Top 5 Fringe Benefits Tax Decoded!
Fringe Benefits Tax (FBT) is available to guarantee that employees are not getting income disguised in other methods and to deter income tax avoidance. The array of fringe benefits is vast and when it comes to taxation, each has its own rules for not only when there is a benefit but also how it should be valued. We will help you clarify your doubts regarding these matters so you may be able to identify the myths and the truths behind FBT that every employer and employee should be aware of.
Fiction: FBT doesn’t apply on company cars.
Fact: FBT only applies when an employee begins taking the company car home, drive it to and from work, use it on weekends, or mostly take it for personal use. FBT also applies even if the company car stays in the garage of the employee and doesn’t actually use it. If the business address is similar as your work place, FBT will most likely apply.
When travelling for personal or private purposes, FBT also usually applies. Same goes with employees travelling to and from work with road tolls paid by the company.
The ATO has also been trying to find out the use of luxury vehicles within the company where FBT has not been stated. We assume they have been trying to identify these high value vehicles with their new date matching program that they have lately announced and updated.
Fiction: FBT isn’t relevant to directors who are also shareholders.
Fact: If you are a director and conduct your business through a company or a trust, chances are you may be an employee of that specific company or trust. In this situation, you will need to account for and pay FBT on any fringe benefits you provide to yourself since the same rules will apply to you as if you are an employee even though you own the company.
FBT applies when you drive a company car or when one is provided to you. The same goes with associates of Directors who pick up expenses for their immediate family or relatives, or they themselves and their families purchase discounted goods and services from the business or company.
In certain cases you may reason out that you got a benefit in your role as a shareholder and not as a director. While FBT may not be applied, you will be faced with another set of rules that will tax you personally based on the benefit you received.
Fiction: You don’t pay FBT with salary packaging.
Fact: Salary is not subject to FBT, but health insurance and personal health care packaged into an employee’s salary can attract FBT. These additional benefits are even true in industries where an employee must undergo medical examinations. Apparently, anything with a value of $300 or more is more likely to incur FBT. Nevertheless, there are a few exceptions.
Private schools that give discounts to teachers on their children’s school tuition and fees or retailers that provide employee discounts have traditionally been entitled to more beneficial FBT. These are companies that offer salary packaged in-house fringe benefits, which can include discounted goods and services that are also offered to their customers. However, the Federal Budget plans to scrap the FBT concessions that apply to these benefits. Under the proposed changes, FBT will be applied on salary sacrificed in-house fringe benefits based on the full value of the products or services starting 22 October 2012.
Fiction: FBT doesn’t apply to advances and loans offered to employees.
Fact: For instance, an employee has been overpaid by a lot of money due to an administrative error and he or she cannot afford to repay the total amount all at once. Thus, a repayment plan is drawn up. Since it wasn’t the employee’s fault and it is not fair, no interest would be charged. The overpayment would be considered a loan by the ATO. FBT would apply immediately since no interest was charged and it would be considered a loan by the ATO. The FBT would apply because no interest is being charged. Loans must have an interest rate of at least the ATO’s published interest rate for 2015/2016, which is 5.65%.
However, the most usual scenario is the company loaning money to shareholders. This is when the business owner or their associate (such as a spouse) need cash and the money is taken out from the business. These loans are treated in two ways. If the loan is granted to the person in his/her capacity as a company shareholders, there are typically no carry over tax issues provided the loan is fully paid up before the company files its tax documents for the year. But FBT can apply on these loans if they are granted to the business owner in their capacity as an employee even if the they were paid up by the end of the financial year.
Another issue is when repayment is not needed for the loans. FBT can be trigger if the employer decides to forgive the loan.
Fiction: Meals offered to employees are not covered by FBT.
Fact: There are many situations where the food and drink provided to employees is not subject to FBT, but there are exceptions when FBT would apply.
Food and drinks consumed in a party or any social occasion are generally subject to FBT. The exemption to this rule is when a meal is consumed by an employee while travelling for business purposes or a working lunch in the office. In a similar way, Christmas parties or any other special occasion that is celebrated can be exempt from FBT if the cost per person for food and drink is under $300.
GST credits can be declared and the costs are naturally deductible if the advantage of having food and drink is being subject to FBT. Although it is not deductible to the company if food and drink gives rise to entertainment that is not subject to FBT.
Having food and drink be subjected to FBT is good in a way because the costs are usually deductible and GST credits can be claimed. The business cannot claim a deduction on food and drink consumed for entertainment but is not subject to FBT.
Ensure that your business doesn’t get entangled with rules and regulations relating to tax. Hire a professional chartered accountant to manage your tax affairs. PJS Accountants has various clients across the Redlands, including large companies, SMEs, family businesses and individuals. For more information about our services, contact PJS Accountants.