How to prepare for end of FBT year
26 Mar 19
Preparing your FBT return can be a stressful and challenging period, with lodgements due by 21 May 2019 (25 June 2019 if prepared by a tax agent), writes AFS and Associates Partner, Dennis Barnett.
While there are many different types of fringe benefits, employers regularly provide:
- Car Fringe Benefits
- Meal Entertainment Benefits
- Expense Payment Benefits.
Understanding when a taxable fringe benefit has arisen and how to calculate its value allows an employer to make informed decisions in relation to the provision of staff benefits and to minimise future audit risk.
Car Fringe Benefits
One of the most common benefits provided to employees is a car which may be used for private travel for part or all of the year. A car is deemed to be available for private use if it is garaged at the employee’s residence or if the employee has control of the car. Therefore, when preparing your FBT return it is important to consider where the car is garaged even if private travel is not occurring.
If you provide a single cab ute, dual cab ute or panel van for private employee use there may be an FBT exemption if the travel is minor, infrequent and irregular. Travel may be deemed to meet these conditions if it is:
- less than 1,000 kilometres for the FBT year
- a return journey does not exceed 200 kilometres.
In addition, any deviations made when travelling from home to work must be less than two kilometers.
If any vehicle fringe benefit is provided a log book should be maintained by the employee to determine the ‘business use percentage’ of the log book. Keeping an accurate log book gives employers additional options for minimising the taxable value of the fringe benefit provided.
Meal Entertainment Benefits
Meal entertainment refers to the provision of entertainment by way of food or drink. Most employers provide meal entertainment at times during the year, including Christmas parties and Friday night drinks. Some meal entertainment benefits may be exempt from FBT, including minor and infrequent benefits with a value under $300 and food consumed at the business premises on a work day. These exemptions will vary based on your circumstances and the method used to value meal entertainment benefits.
We recommend speaking to a tax professional to discuss your circumstances in relation to meal entertainment benefits and what records you should keep to minimise your FBT liability.
Expense Payment Benefits
Expense payment benefits are commonly provided by employers. This type of benefit is a ‘catch all’ provision and involves the employer either reimbursing an employee or paying an employee’s expense directly to a third party.
One key rule when determining if an expense payment is an exempt benefit is the ‘otherwise deductible rule’. This rule exempts payments if the employee could have claimed a tax deduction had they incurred the expense. For example, if an employer reimburses an employee for the cost of attending an industry conference this benefit would be exempt from FBT. This is because the employee would have been able to claim a deduction had they incurred the expense themselves.
Preparation for next year
While the 2019 FBT year is nearly over there are many opportunities to reduce your liability in 2020. If employees have made after tax contributions this year that exceeded the value of benefits they received, the excess amounts can be carried forward to offset against the 2020-year FBT liability. For example, if an employee contributed $5,000 in after tax earnings for a car benefit and the FBT value of the benefit was only $4,000 then $1,000 could be carried forward and offset against the car benefit next year. Alternatively, $1,000 could be returned to the employee as salary and wages.
We recommend that arrangements in relation to all fringe benefits provided to employees be well documented and detailed records kept, including maintaining vehicle log books as discussed above.
The big thing to be aware of is that FBT is constantly changing, training of internal staff or key advisers to discuss queries with is critical.