The 2016 FBT year ends on 31 March 2016. As this date is fast approaching businesses should now be planning to ensure their documentation is in place to accurately prepare and lodge their FBT returns on time.
FBT registration
The first thing businesses should check is whether they are registered for FBT. Many business owners, particularly those who have recently set up a business, don’t think that they will provide their employees with fringe benefits, and therefore don’t register. But as the year progresses, they may realise that an FBT return is necessary.
If the business isn’t registered, registration forms can be accessed on the Australian Taxation Office (ATO) website – go to www.ato.gov.au and search for ‘application to register for fringe benefits tax’. Alternatively contact your accountant who can process this registration for you.
Lodgement and payment dates
Businesses, who lodge their own FBT returns, the final date for lodgement of their 2016 FBT return and payment of any outstanding FBT is 21 May 2016.
If the 2016 FBT return is lodged by a tax agent, the lodgement due dates are:
- 25 June 2016 for electronic lodgement
- 21 May 2016 for paper lodgement
The payment due date for all FBT returns lodged by a tax agent is 28 May 2016.
MAJOR CHANGES 2016
- Increase in FBT rate
The FBT rate for the 2016 year has increased from 47% to 49%. This is a result of the temporary budget repair levy applicable to the 2016 and 2017 financial years.
The budget repair levy is a 2% levy payable by taxpayers whose taxable income exceeds $180,000 for the 2016 and 2017 income years. This additional 2% levy increases the top marginal tax rate (including Medicare levy) to 49%.
In an attempt to prevent high income earners salary packaging into fringe benefits to avoid the budget repair levy, the government has increased the FBT rate from 47% to 49% from the 1st of April 2015, keeping the FBT Tax Rates aligned with the highest marginal income tax rate.
- Increase in FBT gross up rates
Gross up rates are used to increase the taxable value of a fringe benefit to reflect the gross salary an employee would have to earn at the highest marginal tax rate (including Medicare levy), to purchase the benefit received using their after-tax dollars.
As a result of the increase in the FBT rate to 49%, the gross up rates have also increased for the 2016 year as follows:
| Type 1 gross-up rate – 2.1463 | Use this rate to gross up benefits if the employer is entitled to a GST credit for the provision of this benefit. |
| Type 2 gross-up rate – 1.9608 | Use this rate to gross up benefits if the employer is not entitled to a GST credit for the provision of this benefit. |
- Impact on salary packaging arrangements
Due to the increases in both the 2016 FBT rate and the gross-up rates, the amount of FBT payable by the employer will also increase.
Most employers pass on the cost of the FBT to their employees through salary sacrificing arrangements. Therefore employers will need to re-calculate the salary sacrifice amounts and ensure that the employee’s remuneration is appropriately reduced to absorb the increase in the FBT payable, this effectively means less take home pay for those employees.
You should note that the FBT rate increase to 49% is only for the 2016 and 2017 years. The FBT rate and gross up rates will reduce to their previous level for the years ending 31 March 2018 onwards as follows:
FBT rate – 47%
Type 1 gross-up rate – 2.0802
Type 2 gross-up rate – 1.8868
This change in rates will once again require employers to make adjustments to employees’ salary sacrifice arrangements due to the reduction in the FBT payable for 2018 FBT years onwards
- Small business FBT exemption for portable electronic devices
Currently, there is an FBT exemption where a portable electronic device is provided to an employee primarily for work use. However, if two devices have similar functions (for example a laptop and a tablet); only the first is exempt from FBT unless the devices perform substantially different functions.
From the 1st April 2016, a small business entity, i.e. a business with an aggregated annual turnover of less than $2m, is able to provide more than one portable electronic device to be used primarily for work without incurring a fringe benefits tax liability, even where the items have substantially similar functions.
- Meal & entertainment concessions for not for profit employees to be capped at $5,000
Currently, employees of Not for Profit Entities, public benevolent institutions and Charities have either a $17,667 or a $31,177 FBT exempt benefits cap. A summary of these caps is included in the table below. In addition to these exempt benefit caps, these employers are able to provide meal entertainment benefits to employees with no FBT payable and these benefits are not included as reportable benefits on the employee’s PAYG Payment Summary.
From the 1st April 2016, a $5,000 cap on the amount of meal entertainment benefits that can be salary sacrificed by employees of not for profits will apply. Any benefits in excess of this cap will count towards the employee’s ordinary exempt benefit cap and any excess over this cap is subject to normal FBT treatment and will be taxable.
