Posted on February 19, 2020
If your business is in the hospital/non-profit sector and uses salary packaging for team members, you’re a small business, or provide team members with a gym or space to do yoga, then there are a few things you need to know beyond the basic FBT changes when the new FBT year starts on 1 April 2016.
1. You will pay more FBT
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.
2. Meal entertainment crackdown – medical professionals beware
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.
In the past, employees of FBT exempt and rebatable entities have been able to salary sacrifice an unlimited amount of meal entertainment expenses (e.g., restaurant meals) with no impact on their existing annual caps. But, this will all change on 1 April 2016. From this date, a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment benefits for employees of exempt and rebatable employers will apply.
To give you some idea of the impact 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.
3. Salary sacrificing may not be worth it
By now you should have reviewed any salary sacrifice agreements to ensure that they are still viable at the higher 49% FBT rate. In some cases, salary sacrifice agreements may no longer achieve the intended goals and simply create an administrative burden for little to no benefit.
For high income earners (above $180k) however, the difference in timing between the FBT year and the income year means that there will be a planning opportunity between 1 April 2017 when the FBT rate reduces back to 47% and 30 June 2017 when the 2% debt tax is removed.
With any salary sacrifice agreement just be aware that certain rules must be followed. For example, the appropriate documentation needs to be in place to ensure that the arrangement is ‘effective’. This means that the employee should agree in writing to forgo an amount of salary and wages before that entitlement has been earned. If it’s after, it’s not valid and the employee will simply be taxed on that amount. The business would also be liable for obligations such as PAYG withholding and superannuation guarantee amounts.
4. Two laptops are better than one for small business
If your business is a small business (turnover under $2m), from 1 April 2016 the FBT exemption on portable electronic devices will be extended. 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.
5. Yoga or gym classes at the office?
Wondering what to do with that extra office space? Put in gym facilities for the team? Use a room for a yoga class or personal trainer perhaps? 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.
Tags: Fringe Benefits Tax
Posted on February 19, 2020
The new FBT year starts on 1 April 2015. Here’s what you need to know.
Keeping on top of your Fringe Benefits Tax (FBT) obligations this year will be a little more onerous with a temporary increase in the FBT rate from 47% to 49% on 1 April 2015. The FBT rate will then stay at 49% until 31 March 2017.
The change in the FBT rate for the next 2 years has a number of implications particularly to those employers with salary sacrifice agreements in place or where fringe benefits form part of your employment agreements.
FBT gross up rates have also changed in line with the rate change. The new rates are:
|FBT year||FBT rate||Type 1 gross up rate||Type 2 gross up rate|
|1 April 2014 to 31 March 2015||47%||2.0802||1.8868|
|1 April 2015 to 31 March 2017||49%||2.1463||1.9608|
|1 April 2017 onwards||47%||2.0802||1.8868|
The FBT rate change is a by-product of the introduction of the 2% Debt Tax (Temporary Budget Repair Levy) on high income earners. The debt tax is payable at a rate of 2% on every dollar of a taxpayer’s annual taxable income over $180,000. In effect, the top marginal tax rate became 49% from 1 July 2014. The change to the FBT rate is to discourage high income earners from using the FBT system to lower their taxable income.
If your executives and high-income earners have not put in place any arrangements to manage the debt tax, there are still some planning opportunities available.
Review all salary sacrifice agreements
It’s essential that you review all salary sacrifice agreements. Providing employee benefits is more expensive and potentially less attractive now and over the next few years unless that cost is passed through to employees. And, in some cases, the salary sacrifice agreement may not achieve the intended goals and simply create an administrative burden for little to no benefit.
FBT change and not-for-profit entities
For employees of charities, not-for-profits and certain other entities, the exemption threshold from FBT will increase to ensure that the total value of cash benefits received by these employees are not affected.
This will mean that:
For public benevolent institutions and health promotion charities the exemption from FBT for benefits will increase to a grossed-up annual cap of $31,177 per employee (currently $30,000) from 1 April 2015.
For public and not-for-profit hospitals and public ambulance services the exemption from FBT for benefits will increase to a grossed-up annual cap of $17,667 per employee (currently $17,000) from 1 April 2015.
