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From the ATO: Fringe Benefits Tax Hot Spots

With the end of the Fringe Benefits Tax (FBT) year looming on 31 March, businesses are being urged to review their FBT position.

FBT liabilities can trap unwary businesses, some of whom don’t recognise that there can be a tax consequence from providing benefits like entertainment to staff. It is important to understand there can be implications from seemingly straightforward business activities across income tax and GST, as well as FBT.

For some smaller businesses, it can come as a surprise that business-related activities can fall within the FBT system. While there are some exemptions in place, businesses need a clear understanding that many benefits could come under the scrutiny of the Australian Taxation Office (ATO).

These include:

  • Car benefits, like providing company cars for your employees
  • Car parking benefits
  • Entertainment-related benefits, like throwing a staff holiday party
  • Loan benefits, like providing an employee with a no- or low-interest loan
  • Housing benefits, like providing your employees with somewhere to live rent-free
  • And more.
An entertainment-related benefit, for example

A small business owner might think it appropriate to take a good customer or supplier to lunch. It might also seem natural to take along a staff member to that lunch. But there could be an FBT liability that arises depending on the value of the food and drink on a per-head basis and how frequently staff members receive similar benefits. Excellent record-keeping is fundamental. It is crucial at lunches, for example, to note who was there, because the portion relating to staff members might be subject to FBT while the portion relating to clients would not generally trigger FBT. In addition to determining whether there is an FBT issue, these records will also generally be used to check whether the business can claim a deduction and GST credits for the expenses. The ATO’s approach is very evidence-based; there needs to be documentation to back up whatever the business is claiming, as with most deductions.

Motor vehicles & car fringe benefits

Motor vehicles are another key FBT issue. Many businesses provide cars to staff or allow them to take vehicles home, but this can easily trigger an FBT liability.

While there are some exemptions that can apply to these benefits and it may be possible to reduce or eliminate the FBT liability completely, it is crucial that there is detailed record-keeping. For example, a car that is used solely for business purposes could still potentially trigger a significant FBT liability unless there is a valid logbook in place.

Also, the ATO can raise questions if a business has substantial motor vehicle expenses, yet they do not lodge an FBT return. You cannot avoid the FBT system by simply not claiming a deduction for vehicle-related expenses.

What you need to do now

It’s important to know what your reporting obligations are for FBT so you ensure you’re paying the right tax and that you won’t get in trouble with the ATO. If you’re not sure whether you should be preparing an FBT return, give us a call and we’ll let you know.

If you know you need to lodge an FBT return, you’ll need to:

  1. Complete the FBT Questionnaire, and relevant schedules for the period 1 April 2019 to 31 March 2020; and
  2. Return the questionnaire, schedules and any additional supporting documents to our office by 28 May for lodgment by 25 June 2020. Payment of any FBT liabilities is due before lodgment on 28 May 2020.

The ATO’s top FBT problem areas

  • Motor vehicle fringe benefits – failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming deductions for these benefits
  • FBT and income tax mismatch – mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer’s tax return
  • Entertainment claimed as a deduction but not recognised as FBT – claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising
  • Car parking fringe benefits – incorrectly calculating car parking fringe benefits due to:
    • significantly discounting market valuations
    • using non-commercial parking rates
    • not being supported by adequate evidence
  • Business assets you use personally – not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates
  • Not lodging FBT returns – not lodging FBT returns (or lodging them late) to delay or avoid payment of tax.
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