Some readers will be working towards the FBT return COVID-19 lodgement deadline of 25 June 2020. A few FBT year end tips may reduce the stress.
As the FBT return COVID-19 lodgement deadline of 25 June looms it is time for the often thankless but nevertheless significant task of preparing the FBT return. We provide some tips below that may assist in this process. Good luck!
- Work-horse vehicles: Where potentially FBT exempt ‘workhorse’ vehicles have been provided to staff, has private use been limited to home-work travel and other private travel that is minor, infrequent and irregular? If not, no FBT exemption applies. The ATO guidelines in PCG 2018/3 are available for employers to rely on in regard to minor, infrequent and irregular private travel.
- Grossing Up issues: Get your Type-1 and Type-2 benefits correct and apply the appropriate gross-up rate. Type-1 is where a GST input tax credit is available. Type-2 is where no GST input tax credit is available. Watch out for GST on entertainment expenses if you are FBT exempt under section 57A – no input tax credit is generally available to you.
- After tax employee contributions: Where employees make after-tax contributions towards the fringe benefits they receive, have you:
- applied the contribution to reduce the taxable value of benefits to which they relate?
- accounted for GST on 1/11th of the contribution if it is made directly by the employee to you and where the benefit type is subject to GST (e.g. use of a car as opposed to a contribution for use of residential premises)?
- Minimising FBT payable:
- Where the ‘operating cost’ method produces a lower FBT liability it should be used. Log books should be completed to allow a comparison of the ‘operating cost’ method and the ‘statutory formula’ method. The statutory formula method is the default valuation method in respect of a car fringe benefit unless the employer chooses otherwise.
- ‘After tax employee contributions’ can reduce taxable value and provide a better outcome for employer and employee – have you considered this?
- Check that cars that have been held for more than four FBT years have had the 1/3rd reduction made to their cost base (if using statutory formula method?).
- What valuation method (50-50/12 week register or actual expenditure) produces the best FBT outcome for your business? Have you compared outcomes?
- Have you correctly identified what is entertainment as regards:
- Sustenance v entertainment
- Working meetings v entertainment
- Otherwise deductible
- Exemptions that may apply
- Car parking fringe benefits
- Have you correctly determined whether a commercial car park exists within a 1 km radius of the entrance of the car park where you provide employee parking where the lowest ‘all day’ parking rate at such car park exceeds the $8.95 2019/20 car parking threshold?
- Have you computed the lowest ‘all day’ parking rate by identifying whether any periodic car parking rates (i.e. an annual car parking fee) are above the threshold once you divide by business days?
- Have you used the most favourable valuation approach to determining how many car parking fringe benefits you have and the valuation thereof?
- Have you considered if any exemptions apply?
- Reportable fringe benefits: Where an employee has received fringe benefits (other than excluded benefits) with an aggregate taxable value of more than $2,000 for the FBT year the grossed-up amount must be reported on the employee’s Payment Summary (note: the Type 2 gross up rate applies). Certain employers (section 57A exempt employers and section 58 employers) are required to include ‘quasi fringe benefits’ as Reportable Fringe Benefits – these benefits may be exempt from FBT but still reportable!
- What value to use? Make sure when determining taxable value of fringe benefits provided that the GST-inclusive cost (where applicable) of providing the benefit is always used.
- In-house benefits: If providing ‘in-house’ benefits, have you applied your $1,000 per employee reduction? Remember, the in-house benefit reduction does not apply where the benefit has been provided under a salary sacrifice arrangement.
- Declarations Obtain all necessary FBT declarations from employees before lodgement of the FBT return to support positions taken re things like ‘otherwise deductible’ amounts, LAFHA and remote area concessions
The above is a non-exhaustive list and is a small sample highlighting the complex labyrinth that is the FBT legislation.
Although preparing the FBT return is a once-a-year task, it is really an on-going compliance monitoring and data capture process to ensure that fringe benefits provided during the year are identified and captured correctly within your organisation’s administrative and processing systems.
The old saying ‘failing to plan is planning to fail’ is very appropriate in the FBT return preparation spectrum!
This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.