- May 2, 2018
- Posted by: Sandeep Singh
- Category: FBT, Tax planning
Fringe Benefits Tax (FBT) is a requirement that you should concern yourself about as a business owner, especially if you have several employees to whom you’re providing regular benefits as part of their employment to the company.
Let’s take a look at some of the most common taxable employee benefits and some guidelines to make sure you’re well in the know for another start of the FBT year.
Under the Australian Tax Office (ATO) guidelines, work vehicles that are used for private and personal matters are taxable under FBT regulations.
What this simply means is that when a car provided by your employer is used for personal purposes — such as picking up the kids from school, driving on weekends, having it parked at your house, letting family members use it, etc. — then FBT is 100% applicable. And don’t think that the ATO wouldn’t know as well. It can be easily tracked using odometer readings and work schedule of the business.
Utes and Commercial Vehicles
There are some ways that FBT can be avoided in work vehicle use. FBT exemptions can happen when certain vehicles (utes and other commercial vehicles) are used for private purposes that is ‘infrequent and irregular.’ It can also be exempted in the situation that it’s used for work-related travel.
Surely, this may be hard to fully determine but there are guidelines set by the ATO that will be the basis for compliance or exemption of FBT.
Under car parking guidelines, better make sure that you’re declaring the right value and not less than what you would expect to pay. ATO has noticed that when it comes to car park benefits (where employers provide parking spaces for employees), there are several discrepancies and errors wherein the right amount is not declared and often times lesser than its actual value.
Living Away From Home Allowances (LAFHA)
What exactly is the LAFHA? It’s the allowance paid to an employee as a means of compensation for non-deductible expenses incurred and any additional disadvantages suffered due to them living away from their normal residence because of work.
How it works is that the FBT is applied to the full amount of the allowance that has been paid. There are certain, specific, situations wherein the tax can be reduced through exempt accommodation and/or food component. However, you do have to make sure to avoid common errors to avoid penalty.
Salary Sacrifice or Employee Contribution?
There’s much confusion between an employee sacrificing a portion of their salary to receive fringe benefits and making a contribution towards the value of a certain fringe benefit.
To clarify, in order to enter a legit salary sacrifice agreement (SSA), it must be agreed upon before the employee becomes entitled to the income — before actual payable work starts. As a result, the employee recognises and agrees to receiving a reduced salary and a non-cash benefit in the form of the received fringe benefit.
As for making an employee contribution, it is made from post-tax income as part of arrangements agreed upon by employer and employee. It usually related to car fringe benefits, wherein the payment of an employee contribution after taxes would have the effect of having a reduced taxable value of the fringe benefit provided by the employer.
Should you register your company for FBT?
The rule of thumb with FBT is that if you’re providing any benefits to your employees (including management level positions) that aren’t exempt from FBT, then yes, you should register your business for Fringe Benefits Tax.
Among the most common benefits that are taxable under FBT includes cars, car spaces, entertainment (food and drinks), employee discounts, reimbursal of private expenses, and so on. All these are considered as fringe benefits and providing these to your employees would require you to register for FBT.
Of course, there are also a few exemptions such as portable devices like laptops and mobile phones (depending on how many), tools of trade, protective clothing, etc. If these are the only items you’re providing, infrequently and valued under $300, then you shouldn’t concern yourself with FBT all that much.
Need help in understanding FBT?
If you’re still on the fence about registering your business for FBT — or perhaps, you just don’t fully understand what it’s about and how it affects your business — then let our team at Astute Advisory Group clear it all out for you while also providing some professional and strategic guidance along the way.