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.