31 March 2021 is an important date in the tax calendar, it marks the end of the 2021 FBT year. Businesses should now be planning to ensure their documentation is in place to accurately prepare and lodge their FBT returns on time. With COVID-19 having a major impact in the 2021 FBT year, this year more than any may require additional focus to ensure the correct exemptions are being applied and FBT is calculated correctly,
The first thing businesses should check is whether they are registered for FBT. Many business owners, particularly those who have recently set up a business, don’t think that they will provide their employees with fringe benefits, and therefore don’t register. But as the year progresses, they may realise that an FBT return is necessary.
Lodgement and payment dates
Businesses, who lodge their own FBT returns, the final date for lodgement of their 2021 FBT return and payment of any outstanding FBT is 21 May 2021.
If the 2021 FBT return is lodged by a tax agent, the lodgement due dates are:
25 June 2021 for electronic lodgement
21 May 2021 for paper lodgement
The due date for payment under the lodgement program has now been extended to 25 June for FBT returns lodged electronically. In previous years, payment was due 28 May. However for FBT returns that are lodged by paper, the payment due date will remain as 21 May.
Businesses who are registered and do not provide any fringe benefits during the year must still fulfil their lodgement obligations by submitting a ‘notice of non-lodgement’ with the ATO to avoid follow up action.
If businesses are liable to pay FBT for the FBT year or have paid FBT instalments for the year, a Fringe Benefits Tax (FBT) return must be lodged.
MAJOR CHANGES 2021
Windfall for cars stored at an employee’s home during COVID-19
The ATO released the factsheet: ‘COVID-19 and car fringe benefits’ in which a concession was outlined that will allow employers to reduce their FBT exposure for cars garaged at an employee’s home as a result of the COVID-19 pandemic.
Generally, a car is deemed to be available for private use of an employee if the car is garaged or kept at or near a place of residence of an employee or associate. However due to COVID-19, if the operating cost method is used to calculate the car fringe benefits, and the employer’s car was garaged at the home of the employee and not driven, or only driven briefly for the purpose of maintaining the car, during the COVID-19 lockdown periods , then there will not be any deemed private use of the car for this period. This means that no FBT will apply for this period and the vehicle is not being driven during the COVID-19 lockdowns. Businesses will need to maintain odometer records to show that, during the period, the car was in fact garaged and had not been driven.
Parking benefit changes for 2022 FBT year (TR 2019/D5)
The ATO updated their view of car parking fringe benefits in TR 2019/D5, which now replaces TR 96/26. The new view of the ATO extends commercial parking stations to include many parking stations that were previously considered non-commercial under TR 96/26. This expansion now means businesses that provide parking to their employees may need to consider all paid parking stations within 1 km from where the parking is provided. This search will now also include all parking available at shopping centres and hotels due to the rule changes. After further consultation, the ATO have advised that they intended on publishing the final ruling by 1 April 2021 with implementation of the new rules to also begin 1 April 2021. This will impact the 2022 FBT year.
Parking exemption threshold extending to businesses with turnover below $50M
From 1 April 2021 (FBT year ending 31 March 2022), the car parking FBT exemption will be extended to businesses with turnover below $50 million. The current turnover threshold for car parking exemption is $10 million for the FBT year ending 31 March 2021. This will mean that more businesses will be exempted from parking fringe benefits going forward.
For the FBT exemption to apply, the car parking must not be provided in a commercial car park, and the employer can’t be either:
a government body
a listed public company
a subsidiary of a listed public company
The ATO has updated their guidance regarding deductibility of transport and other travel costs
The ATO have finalised TR 2021/1 to deal with transport costs, and the ATO have also issued TR 2021/D1 concerning employee accommodation and tax treatment of travel allowance or LAFHA. These rulings are both helpful in determining whether transport costs paid by an employer and similarly meal and accommodation expenses would have been ‘otherwise deductible’ if incurred by an employee and therefore affect the FBT liability.
FBT treatment of expenditure incurred by an employer in relation to a cancelled staff event
The ATO has released a ‘COVID-19 and fringe benefits tax’ factsheet that states that an employer will generally not have an FBT exposure when a non-refundable expenditure has been incurred for a cancelled staff event. In this case the employer has not provided any fringe benefits to its employees.
However, where an employer reimburses an employee for an attendance fee or ticket to the event that has been cancelled, FBT may still apply as the reimbursement is categorised as an expense payment benefit.
