Businesses need meet strict compliance obligations in order to discharge their obligations effectively.
This year the Australian Taxation Office (ATO) has announced that it will concentrate its audit resources on employers that fail to recognise that they have a fringe benefits tax obligation.
Particular attention will be paid to those employers that do not lodge FBT returns but provide motor vehicles to their employees that are available for their private use.
Another area of compliance flagged for close attention is those employers whose compliance processes are found to be inadequate in the identification and quantification of the FBT cost associated with the provision of “entertainment” primarily by way of food and drinks provided to employees.
This article highlights the key issues for employers to be aware of in the lead up to year end and to use the small ‘window of opportunity between now and March 31 to identify and quantify any potential exposure to FBT.
Motor vehicles
If an employer owns or leases a car and makes it available to an employee for private use then generally there is an obligation to pay FBT.
For FBT purposes, a “car” is taken to be:
- A sedan, station wagon, four-wheel drive vehicle, panel van or utility (excluding panel vans and utilities with a carrying capacity of one tonne or more)
- Any other goods carrying vehicle with a carrying capacity of less than one tonne
- Any other passenger carrying vehicle designed to carry fewer than nine passengers.
A car has generally been made available for your “private use” when any of the following apply:
- The employee actually uses it for private purposes.
- The employee is allowed to use it for private purposes and it is not at the employer's premises.
- It is garaged at or near the employees’ home, even if he / she does not have permission to use it privately.
An employer’s FBT liability can be reduced or eliminated if the employee makes “employee contributions” towards the running costs of the car, however it is important to remember that either you or your tax agent needs to calculate the “taxable value” of fringe benefits annually to ensure your employee(s) is contributing the correct amount.
Entertainment expenses
Entertainment expenses is one area where SME businesses struggle with the concept and therefore, keeping track of what is subject to FBT versus what’s not and in what circumstances.
Regardless, the following basic principles need to be considered and continuously monitored:
The provision of “entertainment” means the provision of either:
- Entertainment by way of food, drink or recreation.
- Accommodation or travel in connection with, or to facilitate the provision of, such entertainment.
Please note that entertainment is taken to be provided even if business discussions or transactions occur.
Although there is no ‘entertainment fringe benefit’ type as such, providing entertainment may give rise to various types of fringe benefits. For example:
- The cost of theatre tickets purchased by an employee and reimbursed by the employer may constitute an “expense payment fringe benefit”
- Providing food and drink to your employees may constitute a “property fringe benefit”
- Providing accommodation or transport in connection with entertainment may constitute a “residual fringe benefit”
- Entertainment provided by a tax-exempt employer may constitute a “tax-exempt body entertainment benefit”.
- Generally speaking entertainment is not tax deductible unless FBT has been paid on it. However, the tax implications also depend on:
- The cost (per gift, per head); and
- Whether provided just to staff; or
- Whether benefits are also provided to clients and to “associates” (e.g. a staff member’s spouse).
It is also worth mentioning that some entertainment may be exempt from FBT. For example, food and drink provided to and consumed by current employees on your business premises, on a working day, would generally be exempt from FBT – but there are exceptions.
Be aware and prepared
The ATO’s announcement highlights their clear intention this year to target employers’ compliance systems and processes more broadly and therefore needs to be considered even if you don’t currently provide motor vehicle fringe benefits or entertainment expenses to your employees.
If you are unsure of your current obligations or potential exposure, or need some general assistance in working through any issues that arise in the course of a ATO review please contact the writer.