Concessional FBT treatment for certain employers – Capped
| Entity | Gross amount
($) |
Maximum amount
(No GST credits) ($) |
Maximum amount
(GST credits) ($) |
| Public benevolent institutions (PBIs) – not including hospitals, health promotion charities and rebatable employers | 31,177 | 15,900.14 | 14,525.93 |
| Public and non-profit hospitals | 17,667 | 9,010.09 | 8,231.37 |
CHECKLIST OF COMMON BENEFITS PROVIDED
Following is a checklist of the more common benefits provided together with some useful tips.
Motor Vehicles
Cars are the most common type of fringe benefit provided to employees and therefore planning for FBT can save money. This includes:
- For each motor vehicle acquired before 10 May 2011, obtain the odometer reading as at 31 March 2016
- For new motor vehicles, retain the purchase invoice of the car including a breakdown of all non-business accessories (e.g. window tinting or a CD player).
- The cost of the car for FBT purposes includes:
- GST
- Non-business accessories
- Dealer & delivery charges
- Luxury car tax
- The cost of the car for FBT purposes excludes:
- Stanp duty on transfer
- Registration and insurance
- Review entitlements to any FBT reductions. For example, if the car has been owned for more than four ‘FBT years’, the cost or ‘base value’ is reduced by one-third under the statutory formula method.
- Choose whether to use the ‘statutory formula’ or the ‘operating cost’ method to calculate the FBT payable. Generally speaking, the statutory formula method is more advantageous when the car is used primarily for personal use while the operating cost method is usually best when the car is used mainly for business purposes. Note that the statutory rates changed for cars purchased from 10 May 2011, moving to a single statutory rate of 20% over four years.
Statutory formula method
- If using the statutory formula method and the car was acquired before 10 May 2011 and was sold during the year ending 31 March 2016, the kilometres travelled will need to be annualised.
- Where there is a change to a pre-existing commitment (e.g. car refinanced) for a motor vehicle acquired before 10 May 2011, the 20% statutory rate will apply.
- The following statutory rates apply for cars acquired from 10 May 2011 under the transitional provisions and also for cars that continue to apply the old rules:
| Total km’s travelled in FBT year | Old Statutory %
(for pre 10 May 2011 cars) |
New Statutory % |
| 0 – 14,999 | 26 | 20 |
| 15,000 – 25,000 | 20 | |
| 25,000 – 40,000 | 11 | |
| Over 40,000 | 7 |
Note that cars provided under pre-existing commitments (i.e. owned prior to 10 May 2011) will continue to use the old statutory fractions, unless there is a change to that pre-existing commitment.
Operating cost method
If using the operating cost method, ensure that the employee has maintained a log book for a 12 consecutive week period within the FBT year or a previous FBT year. A log book is valid for a period up to 5 years. Make sure to maintain adequate records of:
- Repairs
- Maintenance
- Fuel
- Registration and insurance
- Lease payments or deemed interest/depreciation
- Other vehicle expenses
It is important to check whether the employee has made any contributions to the business for the provision of the car as this can significantly reduce the FBT liability. These contributions can even take the form of any non reimbursed expenses the employee has paid for such as fuel or repairs. It’s important to account for the contributions as income in the profit and loss and disclose the GST on your next BAS.
Meal entertainment
Most businesses provide meal entertainment to staff and clients during the course of the year. Unlike many other business expenses, meal entertainment is not tax deductible. Generally, you are only allowed a tax deduction when FBT has been paid on the particular expense.
Again, a bit of planning and good record keeping can assist in limiting unnecessary tax when it comes to meal entertainment. There are three methods which can be used to calculate FBT for meal entertainment and businesses should choose the one which is most beneficial in their particular circumstances:
50/50 method
The total meal entertainment benefits provided is divided by 2, and FBT is paid on 50% of the total meal entertainment. This method is most beneficial when meal entertainment is provided mainly to employees. The use of this method however will deny the employer the ability to apply the $300 ‘minor and infrequent’ and in-house property benefit exemptions that may otherwise have been available.
Actual method
FBT is calculated only on meal entertainment benefits provided to employees. This method is most beneficial when providing meal entertainment mainly to non-employees. When using this method the $300 ‘minor and infrequent’ and in-house property benefit exemptions can be used to reduce each fringe benefit provided.
12 week register
This method is not commonly used but works by keeping a logbook of meal entertainment for 12 consecutive weeks and determining what percentage of meal entertainment relates to employees. That percentage is then applied to the total meal entertainment at the end of the FBT year. This is the least popular method due to the records that need to be maintained.
