02 9683 5999March 31 marks the end of another Fringe Benefits Tax (FBT) year. Now is the time to ensure that you take advantage of last minute tax planning opportunities. Avoid the heat of the ATO audit blowtorch for the current and future FBT years.
There have been many changes to the law governing FBT and while many will not affect the majority of taxpayers directly it is important to know what benefits can be achieved within the boundaries of these new laws.
One of the most popular exemptions for FBT purposes is the exemption available to an employer to provide an employee with work related item that is primarily used in connection with an employee’s employment. An eligible work related item can include:
- a mobile/car phone
- protective clothing
- tools of trade
- computer software
- personal digital assistant (PDA)
- laptop computers
Employers are restricted to one eligible item per employee per full FBT for the exemption. An issue that has been created is that work related items can be substantially similar or have identical functions thereby restricting the opportunity for employers to receive an exemption for certain related items.
This restriction may not apply to lost, stolen or damaged items, however the availability of the exemption will need to be made on a case by case basis, based on the facts of the situation.
For example an iPhone has similar and identical functions to a PDA (calendar, email capabilities, calculator, etc) but are they the same eligible work related item? The answers is NO.
The ATO has confirmed that the underlying function of the item is the differentiating factor when deciding if work related items are the same. Therefore an iPhone is primarily a mobile phone that has secondary functions of a calendar, calculator, etc compared to a PDA that has a primary function of email, calendar functionality the two items are not identical.
This concept can be extended and applied to laptop’s and iPad’s as separate work related items. According to the ATO, the iPad has a limited amount of functions. A laptop functionally is substantially different in that a laptop is designed to create, edit and review data whereas an iPad is generally limited to only view data.
Practically, employers are able to give an employee both an laptop and ipad and take advantage of the work related item exemption so long as an employee can demonstrate that both items are primarily used in connection of the employees employment.
AUDIT FOCUS
Recent statistics released by the ATO revealed that 27,845 reviews were conducted of employer obligations (which included superannuation and FBT) of businesses with an annual turnover up to $250million. The audit raised an additional $659million in revenue. This level of revenue generated with a very narrow scope by the ATO has resulted in an increase of government funding increased to expand the ATO re and audit capabilities of employer obligations.
A summary of the most common types of fringe benefits, and their tax treatment has been provided below;
Car Fringe Benefit – arises where you (the employer) make a car you ‘hold’ available for the private use of an employee (or the car is treated as being available). A car you hold generally means a car you own or lease.
- The following types of vehicles are cars:
- Motor cars, station wagons, four wheel drives, panel vans and utilities (excluding panel vans and utilities designed to carry a load of one tonne or more)
- All other goods-carrying vehicles designed to carry less than one tonne, and
- All other passenger-carrying vehicles designed to carry fewer than nine occupants.
Expense Payment Benefit – arises where an employer pays or reimburses private expenses incurred by employees, e.g. school fees; private telephone bills; rates and land taxes; life and health insurance premiums etc.
Provision of Entertainment – arises where an employer incurs expenditure for the provision of:
- Entertainment by way of food, drink or recreation
- Accommodation or travel in connection with, or to facilitate the provision of such entertainment.
Common examples of entertainment are:
- An employer provides light lunches on its business premises during meetings with clients
- An employer pay for business lunches/dinners at a restaurant for clients and employees
- An employer holds a social function (Christmas party) for employees and key clients
This list is not exhaustive nor does it cover the exemptions and tax planning opportunities to reduce this taxable benefit.
Salary Packaging – is an effective tax planning option available to employees to increase their after tax income. Salary packing arrangements are designed replace the cash component of an employee’s remuneration package by substituting, the employee’s wages for a non-cash benefit on the employee’s behalf. These arrangements may have FBT consequences which can be minimised or eliminated through FBT reduction strategies. Common examples of this arrangement include the substitution of a cash salary for increased superannuation contributions, the provision of work related items (discussed earlier) and for the use of employer owned cars.
Please contact CIB should you wish to discuss any fringe benefits taxes further.
