The following update originally appeared on the A&A/FTI tax website. It can be viewed http://fti.tax/insights/aa-2017-fringe-benefits-tax-update/.
Fringe Benefits Tax Update
>> Many FBT rates remain the same, while others rates and thresholds have changed, effective 1 April 2016. The FBT rate and gross-up rates will revert to their previous rates from 1 April 2017.
>> Since 1 April 2016, it has been easier for employers to provide work-related portable electronic devices to their employees without incurring an FBT liability. Employers are no longer required to consider the functions of these devices.
>> Important changes to salary packaged entertainment benefits apply from 1 April 2016. These changes affect how these benefits are valued and reported for payment summary purposes. A new cap has also been introduced for concessionally-taxed employers.
>> Effective from 1 April 2016, the government has restricted the methods available to value car expense payment fringe benefits. The one-third method will no longer be accepted.
>> The ATO has released guidance, clarifying the FBT treatment of various matters. These include customer loyalty programs, Uber travel and overpaid salary.
Key takeaway – Providing non-salary benefits to employees can be tax effective way of rewarding and retaining employees. However, the FBT rules are often highly complex. A&A Tax Legal Consulting can help you to comply with the laws and reduce your liability as much as possible.
With the end of the 2017 FBT year approaching and FBT returns due for lodgement on 25 June (and payment on 28 May) it is time to review some of the most significant areas of FBT change over the past year or so.
Key FBT rates and thresholds
The following rates and thresholds apply for the FBT year 1 April 2016 to 31 March 2017 (2017 FBT year):
|FBT rate||49% (no change)|
|Type 1 gross-up rate||2.1463 (no change)|
|Type 2 gross-up rate||1.9608 (no change)|
|Gross up rate for payment summary purposes||1.9608 (no change)|
|Car parking threshold||$8.48 (up from $8.37)|
|Motor vehicle (other than cars) cents per kilometre rates||0-2,500cc – 52c (up from 51c)
Over 2,500cc – 63c (up from 61c)
Motorcycles – 16c (up from 15c)
|Statutory benchmark interest rate||5.65% (no change)|
|Capping of concessional FBT treatment for certain employers||Public benevolent institutions and health promotion charities – FBT exemption capped at $31,177 (no change)
Public hospitals, non-profit hospitals and public ambulance services – FBT exemption capped at $17,667 (no change)
Rebatable employers (certain registered charities, non-government and non-profit organisations) – FBT rebate capped at $31,177 (no change)
Note: While the above caps have not changed, a separate $5,000 cap for salary packaged meal entertainment and entertainment facility leasing expenses has ben introduced, effective from 1 April 2016.
|Reasonable food and drink amounts for employees living away from home in Australia||One adult – $242 per week (up from $241)
Two adults – $363 per week (up from $362)
Changes that came in to effect on 1 April 2016 (i.e. the 2017 FBT year)
FBT exemption for work-related electronic devices
Since 1 April 2016 (i.e. the 2017 FBT year) small businesses (i.e. those with an aggregated turnover of less than $2m) have been able to more easily provide their employees with multiple portable electronic devices (for example a laptop, tablet or mobile phone) without incurring an FBT liability.
Before this change, an exemption was generally only available for the first of multiple portable electronic devices where they performed substantially identical functions. This restriction has been removed so small business employers no longer need to determine whether, for example, a tablet and laptop have sufficiently different functions for the exemption to apply.
Note that the requirement that these items be primarily for work-related purposes remains in place.
Salary packaged entertainment
Valuing Salary Packaged Entertainment
From 1 April 2016, all employers must value salary packaged meal entertainment and entertainment facility leasing expenses (entertainment benefits) under the actual method. It will no longer be permitted to use the 50-50 split or 12-week register methods. This change means that salary-packaged meal entertainment will generally be unable to access the minor benefits or business premises exemptions.
This changes does not apply to the valuation of non-salary packaged entertainment benefits.
Reportable Fringe Benefits
From 1 April 2016, all salary packaged entertainment benefits are reportable on an employee’s payment summary, if that employee’s reporting threshold is exceeded. This change does not apply to non-salary packaged entertainment benefits, which continue to be non-reportable.