Factors to consider
It is useful to note the following considerations when calculating any meal entertainment FBT:
- Was meal entertainment (by way of food or drink) provided to employees on or off the business premises? This can include Christmas parties, Friday night drinks, etc.
- Did the business reimburse an employee’s restaurant bill, for instance when entertaining clients?
- Was a “recreation” benefit provided to an employee? This could include a ticket to watch the football or a concert. If so, ensure that this type of entertainment is recorded separately to meal entertainment.
- You should maintain a register of employees, associates and non-employees who attended functions where meal entertainment and non-meal entertainment was provided?
- Have you considered the GST implications? The GST treatment of meal entertainment related expenditure will depend on the meal entertainment method used:
- If using the 50/50 method, only 50 percent of the GST can be claimed. The other half is added back to the profit and loss account and is not available as a tax deduction
- If using the actual method, only claim the GST on that portion of entertainment that is subject to FBT. Otherwise, GST is treated as a profit and loss expense and is not available as a tax deduction.
FBT exemptions
There are some employee benefits which are exempt from FBT and should be considered as part of a salary package arrangement for employees. Generally speaking, these benefits must be primarily used for work purposes, or to enable staff to do their job more efficiently. These exempt benefits include:
- Mobile phones
- iPads
- Laptop computers
- Briefcases
- Membership expenses, items such as a subscription to a trade, professional body or even an airport lounge membership
- Other work related items or tools of trade (e.g. power drill)
The employer can generally only provide each item ‘once’ to an employee per FBT year to take advantage of the FBT exemption. For example, the employee can receive both a laptop computer and mobile phone in the one FBT year
These benefits do not need to be recorded on the FBT return as they are ‘exempt’ benefits and are also not reported fringe benefits included on the employee’s PAYG Payment Summary. They are also not counted as wages for payroll tax and work cover purposes.
Reporting benefits on an employee’s PAYG payment summaries
Employers are required to include the following two items on an employee’s PAYG payment summaries:
- Reportable fringe benefits
Where the total ‘non-grossed up value’ of fringe benefits provided to an employee exceeds $2,000, it must be reported on an employee’s PAYG Payment Summary. This is a requirement often overlooked by employers; the amount reported is the ‘non-grossed up value’ multiplied by the type 2 gross-up rate of 1.9608. The two most common benefits that are excluded from the $2,000 threshold are meal entertainment and car parking benefits.
- Reportable employer superannuation contributions (RESC’s)
Since 1 July 2009, employers are required to disclose an employee’s RESC’s on their PAYG Payment Summary.
These are salary sacrifice contributions to super where the employee has been able to influence either the size of the contribution or the way the amount is contributed. Excluded are ordinary super guarantee contributions (e.g. 9.5%) and contributions made under industrial instruments.
ATO focus and other things to keep in mind
The ATO continues to target cars from an FBT compliance perspective as they are the most common type of fringe benefits provided to employees. The main areas of focus include:
Logbooks The ATO focuses on the business use percentage claimed over the particular three month log book period to ensure that this takes into account any variations in the pattern of use for the current FBT year and the next four FBT years). In other words, employees cannot simply choose to use a three month period when business use is the highest or is not representative of a normal three month period.
Exempt motor vehicles The ATO is targeting employers who have claimed an FBT exemption for certain cars (e.g. dual cabs and utes with a carrying capacity greater than 1 tonne) as well as utes and panel vans that carry less than 1 tonne. The ATO is cracking down on what some employers call ‘infrequent and irregular’ private travel.
Employee contributions These contributions reduce the taxable value of the car fringe benefit. The ATO are concerned that many employers are not reporting these contributions as assessable income and also not including the GST component on their BAS.
Lodgment dates These can vary (as mentioned above) so avoid interest on unpaid FBT liabilities by checking when the FBT return is due for lodgment and payment.
Travel diaries Are they required? When employees travel for more than five consecutive nights but the travel is not exclusively for work, they should keep a record of:
- Dates travelled
- Places visited and work/activity undertaken
- What the nature, time and duration of the work/activity that was undertaken
Declarations Make sure that any required declarations have been signed and received by the time that the FBT return is lodged e.g. when an employee declares that there is no private use of a fringe benefit provided.
GST Make sure that FBT is calculated on the GST inclusive value of the benefit provided. Don’t forget that when the $300 minor and infrequent exemption is used for meal entertainment, any GST input tax credits cannot be claimed.
Record keeping Keep invoices and source documents in order to substantiate claims.
Disclaimer
This information is provided as a guide only and is not intended to constitute advice whether legal or professional. You should obtain appropriate advice concerning your particular circumstances.
