The end of the Fringe Benefits Tax year (31st of March) is approaching soon. It is therefore a good time for employers who provide fringe benefits, employees who receive fringe benefits and accountants who advise on FBT to remind themselves (or learn for the first time) what has changed in FBT since this time last year. This article will outline 10 important changes. It assumes some existing knowledge of FBT.
1. New FBT rate
The FBT rate increased on 1 April2014 from 46.5% to 47%.
Employees are likely to be asked to sacrifice additional salary to compensate their employers for the additional FBT liability (due to the higher rate) if they do not make a contribution that fully eliminates the taxable value of the benefits they receive.
2. New gross up rates
The gross up rates have also increased – type 1 to 2.0802 and type 2 to 1.8868. Remember that type 1 benefits are those that the provider can claim any input tax credit with respect to the acquisition of the benefit while with type 2 benefits the provider is not able to claim any input tax credits.
Employees of FBT-exempt (e.g. public hospitals and Public Benevolent Institutions) and FBT-rebatable employers (e.g. private schools and trade unions) should carefully consider how much benefits they can salary sacrifice without exceeding the caps, because they have decreased.
3. Other rates that have changed
The benchmark interest rate has decreased from 6.45% to 5.95%.
The car parking threshold is now $8.26, replacing the previous rate of $8.03.
The reasonable food and drink components of LAFHA’s (Living Away From Home Allowances) has changed, for example for one adult it is now $236 per week. Refer to TD 2014/9 for the rates for multiple people.
4. ATO’s audit focus in 2015.
As always cars, expense payments and meal entertainment will remain a significant focus as these are the most commonly provided fringe benefits. However two particular areas that the ATO have identified where mistakes are being made are situations where business trips are combined with private holidays and when cars are pooled or shared.
Combined business/private trips
It is common for employees who are sent interstate or overseas to attend a business conference or work function to extend their stay and undertake a private holiday before or after the function. Where this is the case it may be necessary to assess the extent to which the trip was for business purposes (and therefore subject to the otherwise deductible rule) and the extent to which it was for private purposes (which will likely be subject to FBT). When it comes to airfares the ATO’s preferred approach is to classify a trip as either 100%, 50% or 0% business related. The ATO’s view is that where the dominant purpose of the travel is for business purposes with only an immaterial private component the airfares are 100% business related, where there is a material private component to the travel they are 50% business related and where the private holiday is the main purpose of the trip the airfares are 0% business related.
In some cases an employee’s spouse or family member might accompany them on the trip. The ATO have confirmed that if the choice of accommodation is not influenced by the fact that they were accompanied by another person(s) and there is no additional charge for the accompanying person then no taxable fringe benefit will arise.
A car fringe benefit that is provided to more than one employee during an FBT year is referred to as a pooled or shared car. Such cars do not need to be reported on the recipient’s payment summaries. It is therefore not taken into account in determining an employee’s eligibility for various tax offsets and government benefits. The ATO have confirmed that an employer must consent to an employee sharing their salary packaged car with at least one other employee before the reporting exclusion can apply. An employee cannot unilaterally share their care with another to cause the reporting exemption to appply.
5. Employer contributions to staff social clubs
The ATO take the view that no fringe benefit arises when an employer makes a contribution to a staff social club or Employee Remuneration Trust. FBT is only triggered when an employer is said to provide a specific benefit to an identified employee. Therefore a potential liability does not arise until such time as the social club actually provides the benefit to the employee.
6. Car parking benefits near airports and shopping centres
The case of Qantas Airways Limited v FC of T looked at where car parking spaces made available by Qantas to their employees at airports gave rise to a car paring benefit. Qantas argued that they did not because the car parks were not commercial car parking stations on the grounds that they were not being made available ‘principally, or primarily, for use by commuters driving their cars to and from work’ and because the rates they charged were structured in such a way as to discourage all-day parking.
Qantas was unsuccessful in making these arguments. There was no requirement that the car parking station be made available ‘primarily or principally’ for member of the public commuting between home and work. Furthermore their fee structure was reflective of their monopolistic environment and not to discourage all-day parking.
When it comes to shopping centres the NTAA believes that it is highly likely that the ATO will take the approach that penalty rates to discourage shoppers from using their car parks all day (e.g. free for the first four hours and very expensive after that) will mean that their parking lots are not regarded as commercial car parking stations. Therefore employers within a 1km radius of such shopping centres do not need to take them into account in determining whether or not they are providing a car parking fringe benefit to their employees.
7. Employees who are required to change their usual place of residence
There are numerous FBT concessions for employees who are ‘required’ to change their usual place of residence in order to perform their employment duties. The ATO has confirmed that an employee who relocates voluntarily does satisfy this requirement. The term ‘required’ does not mean compulsory, rather the change may be one that is necessary in the circumstances in order for the employee to perform the duties of their employment.
8. Relocation benefits provided to new employees
The ATO also confirmed that an employer was entitled to claim various FBT concessions associated with relocation benefits (e.g. on incidental costs of moving, removal and storage of household effects and connection of utilities) provided to a new employee who was relocating to take up employment with them. It is not a requirement that the employee be an existing employee.
9. In-house property benefits – gift cards/vouchers can qualify in rare circumstances.
Typically store gift cards are not considered tangible property and because of this are not eligible for the $1,000 reduction for in-house property fringe benefits (where the gift card can be used for goods or services normally provided by the employer to the public). However, in very particular circumstances a voucher/card provided by an employer can qualify. This was the case in ATO ID 2014/17 where a voucher could only be redeemed by a particular employee (it could not be sold transferred) and it entitled that employee to a specific number of items (rather than having a monetary value placed on it).
10. Car parking and meal entertainment
The ATO recently concluded that the concept of meal entertainment included an employee’s car parking fees that they incurred in order to attend a social function held by the employer. Therefore if an employer reimburses an employee for such car parking costs it will be valued under the same rules as meal entertainment.
This article, and all other articles on this blog, is intended to provide information of a general nature only. It is not advice and should not be treated as such. It is important to remember that everybody’s situation is different and what is mentioned in this blog may not apply to you. I urge you to seek professional advice that is tailored to your circumstances.
Please ensure that you also read the full disclaimer on my ‘welcome’ post.