether taxed or tax free
  5. Reimbursed or paid and Salary Packaged
  6. 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 28 June 2017 Comments closed: 11 August 2017 TR 2017/D6 replaces MT2030 Fringe Benefits Tax: living-away-from-home allowance benefits withdrawn effective 28 June 2017
TR 2019/D4 – Income tax: employees: deductions for work expenses undersection 8-1 of the Income Tax Assessment Act 1997 6 November 2019 Comments closed: 6 December 2019 Draft ruling contains a listing of all past related taxation rulings, ATOID’s, practice statements and tax determinations
TR 2019/D7 – Income tax: when are deductions allowed for employees’ transport expenses 13 December 2019 Comments by: 28 February 2020 Where TR 2019/D7 overlaps or has differing views from TR 2017 /D6, then TR 2019/D7 is current ATO view

Claiming the minor benefits FBT exemption

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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.