A hyper-competitive skills marketplace and the need to retain very good employees over the long haul mean that companies are going out of their way to woo their staff. The best employee compensation programs usually involve offering employees benefits on both sides: a good compensation package and plenty of fringe benefits that enhance their lifestyle and work.
In fact, companies that invest more in the welfare of their employees often get a measurable impact in terms of better productivity and staff loyalty.
However, if your company is providing your staff with lots of staff assets and benefits such as a company car, club memberships or holiday perks for their personal enjoyment, it is important to keep in mind that these assets will have a fringe benefit tax implication for the business. You will have to declare and pay a tax for them, called the fringe benefit tax (FBT).
As a company, you have to be honest and thorough in ensuring that you are meeting all your FBT obligations. Ensure that you keep detailed records to document any FBT deductions that you may claim later on from the Australian Taxation Office. An accounting firm Melbourne practice can also help you in tracking your FBT obligations. A business must also be cognizant of the timelines for filing your FBT claims. The FBT year runs from 1 April to 31 March.
What is a Fringe Benefit Tax (FBT)?
The fringe benefit tax refers to a tax that employers pay on the lifestyle assets and other perks-other than salaries and wages- that they provide to their employees, employees’ family members and the employees’ associates.
The tax is separate from the income tax and is computed on the taxable value of the fringe benefits that the company has provided. The perks given to the company or trust directors may also be subjected to an FBT tax. Talk to an accountant Melbourne professional to advise you accordingly on which of your benefits will qualify for an FBT tax.
What are some of the main fringe benefits for which you will need to pay an FBT tax?
There is a broad array of fringe benefits that a company can give to its employees. These will depend on the individual company. They include the following:-
- Living away from home allowances
- Company car use
- Car parking benefits
- Entertainment benefits including allowances, tickets and club memberships
- Loan benefits
- Property benefits
- Housing fringe benefits
- Debt waiver fringe benefits
- Expense payment fringe benefits
Fringe Benefits Tax Strategies
Thanks to numerous legislations being rolled out year after year, the taxable value for the fringe benefits has been increasing every year. The most affected amounts are the fringe car benefits that are calculated based on the statutory formula method.
Previously, there was a concession that involved reducing the taxable value of the car based on a specific block of kilometers that is travelled by the car. Currently, the taxable value of the car is calculated based on the base value of the car without factoring in the number of kilometers that the car has travelled. These changes in the statutory formula method with the increase in the rate of FBT taxes from 46.5% to 49% have led to general increase in the amount of FBT.
There are measures you can adopt to mitigate the impact of these changes on your FBT footprint. Some of these strategies include the following:-
- Understand the latest FBT updates by the ATO and the implications of these for your tax obligations.
- Map out any third party benefits for your employees that may be subject to a FBT.
- Choose the most effective method for the valuation of meal entertainment expenses.
- Maximize on the minor or infrequent benefits exemptions.
- Enquire on any FBT reimbursement agreements that you may have with your suppliers.
- Find the most optimal valuation for your pooled car benefits.
- Ensure that you are correctly applying the FBT rules for your car benefits.
- Make sure you are aware of the latest FBT tax rates and gross-ups that may increase your tax liabilities.
Know the ATO “Hotspots” to be on the Safe Side
If you will be declaring your fringe benefits, it is important to be aware of the main hotspots that the ATO is likely to give more scrutiny for FBT non-compliance. Some of these areas will include the following:-
- Failing to disclose your car fringe benefits in your returns. The ATO has upped its game in this area and is currently using sophisticated data-matching methods in identifying any FBT obligations.
- Not making enough inquiries with the relevant third parties so as to have a correct valuation of the fringe benefits. There are companies that rely on third party information for the taxable value of their incentives or fringe benefits. However, the ATO now requires companies to make reasonable inquiries in order to ensure that the information gleaned from third parties is accurate.
- If you fail to incorporate the FBT on benefits you give to contractors who are treated as employees for tax purposes, then you may fall under ATO scrutiny.
- Make sure you inform the ATO where an FBT return is not required or where you fail to lodge your FBT returns. This is usually the case when the taxable value of the benefits or incentives is zero.
Need more help with your FBT returns? Hire an accounting firm Melbourne practice to assist you in preparing your FBT returns on time and advise you accordingly on the precise obligations that you may be liable for.