Fringe Benefits Tax (FBT) reporting is an important obligation that employers need to be aware of to ensure their compliance.
FBT is essentially a separate tax that is payable by employers for certain types of non-wage benefits provided to employees in respect of their employment.
The purpose of FBT is for the Australian Tax Office (ATO) to capture any employee remuneration that is not being included in the employee’s individual tax return as assessable income (i.e. in wages or allowances).
This is to ensure that the ATO will not miss any “income” that has not been taxed. So basically if an employee has not been taxed on this “income”, then the employer will be liable for it.
Similar to a tax return, if an employer is liable for FBT, they will need to lodge a separate FBT return and pay the appropriate amount upon lodgement.
The FBT reporting period runs from 1 April to 31 March each year.
So What Exactly Are Fringe Benefits?
Fringe benefits can either be provided by means of cash or non-cash benefits to employees. They do not include salary, wages or superannuation that the employees are already being taxed on.
The term “employees” may be used loosely in the FBT world as it can also include the employees’ associates (i.e. spouse or family member), or yourself as the business owner.
The most common types of fringe benefits include:
- Car benefits;
- Car parking benefits;
- Meal entertainment; and
- Recreational entertainment.
In the medical industry, it is quite common for a business to provide an employee with the use of a car to visit patients, or for travelling between hospitals and/or clinics.
A car fringe benefit arises when:
- A car is held (owned, leased or have control over) by an employer;
- The car is provided to an employee in respect of employment; and
- The car is deemed to be available for private use by the employee.
Even if the employee salary sacrifices a car via a novated lease, this is still considered a car benefit as the employer is the legal owner of the lease until it is paid out.
“But the car just sits in my home garage when I’m not working…”
It does not matter whether the employee actually uses the car for private purposes, as long as it is deemed available for private use, the car can be caught under FBT.
That is, if the employee has the option to use the car outside work hours (this can simply mean by just holding the car keys), then the car is deemed to be available for private use regardless if they actually drive the car during non-work hours.
Logbook, logbook, logbook…
One of the most common methods of calculating the taxable value of a car benefit is the Operating Cost Method. Under this method, the higher the business use percentage of the car, the lower the taxable value of the car benefit. To use the operating cost method you must have kept adequate FBT records.
Therefore it is crucial that employees maintain a logbook to ensure that you are able to elect the method which yields the most desirable outcome for your business.
Car Parking Benefits
Another common type of a fringe benefit provided by medical employers is dedicating car park spots for their employees at hospitals or clinics.
A car parking benefit arises when all of the following conditions are met:
- The car park is at or near the business premise;
- It is used for travel between home and the workplace;
- There is a public car park located within one kilometre of the business premise;
- The parking station charges all day parking exceeding $8.83 (2019 FBT year); and
- The car is parked for more than 4 hours between 7am and 7pm.
The good news is that if you do provide car parking benefits, it will be exempt if all of the following conditions are met:
- The car park provided is NOT at a public car park;
- You are NOT part of a government body or listed company; and
- Your turnover is less than $10 million.
There are also other instances where a car park may not be considered as a car parking benefit if the employer did not incur any additional cost to obtain that car park. A common example is when you rent a room or office at a hospital, it automatically comes with a car park without paying anything extra (i.e. no option to reduce rent should you opt out of having the car park).
Networking and entertaining can form an integral part of sustaining a business and creating business opportunities. It is common for many business relationships to be developed through you or your employees taking your business contacts out for a meal for example. However this comes at a cost, and not just for footing the food bill.
When an employer provides food and drinks to their employees, it may be considered as providing meal entertainment. Sometimes it can be tricky to determine whether a meal is considered as meal entertainment for FBT purposes.
Basically, the more elaborate the meal, the more likely that it is meal entertainment. If meal expenses are incurred by employees who are travelling for work (i.e. an overnight business trip), or if the meal is more sustenance in nature (i.e. refreshments, sandwich or light meal), then it is not classified as meal entertainment.
Common examples of what can constitute meal entertainment may include the following:
- Breakfast, lunch or dinner at a restaurant for a networking meeting;
- A business lunch at a café or restaurant;
- Food and drink consumed at a social function;
- Friday night drinks with staff members;
- Christmas party for staff and/or clients.
There are no set rules to determine whether a meal provided to an employee is meal entertainment or not. However the following factors can assist you with making the determination:
WHY the food or drink is being provided
- Is it provided to ensure the employee is not dehydrated or hungry?
- Is it provided for social purposes and enjoyment?
WHAT type of food or drink is being provided
- Is it morning tea or snack?
- Is it a three course meal?
WHEN is the food or drink being provided
- Is it during work hours?
- Is it on a Friday night after work?
WHERE is the food or drink being provided
- Is it at a local café close by?
- Is it at a nice restaurant that you chose over other options available?
“But I am at a business meeting, therefore this is not really entertainment.”
Even if you are meeting a client to sign a business contract and you only discussed business matters during the meeting, if it occurred in a nice restaurant with wine being consumed, then it is still considered as meal entertainment.
On the contrary, if you held the same meeting at a local café over a coffee and a light meal, then this will not be meal entertainment.
Apart from wining and dining your clients or business contacts, you might hold a business meeting with them on the golf course or at the race track. These costs may be considered as recreational entertainment provided to your employees.
This type of entertainment is treated differently to meal entertainment. So, you may elect to use one type of method to calculate the taxable value of meal entertainment, and a different method to calculate recreational entertainment.
This is the case even if both types of entertainment occurred over one single event.
For example, you attend a golf tournament representing your business at a charity event. After the round of golf, there is a three course meal with alcohol at the clubhouse.
In this instance, the cost for the round of golf and the cost for the food and drinks can be valued under different methods, which your accountant can assist in determining.
There are an array of exemptions and concessions available to employers for fringe benefits provided to employees.
The most popular one is the Minor Benefits Exemption. This exemption is available if the benefit provided is less than $300 and is infrequent.
For example, if you have a Christmas party and the cost per head is less than $300, then you may be able to use this exemption for your employees as this only happens once a year, and no FBT is payable.
However, if you go out for a business meeting at a restaurant on a weekly or monthly basis, then this exemption cannot be applied, even if the cost of each meal is under $300.
I Think I Provide Fringe benefits, What Should I Do?
As you can see FBT is a very tricky and complex area. You may be providing fringe benefits without even knowing it!
Even if you have identified the fringe benefits provided to your employees, there are many different methods in calculating the taxable values of these fringe benefits which may yield very different outcomes.
On top of all this, FBT also has implications on the GST and income tax deductions that can be claimed by your business.
The team at Pilot Partners are experienced in all of these areas and will be able to assist you in navigating through the complex terrain of tax reporting and lodgement.
For more information or to arrange a consultation, contact Kristy Baxter or Angela Stavropoulos from our Medico team, on [email protected] or (07) 3023 1300.