With the start of the Fringe Benefits Tax year looming on 1 April, businesses are being urged to review their Fringe Benefits Tax (FBT) position.

The ATO’s top FBT problem areas

  1. Motor vehicle fringe benefits – failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming reductions for these benefits
  2. 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
  3. 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
  4. Car parking fringe benefits – incorrectly calculating car parking fringe benefits due to:
    o    significantly discounting market valuations
    o    using non-commercial parking rates
    o    not being supported by adequate evidence
  5. Business you use personally – not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates
  6. Not lodging FBT returns – not lodging FBT returns (or lodging them late) to delay or avoid payment of tax.

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.

It is important to understand there can be implications from seemingly straight-forward business activities across income tax and GST, as well as FBT.

For FBT purposes, an employee includes a current, future or past employee, a director of a company, or a beneficiary of a trust who works in the business.

Examples of fringe benefits are:

  • Allowing an employee to use a work car for private purposes
  • Giving an employee a discounted loan
  • Paying an employee’s gym membership
  • Providing entertainment by way of free tickets to concerts
  • Reimbursing an expense incurred by an employee, such as school fees
  • Giving benefits under a salary sacrifice arrangement with an employee.

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).

Excellent record-keeping is fundamental. 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.

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.

We are seeing increased audit activity by the ATO where a business has claimed substantial motor vehicle expenses, yet not lodged an FBT return.

Further, you cannot avoid the FBT system by simply not claiming a deduction for expenses relating to a vehicle.