The end of March signals the end of the fringe benefits tax year. If you haven’t already thought about this, now is the time to have a look at the impact of FBT on your business.
There are three main questions for start-ups to consider:
- Is your business liable for FBT?
- What is caught?
- What are the options in managing the liability?
FBT is designed to catch benefits provided by an employer to an employee. It is an employer tax. So if you don’t have any employees then it has no impact on you.
Where you operate in a sole trader or partnership structure, you, as the owners of the business, are not employees of yourself.
However, if you operate through a company or trust structure, you have another entity in place and you are an employee of that entity.
You will not get around FBT by having the benefits provided to someone related to or connected to the employee. The Act has a provision that captures associates of employees.
The term ‘benefits’ has a fairly broad meaning under the FBT Act. It picks up most benefits that an employer could provide to an employee.
The typical benefits include motor vehicles, entertainment, accommodation, travel, health insurance and expense payment reimbursement. Even the staff Christmas party can trigger FBT.
This list is by no means an exhaustive one. The design of the system is to capture cash and non cash benefits that are not captured under employment withholding tax.
The Tax Act tries to ensure that irrespective of whether an employee is paid a salary or paid through benefits, the tax outcome should be the same. That is the theory, but in practice it does not work that way.
To assess your exposure for FBT you should look at all of your employees and identify any benefits that you provide to them. In some cases the benefit being provided may be predominantly work related.
As an example, you provide an employee with a car. They need the vehicle to visit customers and do their work. However, they also have use of the car privately and garage the car at their home. Despite the fact that the car is primarily work-related, there is likely to be an FBT exposure. The fact that the car is garaged at the home of the employee and is under their control means that it falls into the FBT net.
The Act does have a minor and infrequent provision that may allow you to avoid FBT on some smaller benefits, eg. movie tickets provided to an employee for a good sales month. Benefits costing less than $300 fall into this category.
Once you have identified the benefits provided you should then look at what options you have to reduce the FBT liability. Ideally this would have been done at the start of the FBT year.
Some benefits such as cars provide you with some options in how to calculate your liability. Depending on the cost of the car, the number of kilometres travelled in a year and the proportion of work to private use – one method may produce a significantly better outcome than the other.
Also, where an employee has met a part of the cost of the benefit then this can reduce the employer liability.
For all of this you need good records. FBT like most other taxes is a self-assessing tax. You need the records to calculate your liability and to complete your FBT return. You also need the records if the Australian Tax Office comes calling and wants to review your returns.
Generally FBT is not something that you want to run solo on. Talk to your accountants and have them review your position.
Their advice should save you both time and money. They will also know the FBT rules and how you can best manage them to your individual circumstances.
Greg Hayes is a director of Hayes Knight and specialises in taxation and business planning advice.