Where a hamper is provided in lieu of a staff event, the minor benefit exemption may apply if the notional value of the benefit is less than $300 (inclusive of GST).
CHECKLIST OF COMMON BENEFITS PROVIDED
Following is a checklist of the more common benefits provided together with some useful tips.
Cars are the most common type of fringe benefit provided to employees and therefore planning for FBT can save money. This includes:
For each motor vehicle acquired before 10 May 2011, obtain the odometer reading as at 31 March
For new motor vehicles, retain the purchase invoice of the car including a breakdown of all non-business accessories (e.g. window tinting or a CD player).
The cost of the car for FBT purposes includes:
Dealer & delivery charges
Luxury car tax
The cost of the car for FBT purposes excludes:
Stamp duty on transfer
Registration or insurance
Review entitlements to any FBT reductions. For example, if the car has been owned for more than four full ‘FBT years’, the cost or ‘base value’ is reduced by one-third under the statutory formula method.
Choose whether to use the ‘statutory formula’ or the ‘operating cost’ method to calculate the FBT payable. Generally speaking, the statutory formula method is more advantageous when the car is used primarily for personal use while the operating cost method is usually best when the car is used mainly for business purposes. Note that the statutory rates changed for cars purchased from 10 May 2011, moving to a single statutory rate of 20% regardless of the distance travelled.
Statutory formula method
If using the statutory formula method and the car was acquired before 11 May 2011 and was sold during the year ending 31 March 2021, the kilometres travelled will need to be annualised.
The Old Statutory % rates only apply to vehicles with a pre-existing commitment before budget night of 11 May 2011.
Where there is a change to a pre-existing commitment (e.g. car refinanced) for a motor vehicle acquired before 11 May 2011, the 20% statutory rate will apply.
The following statutory rates apply for cars acquired from 7.30pm on 10 May 2011 under the transitional provisions and also for cars that continue to apply the old rules:
Note that cars provided under pre-existing commitments (i.e. owned prior to 11 May 2011) will continue to use the old statutory fractions, unless there is a change to that pre-existing commitment.
Operating cost method
If using the operating cost method, ensure that the employee has maintained a log book for a 12 consecutive week period within the FBT year or a previous FBT year. A log book is valid for a period up to 5 years. Make sure to maintain adequate records of:
Registration and insurance
Lease payments or deemed interest/depreciation
Other vehicle expenses
It is important to check whether the employee has made any contributions to the business for the provision of the car as this can significantly reduce the FBT liability. These contributions can even take the form of any non-reimbursed expenses the employee has paid for such as fuel or repairs. It’s important to account for the contributions as income in the profit and loss and disclose the GST on your next BAS.
Most businesses provide Meal Entertainment to staff and clients during the course of the year. Unlike many other business expenses, meal entertainment is not tax deductible. Generally, you are only allowed a tax deduction when FBT has been paid on the particular expense.
Again, a bit of planning and good record keeping can assist in limiting unnecessary tax when it comes to meal entertainment. There are three methods which can be used to calculate FBT for meal entertainment and businesses should choose the one which is most beneficial in their particular circumstances. It is best practice to calculate meal entertainment using all the methods available, and simply applying the most tax effective method in your FBT return. You can speak to your tax advisor for further guidance on the following methods:
The total meal entertainment benefits inclusive of GST amount provided is divided by 2, and FBT is paid on 50% of the total meal entertainment. This method is most beneficial when meal entertainment is provided mainly to employees. The use of this method however will deny the employer the ability to apply the $300 ‘minor and infrequent’ and in-house property benefit exemptions that may otherwise have been available.
FBT is calculated only on meal entertainment benefits (inclusive of GST amount) provided to employees. This method is most beneficial when providing meal entertainment mainly to non-employees or when most meal entertainment provided is provided infrequently and costs less than $300 (inclusive of GST) per person. When using this method the $300 ‘minor and infrequent’ and in-house property benefit exemptions can be used to reduce each fringe benefit provided.
12 week register
This method is not commonly used but works by keeping a logbook of meal entertainment for 12 consecutive weeks and determining what percentage of meal entertainment relates to employees. That percentage is then applied to the total meal entertainment (inclusive of GST amount) at the end of the FBT year. This is the least popular method due to the records that need to be maintained.
Issues to consider
It is useful to note the following considerations when calculating any meal entertainment FBT:
Was meal entertainment (by way of food or drink) provided to employees on or off the business premises? This can include Christmas parties, Friday night drinks, etc.