Changes to FBT planning opportunities
It seems that as soon as someone promotes a new way to utilise the FBT system for planning purposes or a significant number of taxpayers start using a planning method, the Government or the ATO closes that opportunity. This is the case with:
Living away from home allowances – reforms from 22 October 2012 severely limit access to FBT concessions for living away from home (LAFH) allowances particularly for non-residents. The reforms introduce a higher level of substantiation, limit the time the FBT concessions can apply to a LAFH to 12 months (in most cases), and dictate strict conditions such as maintaining a home in Australia for their personal use (no rentals). Special rules exist for fly-in-fly-out and drive-in-drive-out employees.
Salary sacrificing goods or services that your business provides – for many businesses, there was once a tangible financial benefit to packaging up goods or services they provide as part of the remuneration offered to employees. Retailers providing discounted clothes to employees and private schools discounting school fees for children of employees, are just two examples. On 22 October 2012, the FBT concessions that were previously available in this situation were removed.
Travelling or living away from home – what’s the difference?
Another issue that comes up is determining whether someone is living away from home, relocating or just travelling. The ATO is looking closely at Australian taxpayers claiming living away from home (LAFH) allowances to make sure they are not incorrectly accessing the FBT concessions. If somebody is living in Sydney but travelling to Melbourne on an ad hoc basis every other week for work, they are simply travelling. They may be entitled to travel deductions but are not entitled to the FBT concessions that can apply to LAFHAs. If the person relocates temporarily to Melbourne, keeps their home in Sydney for their use (can’t be rented out), then it’s more likely they can access the living away from home allowance concessions. You need to double check to get the distinctions right.
Where a motor vehicle owned or leased by the business is used by an employee for private purposes (including travelling between home and the workplace), then FBT is an issue that needs to be managed.
Interaction between FBT, income tax and GST
If you pay FBT on a benefit relating to entertainment then the business can generally claim a deduction for the costs associated with providing the entertainment as well as the GST credits. However, if FBT does not apply to the benefit then no deduction or GST credits can generally be claimed.
Entertainment can be almost anything from food, drink, recreation such as movie tickets, to non-work based travel. If you provide any entertainment benefits to employees, such as an employee attending a business lunch, then FBT might apply.
Structuring employee salaries through a unit trust
The ATO has warned employers against complex structuring arrangements designed to channel benefits to employees using an employee remuneration trust. The most recent ATO alert looks at arrangements where the employer repays an employee’s loan through a trust. Under these arrangements, employees acquire units in a unit trust funded by a loan from the trustee. The loan is repaid by the employer using amounts salary sacrificed by employees. The result is that the taxable value of the benefit provided to the employee skirts the FBT system – a big no, no from the ATO’s point of view.
How do I know if I need to pay FBT?
If you are not sure whether you are providing fringe benefits to your employees, here are some key questions you should ask yourself:
Do you make vehicles owned or leased by the business available to employees for private use?
Does your business provide loans at reduced interest rates to employees?
Has your business forgiven any debts owed by employees?
Has your business paid for, or reimbursed, any private expenses incurred by employees?
Does your business provide a house or unit of accommodation to employees?
Does your business provide employees with living-away-from-home allowances?
Does your business provide entertainment by way of food, drink or recreation to employees?
Do any employees have a salary package (salary sacrifice) arrangement in place?
Has your business provided employees with goods at a lower price than they are normally sold to the public?
What is exempt from FBT?
Certain benefits are excluded from the scope of the FBT rules. The following work related items are exempt from FBT if they are provided primarily for use in the employee’s employment:
Portable electronic devices (e.g. laptop, tablet, mobile, PDA, electronic diary, notebook computer, GPS navigation device) that are provided primarily for use in the employee’s employment (limited to the purchase or reimbursement of one portable electronic device for each employee per FBT year);
An item of computer software;
Protective clothing required for the employee’s job;
A tool of trade.
Tags: Fringe Benefits Tax
Posted on February 19, 2020
Almost half of all tax collected flows through about 800,000 employers. In an environment where tax revenues are falling, Fringe Benefits Tax (FBT) is of particular interest to regulators. The simple reason is that the ATO can rely on the fact that many employers simply fail to recognise their FBT obligations – it is low hanging fruit.
To save you from the virtual equivalent of a knock on the door from the ATO, we’ve devised our list of the key things to watch out for pre and post the end of the FBT year on 31 March:
iPad vs Laptop…what’s the difference?
