FRINGEBENEFITSTAX:TIPS&TRICKS

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Fringe Benefits Tax

We know this time of year can bring around a scary thought, Fringe Benefits Tax(FBT), but we’re here to help! The following guide will help you better understandwhat FBT is and some tips to help you along the way.

We’ve all heard the term thrown around frequently towards the end of the year.But what is it? Fringe Benefits Tax is a tax imposed on the employer for businessexpenditure related to employees or associates which is, by government definition,private or domestic. It is a net to catch those non-cash benefits provided toemployees that would not have attracted income tax. An example of a fringebenefit could be your employer paying for a golf membership. Many employees arerequired to contribute to this cost but it is usually paid by the employer. There is noincome tax consequence for the employee but a figure called the reportable fringebenefits amount is reported on the employee’s group certificate and is used in thecalculation of government benefits such as the family tax benefit and the child carebenefit.

BAM has compiled a list of tips and tricks to be aware of when it comes to FBT. Besure to keep these in mind to avoid the Tax Grinch. Plus, we are always here to helpyou classify what is and isn’t taxable, what rate to apply and how to minimise yourspend.

- FBT is paid at the highest marginal tax rate of 46.5%, and is calculated on thegrossed up value of the benefits. For example, if a vehicle is provided for anemployee’s use and its total running and holding cost is $15,000 with 10% privateuse, the fringe benefits taxable value will be $1,500 (10% * $15,000).

- You should register for FBT if you provide any benefits to your employees. Formscan be accessed on the ATO website. If you are registered and don’t provide anyfringe benefits during the year don’t forget to fill out a “notice of non-lodgement.”

- There are three methods that can be used in the reporting of FBT entertainmentexpenses and it is at the discretion of the business as to which is most beneficial totheir circumstances.

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Tips and Tricks

o 50/50 Method – The total cost of entertainment is divided by 2 and FBT is thenpaid on this amount. This method is most beneficial when the entertainment ismainly for employees. However, the business then won’t be able to apply the $300“minor and infrequent” clause and property benefit exemptions.

o Actual Method – FBT is only paid on entertainment provided to employees. Thismethod is most beneficial when entertaining is mainly non-employees. If you usethis method, the $300 minor and infrequent and property benefit exemptions can beused to reduce each fringe benefit provided.

o 12 Week Register – This method is not used as frequently due to the amount ofpaperwork and records to be maintained. It works by keeping a logbook of mealentertainment for 12 consecutive weeks and determining what percentage ofentertainment relates to employees. That percentage is then applied to the totalmeal entertainment amount at the end of the FBT year.

- Some benefits are exempt from FBT and would be worthwhile considering as partof a salary package for employees. These benefits must be primarily used for workpurposes or be involved in enabling the employee to do their job. Items includemobile phones, iPads, laptops, membership expenses (eg. Professional bodies,airport lounge for frequent travellers), or other work related items. But don’t forgetthat if a benefit is exempt from FBT, you can’t then claim it as an income taxdeduction. You also may not claim any GST credits arising from these “supplies.”

- The following link shows you a quick tax guide table for employers.http://www.taxpayer.com.au/FileDownload/950/Festive_FBT_quick_tax_guide_pdf

- Be sure to view the ATO’s FBT test to identify whether your claims areentertainment or not.

- The annual Christmas function is generally not subject to FBT, but is also not taxdeductible and you cannot claim GST input tax credits on this expenditure.

- Meals provided to employees travelling for business are generally not subject toFBT, they are tax deductible and they are eligible for GST input tax credits.

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- Meals provided to employees locally are generally subject to FBT, are tax deductibleand are eligible for GST input tax credits.

- Meals provided to clients are generally not subject to FBT, are not tax deductibleand are eligible for GST input tax credits.

- Christmas-time entertainment up to the value $300 for each employee is generallyexempt from FBT. So throwing a party where the cost per head is less than $300should escape the tax. This should also occur when an employee’s spouse attends thefunction. This limit comes under “incidental” benefits (those that are not providedregularly) to be FBT free.

- But, the tax man has played Santa in a recent tweak which sees the minor benefitsthreshold of $300 being applied to each benefit provided, not to a total value of‘associated benefits.’ (this will vary based on which method of reporting you choose).This means that if an employer was to give a gift to everyone, plus provide a party,each would be considered separately for FBT. Therefore, if each is less that $300 theyare both generally FBT free.

- If the car is owner by the employer, or under a novated lease arrangement, ORowned by the employer, be sure to understand the differences between “private use”and “available for private use.”

- If a logbook is used, ensure that it is no older than five years and that your businessuse has not varied by more that 10% since the log book was maintained. Be sure tofill it out legally and comply with all laws.

- This includes completing your odometer declarations. Keep them up to date for theyear.

- Also keep any purchase invoices for all non-business accessories (eg. Car tinting orCD players). However, the cost of the car for FBT purposes should include: GST, non-business accessories, dealer and delivery costs and the luxury car tax if applicable.

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- Remember, for most cars to be exempt from FBT any private use must be minor andincidental.

- If the employee using an employer provided car is not personally on the topmarginal rate of tax, consider whether employee contributions would be possible inorder to reduce your FBT liability. Taxes saving measures like this are widelyunderutilised.

- Taxi use is tricky when it comes to FBT. Venue is the key concept to consider here. Ifthe taxi takes the employee from home to an entertainment venue and back, it willneed to be included in the cost per head (that $300 we were talking about). But, if thetaxi takes the employee from home to a function held at their workplace and backthen it will be exempt from FBT.

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If you require any further advice or clarificationof anything from this article do not hesitate toreach out to us. BAM are experts in helping your

business make the right FBT choices.