Some timely FBT year-end reminders and strategies
The FBT rate remains at 49% for the 2017 FBT year ending 31 March 2017.
Two of the main changes for this 2017 FBT year are:
- the new $5,000 cap (grossed up) on salary sacrificed entertainment expenses by employees of not-for-profit organisations; and
- allowing employees of small businesses to salary sacrifice more than one portable electronic device.
Please contact your Nexia Edwards Marshall NT Advisor or Sarah McEachern to implement strategies to minimise exposure to FBT.
What is FBT?
Employers must pay fringe benefits tax (FBT) on the value of certain non-cash benefits (called fringe benefits) supplied to their employees1 (or associates of the employees) in lieu of paying salary or wages.
A benefit that was not provided to an employee in respect of the employee’s employment (e.g. providing a hire car to an employee based on a commercial arrangement and not because of the employee’s employment), will not qualify as a fringe benefit.
For the 2017 FBT year (from 1 April 2016 to 31 March 2017), employers must pay FBT at a rate of 49%2 on the grossed-up taxable value of fringe benefits. The 2017 FBT returns must be lodged by 21 May 2017 (if lodging by paper) or by 25 June 2017 (if lodging electronically through a tax agent) and payment is due by 28 May 20173.
What about records?
The FBT law places importance on record keeping in order to calculate FBT. Records must be kept for five years after the end of the FBT year in which the benefit was provided.
However, an employer using the log book / operating cost method to provide car fringe benefits must maintain a log book for a continuous period of 12 weeks to calculate the percentage of private use.
What are common examples of fringe benefits?
The FBT law specifies various categories of fringe benefits each with its own valuation rules4, exemptions and reductions. The first task is to correctly classify each kind of benefit into the correct category – a daunting task considering the number of FBT categories.
Some of the most common examples of fringe benefits include where an employer:
- allows an employee to use a work car for private purposes – car fringe benefit;
- allows an employee to use a work motorcycle for private purposes – residual fringe benefit (because this benefit does not fall into any other category);
- provides car parking for an employee at / near work – car parking fringe benefit;
- provides food and drinks to employees at staff parties (i.e. not just for sustenance) – meal entertainment fringe benefit;
- provides entertainment by providing free tickets to concerts – property fringe benefit;
- reimburses / pays for employee’s health insurance premiums– expense payment fringe benefit;
- provides employees with goods at lower prices than they are normally sold to the public – property fringe benefit;
- provides cheap loans to employees – loan fringe benefit;
- provides a house / unit of accommodation to an employee at a reduced rent – housing fringe benefit;
- provides an employee with an allowance to compensate for additional expenses and disadvantages suffered for having to live away from their normal residence – living-away-from-home-allowance (LAFHA fringe benefit); or
- provides benefits under a salary sacrifice agreement (SSA) where an employee receives a benefit for a reduction in salary5.
To complicate matters further, the provision of one kind of benefit can give rise to different categories of fringe benefits, depending on the circumstances under which the benefit was provided.
Take for example the provision of food, drink or recreation to employees. This can give rise to either:
- meal entertainment fringe benefits (i.e. the food and drinks were provided for entertainment and not just for sustenance);
- expense payment fringe benefits (i.e. if the employer reimburses the bill);
- property fringe benefits (i.e. the food and drinks were not meal entertainment because they were only provided as sustenance); or
- residual fringe benefits (i.e. the employer provides accommodation and transport in connection with the entertainment).
What are some strategies to reduce an employer’s FBT liability?
Try not to provide fringe benefits
The easiest way to avoid an FBT liability is to not provide fringe benefits to employees but rather provide the employee with a cash bonus or cash salary which the employee can use to buy the desired product / service. This also may result in less tax being paid because the employee’s tax rate is lower than the FBT rate of 49%. However, an employee will have to pay income tax on this receipt. Of course, if the employer pays the FBT without reimbursement from the employee, the employee will be better off by receiving the fringe benefit.
Provide exempt benefits
If the employer provides exempt benefits, the benefit will be exempt from FBT.
Some of the most common examples of exempt benefits include:
- Minor and infrequent benefits6 valued at less than $300 per employee (e.g. Christmas gifts, flowers to an employee in hospital or staff vouchers under an employee recognition scheme);
- Work related items such as portable electronic devices (e.g. laptop computers, mobile phones and portable printers) primarily used in the employee’s employment – for bigger businesses, there is a limit of only one such item per FBT year unless it is a replacement item. However, from 1 April 2016, small businesses (e.g. with an aggregated turnover of less than $2 million) will also qualify for an exemption even if they provide more than one of these portable electronic devices to their employees; and
- Property provided and consumed on the employer’s premises (e.g. Friday night drinks at the office).
Provide fringe benefits that are tax deductible
Likewise, if the employer provides tax deductible benefits pursuant to the “otherwise deductible rule” (i.e. provide benefits an employee would otherwise have been able to claim a tax deduction for had the employee incurred the cost directly – for example sending employees on a business course), the employer’s FBT liability may be reduced to nil. Furthermore, some specific reductions are available depending on the type of fringe benefit provided.
Certain reductions in FBT value depending on the type of benefit
Provided the otherwise deductible rule does not apply, the value of certain types of fringe benefits can be reduced. For example, the taxable value of in-house fringe benefits (e.g. when an employee purchases goods or services usually sold by the employer) is reduced by $1,0007 and you can reduce the taxable value of a LAFHA fringe benefit by certain amounts for food.
Use employee contributions
Another strategy to lower an employer’s FBT liability is to use employee contributions (i.e. where the employee, from post-tax salary, pays for the cost of providing the benefit). An example of this would be in the case of a novated car lease where an employee pays a 3rd party for the operating costs such as fuel and this is not reimbursed by the employer.
How can Nexia Edwards Marshall NT help you?
We hope that this brief overview gave you an insight into the complexities of FBT and that working out your FBT liability is not always straightforward – especially in light of the many different categories of FBT benefits each containing their own valuation, deduction, exemption and reporting rules.
Nexia Edwards Marshall NT can assist you through this whole process as we have considerable FBT experience and can offer you a business-wide view to achieve the best outcome for you.
Please contact Sarah McEachern or your Nexia Edwards Marshall NT Adviser if you would like to discuss how any of the issues mentioned above may affect your organisation so that we can help you identify potential FBT risks and opportunities for you.