FBT 2016: The top 5 things every business needs to know
There are a few things you need to know beyond the basic FBT changes when the new FBT year starts on 1 April 2016.
There are a number of changes to FBT that business owners need to be aware of ahead of the new Fringe Benefits Tax year, which starts on 1 April.
If you are a business owner in the hospital or non-profit sector and use salary packaging for team member or provide your team members with a gym or space to do yoga, then there are somethings you need to know beyond the basic FBT changes that start from 1 April.
The Fringe Benefits Tax (FBT) rate is currently 49%. The rate increased from 47% on 1 April 2015 in conjunction with the introduction of the 2% debt tax on high-income earners (Temporary Budget Repair Levy). The FBT year that is just ending is the first year at the higher tax rate - which means if you have an FBT liability, you will pay more tax.
The FBT rate will stay at 49% until 31 March 2017 when the impact of the debt tax is scheduled to be removed.
If your business is an FBT exempt entity (public and not-for-profit hospitals, public benevolent institutions, health promotion charities, public ambulance service) or qualifies for the FBT rebate, then there are significant changes that come into play on 1 April you need to be across.
Previously, employees of FBT exempt and rebatable entities have been able to salary sacrifice an unlimited amount of meal entertainment expenses such as restaurant meals, without bearing an impact on their existing annual meal caps. This will change on 1 April 2016 when a single grossed-up cap of $5,000 for salary sacrificed meal entertainment benefits for employees of exempt and rebatable employers will apply.
Let's look at the example of a doctor employed by a public hospital who salary sacrifices $32,000 of meal entertainment benefits. If the doctor salary sacrificed these benefits in the 2015-16 FBT year, the full $32,000 would be exempt from FBT and he has nothing to report in his tax return.
If the doctor salary sacrifices these benefits in the 2016-17 FBT year, then the first $5,000 will not count towards their annual exemption cap. However, the balance will be taken into account in determining whether the employee exceeds their exemption cap for the year.
If this excess amount causes the employee to exceed their annual exemption cap then an FBT liability will arise. The entire amount (including the first $5,000) will also be included in their reportable fringe benefits amount for the year, which could impact on their ability to satisfy other income based tests within the tax system.
As an employer, it will be essential to review the existing salary packages of team members affected by the changes as someone will be paying the extra FBT that arises as a result of the new cap being introduced.
By now you should have reviewed any salary sacrifice agreements with your accountant to ensure that they are still viable at the higher 49% FBT rate. It may be that salary sacrifice arrangements may no longer achieve the intended goals, in which case they create an admin burden for next to no benefit.
For high income earners, i.e. those earning above $180,000, there will be a planning opportunity between the FBT year and income year – that is, 1 April 2017 when the FBT rate returns to 47% and 30 June 2017 when the 2% debt tax is removed. Speak to your accountant about how this may apply to you.
With any salary sacrifice agreement, there are certain rules that must be followed, such as ensuring the appropriate documentation is in place to ensure the arrangements are "effective" i.e. that the employee should agree in writing to forgo a specified amount of salary and wages before the entitlement has been earned. If it is after, then the agreement will not be valid and they will be taxed on the amount.
The business would also be liable for obligations such as PAYG withholding and superannuation guarantee amounts.
If your business is a small business (turnover under $2m), the FBT exemption on portable electronic devices will be extended from 1 April 2016.
From this date, you can offer employees more than one work-related portable electronic device, such as a mobile phone, laptop and tablet and not have to pay FBT on it even if the device is the same or similar to other devices already provided in that same FBT year.
All other businesses are limited to one device that is identical or similar to another.
Wondering what to do with that extra office space – put in in gym facilities for the team or perhaps use a room for a yoga class or personal trainer?
A recent ATO decision confirmed that the FBT implications of these two options are quite different. The reason is the definition of a "recreational facility."
A recreational facility is exactly that, a facility for recreation. Recreational facilities can be exempt from FBT if certain conditions can be met. However, a fitness class or a personal trainer is not a recreational facility and therefore, FBT would generally apply.
Fringe Benefits Tax can be properly planned and managed when you understand the rules. It's worth discussing your FBT arrangements with your accountant to ensure you're painting between the ATO's lines. Contact us on 02 9957 4033 for more information.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.