Not all SME employers have to fill out a fringe benefits tax (FBT) return, but for those that do, some useful reminders are in order. After all, FBT year end is only a month and a bit away – March 31.
First, a little FBT 101. FBT is a tax imposed on employers if they provide certain non-cash benefits ("fringe benefits" such as cars, car parking, loans, payment of expenses, etc) to employees or associates of employees (eg. a spouse or other relative). It should be noted that car parking provided by a small business (that is, a business with a gross income of less than $10 million) on its premises is exempt from FBT.
Contributions to complying super funds are exempt from FBT, as are employer contributions to an eligible childcare centre. This exemption covers priority access payments made by employers to reserve places for their employees' children in Commonwealth funded family day care, outside school hours care and vacation care. There are also other exemptions.
Employers have to supply the relevant information for their FBT returns to be prepared and lodged with the Tax Office, so they need to be fully aware of the information needed.
FBT collections total around $3 billion for the Federal Government, so it's not small beer. This, together with the fact that for the most recent FBT year, more than 750,000 employees received reportable fringe benefits, means the tax impacts a lot of people and their employers.
For the 2011-12 year, the ATO said it will continue to focus on the following FBT areas:
- Non/late lodgment of FBT returns – penalties can apply. It might also be noted that employers are also required to include in a Business Activity Statement information relating to the taxable values of fringe benefits provided during the quarter to which the BAS relates.
- FBT and investment allowance/cars.
- Exempt vehicles – under the FBT law, the private use of a panel van, utility truck, taxi (that is not on hire) or a non-passenger road vehicle designed to carry a load of less than one tonne, or the private use of a motor vehicle designed to carry a load of at least one tonne or more than eight passengers, is an exempt benefit if the only private use is for work-related travel or is minor, infrequent and irregular (for example, to remove rubbish or during a transport strike).
- Employee contributions – both for tax agent and self-preparers – under the FBT law, an employee's contribution can reduce the taxable value of a fringe benefit.
- Not-for-profit concessions – benefits provided to the employees of a public benevolent institution, a public hospital, a private non-profit hospital or a public ambulance service in respect of their employment are exempt benefits.
- LAFHA (see also below).
However, the ATO says its tactical approach in some areas will change and it will implement some additional project based work. It said it has increased the level of resources for fieldwork and audits with the initial focus on the luxury car tax.
I'll now look at a few of the currently more topical and practical issues concerning FBT.
Living-away-from-home allowance (LAFHA)
The payment of a LAFHA is a fringe benefit. So what is a LAFHA benefit? It is an allowance paid by an employer to their employee to compensate the employee for additional non-deductible expenses incurred by the employee because he or she is required to live away from their usual place of residence in order to perform their employment duties. It is therefore a fringe benefit if provided in respect of the employment of the employee.
The taxable value of a LAFHA can be reduced by the exempt accommodation component and/or the exempt food component. For this to happen, the employer must obtain from the employee a declaration which must set out their usual place of residence and actual place of residence during the period of the allowance. If a declaration is not obtained, the whole amount of the LAFHA will be taxable for FBT purposes.
Note that these declarations are not required from employees employed under "fly-in, fly-out" arrangements or on offshore oil rigs.
The ATO has indicated that, for declarations sent as attachments to email, there is no further requirement that the attachment itself be endorsed, although the name of the employee is required on the document in the approved format.
Where an employer agrees to the use of an online employee intranet system for the lodgment of an employee declaration, the declaration is acceptable to the ATO provided it is a secure system. The ATO says the system must clearly identify the employee and their approval of the information being provided, as well as requiring a PIN, access code or password.
Where an employer agrees to the lodgment of electronic declarations through the use of personal email accounts (including webmail accounts), the ATO says the employer needs to be satisfied that the declaration is provided by the employee, using a secure system. This requires the employer to be satisfied that the email address has in fact been set up by, and can only be accessed by, the particular employee. Where there is such a system in place, the ATO says the employer could consent to the use of personal emails to provide employee declarations.
Credit card processing fees
The ATO view is that credit card processing fees that are incurred by an employer as part of the provision of a fringe benefit will constitute part of the taxable value of a fringe benefit.
The ATO considers its view is consistent with the policy of the FBT law that the taxable value of benefits should generally be calculated with reference to the expenditure incurred by the employer rather than the value of the fringe benefit to the employee.
Car parking fees in fly-in, fly-out situations
Some employees have to occasionally work interstate and they may park their car at the airport while they are away. What are the FBT implications?
Where an employer reimburses an employee for parking their motor vehicle at the local airport while the employee is working interstate at a remote location, the ATO considers that reimbursement could constitute an exempt fringe benefit. It said this is the case as long as the employee's car is not parked at, or in the vicinity of, the employee's primary place of employment.
FBT is paid by the employer, so it's the employer that bears the substantial amount of FBT compliance costs. They need to ensure they get their FBT returns correct.
Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
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