With just a month to go to the end of the FBT year, CCH Networks recently hosted a webinar in which Assistant Commissioner Anna Longley, together with a panel of experts, provided an update on a range of FBT matters. The webinar covered notable changes for the upcoming FBT season, common errors, areas of ATO focus for compliance and advice and guidance in progress. This article summarises the discussion and highlights some key takeaways.
Refer to the FBT Compliance Guide 2018 for detailed commentary on the FBT law.
Updates to FBT law
1. Reportable fringe benefits. From 1 January 2017, reportable fringe benefits disclosed in an employee’s payment summary will no longer be de-grossed by relevant government agencies (eg Centrelink) for the purposes of determining an employee’s adjusted taxable income. This affects employees’ entitlements to various offsets or payments eg social security or family assistance payments as their adjusted taxable income will now include these grossed up benefits.
This primarily affects employees of non-exempt employers. Stating the correct amount of reportable fringe benefits on employee payment summaries and the correct status of an employer as exempt or otherwise will ensure employees receive appropriate payments. Payroll persons who manage the payment summary process and employees should be aware of these changes.
2. Small business concessions. From 1 April 2017, more employers may have access to small business concessions including the exemption for multiple portable electronic devices with the same function (s 58X) and the small business car parking exemption (s 58GA) due to the increase of the small business turnover threshold from $2m to $10m.
Other proposed changes concern registration requirements for approved worker entitlement funds and the proposed increase to the FBT rate from 1 April 2019 due to the proposed increase to the Medicare Levy.
1. Administrative errors including the incorrect completion of the return form eg using the incorrect form, incorrect ABN or TFN, particularly where an employer trust and trustee have different TFNs and incorrectly stating that no future returns need to be lodged.
2. For trusts, incorrectly treating an individual who is an employee as a beneficiary or vice versa. Each individual’s facts and circumstances should be reviewed eg their role, their entitlement to receive salary and wages and the relevant trustee resolutions or contracts. A beneficiary is not subject to FBT while an employee is. Similarly, independent contractors are not subject to FBT.
3. Logbooks incorrectly completed can result in serious consequences, possibly even that 100% use of a vehicle is classified as private use resulting in FBT. Critically, the business purpose must be adequately described. A logbook is attached to a car meaning if multiple employees use the car and different logbook apps to log usage, this will require collation of information when preparing the return.
4. Expense payment benefits. Employees should be reminded that if they get reimbursed for an expense, they cannot claim a tax deduction for it. If a private company pays a director’s expenses, a relevant question is whether FBT applies or whether Div 7A issues arise.
What attracts the ATO’s attention?
1. Motor vehicles, particularly the private use of cars. The ATO highlighted that a car comes within the FBT net even though it is not driven but is garaged at the employees’ home, even if for security reasons.
2. Employee contributions: overstatement of contributions paid by employees
3. Employer rebate: rebates and concessions claimed by ineligible employers
4. LAFHA: failing to obtain LAFHA declarations, reducing taxable value for ineligible employees, applying the incorrect reasonable food amounts
5. Employers who should be lodging and paying FBT who are not in the system
ATO guidance in progress
1. Draft Taxation Ruling TR 2017/D6 deals with the deductibility of travel expenses. It is an important ruling that will be finalised shortly (although no date was provided). The key principles driving the deductibility of expenses are the level of direction and control an employer has during the travel of the employee and whether the individual is getting paid for the time during which they travel. Accepting that these factors are not always clear cut, the ATO is working to ensure the ruling contains sufficient illustrations of these principles. The draft ruling also introduces the concept of “co-existing workplaces” to allow travel to and from these places to be work-related travel.
2. Draft Practical Compliance Guideline PCG 2017/D14 deals with exempt vehicles that are only used for work where private travel is minor and insignificant. The draft PCG is quite prescriptive as to the number of kilometres that can be driven for private purposes to qualify as minor and insignificant. The ATO is working through feedback about record-keeping particularly that if the goal is to reduce record-keeping requirements, how an employer would prove that the private use is incidental within the parameters stated in the guideline.
3. A review is currently underway of the ATO ruling on car parking valuation.
4. Consultation is ongoing as to whether ride-sharing services come within the definition of “taxi”. Currently per the ATO’s guide to employers, ride-sharing services do not fall within the definition.
5. TR 2007/12 on the minor benefits exemptions may be reviewed to provide more up to date examples.
Here are some key changes and dates to keep in mind this FBT season:
Key rate changes to note for FBT returns for the year ending 31 March 2018 are:
FBT rate is 47% (49% in the previous year)
Type 1 gross up rate is 2.0802
Type 2 gross up rate is 1.8868
21 May 2018 – lodgment of FBT returns for self-preparers and agents using paper forms
28 May 2018 – Any payments due
25 June 2018 – electronic lodgment of FBT returns for agents
Don’t need to lodge a return? Advise the ATO
Total nil taxable value? Don’t need to lodge a return but need to advise the ATO
Claiming a refund? Need to lodge a return
Request a deferral in advance if unable to meet due date
The FBT Compliance Guide 2018 is a valuable tool to prepare the 2018 FBT return and contains:
- Full coverage of FBT legislation, cases, rulings, determinations and interpretative decisions issued during 2017
- A summary of 2018 FBT return information, rates and dates.
View the full FBT Compliance Update with the ATO webinar.