The answer is not a lot any more. A few years ago the ATO considered that an iPad and a laptop were two different items with different functions. But now the ATO is being forced to keep pace with evolving technology and has revisited the issue.
So why is this important? The distinction is important because under FBT law, an employee can for example, salary sacrifice one portable electronic device each year FBT free as long as that device is also used in their job. So, that means that as long as you use the device for your work (for example working from home), you can pay a lot less for that device than if you just walked into the shop and bought it. But wait there’s more. You can also salary sacrifice more than one electronic device each year as long as those devices have different functions. So, you could salary sacrifice a laptop and an iPad in the same year FBT free if the laptop and iPad had different functions.
With technology melding the functionality of electronic devices, the ATO have now said that employers need to look at the function of the device to make sure there is only one FBT free device with that function each year. If the function is effectively the same, then only one device can be FBT free. Something to watch out for.
Cars & FBT: what you should be on the look out for
Every year the ATO tells us what sort of things they’re looking out for and they are always interested in cars! The ATO’s view is that there are probably plenty of situations where FBT should be paid but isn’t.
One of the ways the ATO figures out if there is an FBT liability is by looking at companies claiming car expenses but are not lodging FBT returns and not reporting employee contributions on the company tax return. This doesn’t mean there is a problem but in some cases the ATO might ask you to prove that the car expenses don’t trigger FBT.
Car fringe benefits: Rudd Government changes now six feet under
Before the election, the Rudd Government sent the car and finance industry into a spin by announcing that they would scrap the Statutory Formula Method used to calculate fringe benefits tax on cars. The Abbott Government has now formally stated that they will not proceed with this measure.
If the statutory formula method had been scrapped, there would be an adverse effect on the taxable value of car fringe benefits where the car was mostly used for private use or the employee failed to keep an eligible log book. When using the statutory formula method, the taxable value of car fringe benefits is a flat 20% of the base value of the car, regardless of the distance travelled by the employee (note there are transitional rates in certain circumstances).
Travelling or living away from home. What’s the difference when it comes to tax?
Over a year ago, significant changes were made to ‘living away from home’ allowances to tighten up the rules. But the ATO has a view that not everyone is playing by the new rules.
Part of the problem comes down to defining whether someone is actually living away from home, or just travelling. The ATO is looking closely at Australian taxpayers claiming LAFHAs to make sure they are not incorrectly claiming exempt LAFHA.
If somebody is living in Sydney but travelling to Melbourne every other week for work, they are simply travelling. They may be entitled to travel deductions but cannot claim an exempt LAFHA. If the person relocates temporarily to Melbourne, keeps their home in Sydney for their use (can’t be rented out), then it’s more likely they can claim a living away from home allowance. You need to double check to get the distinctions right.
Is it possible to salary sacrifice your spouse’s car?
It’s not all bad news on the FBT front – there are still some opportunities out there. One area we are often asked about is associate leases. An associate lease is where you salary sacrifice the car repayments for an associate’s car, for example your wife’s car. In effect, your spouse leases their car back to your employer for you to use. This arrangement does not have to be just for new cars, it can work well with existing cars. And, it works best when your spouse is on a lower tax bracket than you or is not earning an income.
While these arrangements sound good because they ultimately reduce the tax paid by the higher earning spouse, they may fall foul of the ATO’s anti-avoidance rules. It’s important to make sure that the appropriate documentation is in place to support these arrangements and the non-tax reasons for having an associate lease are clear.
School teachers & retail employees beware: In-house benefit rule changes
If your employer lets you salary package the goods and services that they sell, then this is an in-house fringe benefit. Common examples include retailers who provide discounted clothes to employees or private schools discounting school fees for the employee’s children.
Back in the 2012/2013 ‘mini Budget’ (the Mid Year Economic and Fiscal Outlook) the Government announced that they would scrap the concessional treatment that applied to in-house fringe benefits. The old treatment allowed employees to only recognise 75% of the lowest publicly available cost of the goods or services reduced by a further $1,000 in their salary sacrifice agreements.
The transition period for this change that allowed people with pre 22 October 2012 salary sacrifice agreements to keep receiving the concession, ends on 31 March 2014. If you are an employer with these agreements in place and you have not reviewed them, you need to do this quickly as it might significantly change the remuneration of your employee. If you are an employee receiving the concessional FBT treatment, you need to understand what the change will mean to you.
(Courtesy of KnowledgeShop)