$5,000 Entertainment Cap
By way of background, public benevolent institutions, health promotion charities and public and not-for-profit hospitals can provide their employees with benefits (up to a cap) without triggering any FBT liability. Furthermore, rebatable not-for-profit organisations (such as sporting clubs and trade unions) can provide their employees with benefits and (up to a cap) and receive a rebate that almost halves the FBT payable.
Prior to 1 April 2016, salary sacrificed entertainment benefits were excluded from the relevant cap. From 1 April 2016, however, entertainment benefits will be counted when calculating whether an employee exceeds their exemption or rebate cap. Where the relevant cap has been exceeded, the excess amount is reduced by the lesser of $5,000 and the grossed-up amount of salary packaged entertainment benefits.
This change does not apply to non-salary packaged entertainment benefits, which continue to be excluded from the caps.
Reimbursing car expenses
Where an employer pays or reimburses car expenses in respect of a car that the employee owns or leases a car expense payment benefit arises. The value of this benefit may be reduced to the extent that the employee could have obtained a ‘once-only’ tax deduction had they incurred the costs themselves. This is known as the ‘otherwise deductible’ amount.
From 1 April 2016, the one-third method for calculating the otherwise deductible amount has been removed. Employers must either apply the logbook method or the declaration method. This change follows changes to rules regarding claiming car expenses for individual taxpayers.
Large Car Fleets
From 1 April 2016, a concession was made available to certain employers who maintain a fleet of 20 or more cars. Such employers often find it difficult to obtain valid logbook data from all drivers. Where the employer has a valid logbook for at least 75% of the fleet, they are now permitted to calculate the average business use percentage of those logbooks and apply that percentage to the entire fleet. Previously employers would be required to apply the Statutory Formula Method to those cars without a valid logbook.
There are a number of conditions (in addition to the size of the fleet and the 75% requirement) that must be met before the concession is available. For example, the cars must have a value less than the luxury car threshold at the time of acquisition, the make and model must be chosen by the employer and the vehicles must be ‘tools of trade’. This last condition precludes cars provided under a salary sacrifice arrangement from accessing the concession.
Other Important Matters
Customer Loyalty Programs
The ATO has clarified the circumstances where an employee receiving benefits under a customer loyalty program (e.g. Frequent Flyer) is more likely to result in an FBT exposure for the employer. They have also indicated that this will be an area of increasing focus in coming years.
Broadly, a fringe benefit may arise where an employee accrues points in relation to business expenditure and later redeems these points for a flight or gift that is applied for personal use. The ATO has stated that the risk of FBT exposure is greater where the points accrued are in excess of 250,000 per annum, the employer participated in or facilitated the arrangement and/or there is no commercial purpose to the arrangement.
Workplace Travel Using Uber
An FBT exemption applies to taxi travel that begins or ends at the employee’s place of work. For the purposes of this exemption, taxi travel is defined as travel “in a motor vehicle that is licensed to operate as a taxi”.
The ATO has confirmed that travel that begins or ends at an employee’s place of work in an Uber will not qualify for the exemption since, at present, no state or territory has licensed Uber to operate as a taxi.
FBT Treatment of Overpaid Salary
The ATO has clarified when the payment of additional salary (for example due to an administrative error) may give rise to a fringe benefit. A loan fringe benefit would arise if the employee is given additional time to repay the excess salary. If this obligation is later waived, a debt waiver benefit may arise. A number of exemptions are potentially available, including where the taxable value of the benefit is less than $300.
ATO 2017 Audit Focus
The ATO have indicated that they will be focused on identifying taxpayers who have an obligation to lodge an FBT return but fail to do so. To that end they will be reviewing income tax returns for disclosures (e.g. motor vehicle expenses, contractor expenses, employee contributions and superannuation) that suggest a potential FBT exposure. The ATO may contact the taxpayer or their agents for further information.
The ATO will also be directing audit resources towards Living Away From Home Allowance benefits, as there is concern that some employers are not correctly implementing the changes that were introduced from 1 October 2012.
Changes to Key FBT Rates from 1 April 2017 (i.e. the 2018 FBT year)
|FBT rate||47% (down from 49%)|
|Type 1 gross-up rate||2.0802 (down from 2.1463)|
|Type 2 gross-up rate||1.8868 (up from 1.9608)|
|Gross up rate for payment summary purposes||1.8868 (up from 1.9608)|
These changes reflect the removal of the 2% Temporary Budget Repair Levy from 1 July 2017.