Did the business reimburse an employee’s restaurant bill, for instance when entertaining clients?
Was a “recreation” benefit provided to an employee? This could include a ticket to watch the football or a concert. If so, ensure that this type of entertainment is recorded separately to meal entertainment.
You should maintain a register of employees, associates and non-employees who attended functions where meal entertainment and non-meal entertainment was provided.
Have you considered the GST implications? The GST treatment of meal entertainment related expenditure will depend on the meal entertainment method used:
If using the 50/50 method, only 50 percent of the GST can be claimed. The other half is added back to the profit and loss account and is not available as a tax deduction.
If using the actual method, only claim the GST on that portion of entertainment that is subject to FBT. Otherwise, GST is treated as a profit and loss expense and is not available as a tax deduction.
Work-related portable electronic device exemption
There are some employee benefits which are exempt from FBT and should be considered as part of a salary package arrangement for employees. Generally speaking, these benefits must be primarily used for work purposes, or to enable staff to do their job more efficiently. These exempt benefits include:
Membership expenses, items such as a subscription to a trade, professional body or even an airport lounge membership
Other work related items or tools of trade (e.g. power drill)
The employer can generally only provide each item "once" to an employee per FBT year to take advantage of the FBT exemption. For example, the employee can receive both a laptop computer and mobile phone in the one FBT year.
Small businesses with a turnover of less than $10M (up to 30 March 2021) and less than $50M (from 1 April 2021) can provide “multiple” work related portable electronic devices to employees even if they have substantially identical functions.
These benefits do not need to be recorded on the FBT return as they are ‘exempt’ benefits and are also not reported fringe benefits included on the employee’s PAYG Payment Summary. They are also not counted as wages for payroll tax and work cover purposes.
ATO focus and other issues to keep in mind
The ATO continues to target cars from an FBT compliance perspective as they are the most common type of fringe benefits provided to employees. For 2021 the ATO is also likely to be targeting Entertainment benefits. The main areas of focus include:
Entertainment: The ATO is aware of the error where some employers are claiming entertainment expenses as a deduction in their tax returns, however no FBT is paid on the entertainment and therefore the entertainment is not deductible. Alternatively, some other employers are of the opinion that not claiming entertainment expenses means they do not have to complete an FBT return, while they may actually have some FBT payable on entertainment provided to employees. Entertainment, including the two common errors mentioned are focus areas of the ATO in their 2021 reviews.
Motor vehicle expenses: The ATO can potentially use the information disclosed in income tax returns to identify cases of FBT exposure for the ATO review. By disclosing motor vehicle expenses in company tax return, the ATO may cross-check to determine if an FBT return is lodged.
Logbooks: The ATO focuses on the business use percentage claimed over the particular three month log book period to ensure that this takes into account any variations in the pattern of use for the current FBT year and the next four FBT years). In other words, employees cannot simply choose to use a three month period when business use is the highest or is not representative of a normal three month period.
Exempt motor vehicles: The ATO is targeting employers who have claimed an FBT exemption for certain cars (e.g. dual cabs and utes with a carrying capacity greater than 1 tonne) as well as utes and panel vans that carry less than 1 tonne. The ATO is focusing on what some employers call ‘infrequent and irregular’ private travel. The ATO has released a Practical Compliance Guideline (PCG 2018/3) to provide guidance on the compliance approach for eligible vehicles.
Employee contributions: These contributions reduce the taxable value of the car fringe benefit. The ATO are concerned that many employers are not reporting these contributions as assessable income and also not including the GST component on their BAS.
Travel diaries: Are they required? When employees travel for more than five consecutive nights but the travel is not exclusively for work, they should keep a record of:
Places visited and work/activity undertaken
What the nature, time and duration of the work/activity that was undertaken
Declarations: Make sure that any required declarations have been signed and received by the time that the FBT return is due. e.g. when an employee declares that there is no private use of a fringe benefit provided.
GST: Make sure that FBT is calculated on the GST inclusive value of the benefit provided. Don’t forget that when the $300 minor and infrequent exemption is used for meal entertainment, any GST input tax credits cannot be claimed.
Record keeping: Keep invoices and source documents in order to substantiate claims.
This information is provided solely for general information purposes and is not intended as professional advice. Readers should not act on the information contained therein without proper advice from a suitably qualified professional.
We expressly disclaim all liability for any loss or damage to any person or organisation for the consequences of anything done or omitted to be done by any such person relying on the contents of this information.