FBT Audits: When the ATO comes knocking on your door
Recent statistics have reported 70% of employers are non-compliant with their Fringe Benefit Tax (FBT) obligations and 69% of employers failing to lodge a FBT return. As a result, the Australian Tax Office (ATO) has broadened its reach to the SME and large business sectors for FBT compliance and auditing activities.
What is a Fringe Benefit/Fringe Benefit Tax?
A fringe benefit is a payment to an employee but in a different form to salary or wages. A fringe benefit is provided during the time of the employee’s employment.
These benefits include:
• Cheaper loans
• Using a work vehicle for private purposes
• Reimbursement of some activities
Fringe benefits tax is a tax paid on certain benefits provided by an employer to his or her employees or their associates. The FBT is different from income tax and it is based on the taxable value of various fringe benefits that the employer or employers provide to their employees and their associates. The fringe benefit tax year runs from 1 April to 31 March.
What areas are the ATO focusing on?
Particular areas of Fringe Benefits placed under scrutiny by the ATO are cars, car parking, living-away-from-home allowances (LAFHAs), entertainment and minor benefits. The fringe benefit tax law identifies various categories of fringe benefits and specific rules for each category.
Car Fringe Benefits
An employer is providing a car fringe benefit if both of the following apply:
• The employer owns or leases a car and make it available for an employee’s private use
• The benefit is not an exempt car benefit.
Car Parking Fringe Benefits
• If the employer provides a car parking spot to their employee or employees.
Living Away From Home Allowance Fringe Benefits
If an employer pays an allowance to an employee to cover additional expenses incurred during the phase of their work and is temporarily required to live away from their usual place if residence to perform the duties, a living away from home allowance fringe benefit may arise.
There is no category of fringe benefit called entertainment fringe benefit but some of these fringe benefits can be considered to classify in the other categories. For example – providing food and drinks can be included in property fringe benefit.
How much Fringe Benefit Tax do I need to pay as an Employer?
There is no notification of how much Fringe Benefit Tax an employer must pay – rather FBT is self assessed when the employer lodges the FBT return. The rate of Fringe Benefit Tax is usually levied on what is commonly referred to a the “grossed up amount”
How do I reduce my FBT liability?
As an employer you can reduce your FBT pay by:
• Providing benefits that are exempt from FBT
• Replacing fringe benefits with cash salary (wages)
• Providing benefits that are tax deductible
• Using employee contributions
Keeping your Fringe Benefit Tax Records
As an employer you should keep sufficient records so that your FBT liability can be assessed. All records such as invoices relating to providing the benefit to the employee should be kept for a minimum of 5 years from the date of the transaction
If you have received notice of an audit by the ATO, need assistance with meeting compliance or have a queries with regards to the fringe benefit tax or for any other business tax advice , please submit an online enquiry or call our experienced team of Tax Accountants, Tax Agents and Lawyers on 1300 QUINNS (784 667) to book an appointment.