FBT hot spots
The Fringe Benefits Tax starts on 1 April and businesses are being urged to review their Fringe Benefits Tax (FBT) position.
FBT liabilities can trap unwary businesses, some of whom don't recognise that there can be a tax consequence from providing benefits to staff such as entertainment.
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).
FBT is not always straightforward
It is important to understand there can be implications from seemingly straight-forward business activities across income tax and GST, as well as FBT.
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.
That record-keeping can be difficult, especially if they do not have a dedicated internal accountant.
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 - although again, some businesses may be unaware of that.
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 log-book in place.
There can be questions raised by the ATO if for example 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 expenses relating to a vehicle.
The ATO's top FBT problem areas
So as a business owner, where are the pitfalls of FBT? Here are our top 6 traps for business:
- Motor vehicle fringe benefits - failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming reductions 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 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.
- A special note about FBT and emergency assistance
Emergency assistance provided by employers to employees during the recent bushfires may potentially be exempt from FBT.
In broad terms, FBT concessions can apply in connection with the provision of first aid or other emergency health care, emergency meals, food supplies, clothing, accommodation, transport or use of household goods as well as temporary repairs.
There are restrictions when it comes to accessing these concessions in relation to health care benefits. Also, the exemption does not apply to ongoing medical or hospital costs.
If you've provided these sorts of assistance to your employees, speak to your accountant to ensure that it is properly documented and to find out if there are any exemptions that apply.
Contact us for more information
FBT can be fickle to get right and your accountant can help to ensure you're on the right track. 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.