With the end of the FBT year approaching, CCH Networks recently hosted the Annual FBT Compliance Update with the ATO webinar in which Assistant Commissioner Jenny Lin, together with a panel of experts, provided an update on a range of FBT matters. This article summarises some of the key points of discussion which covered new developments in the FBT space and areas of focus for FBT compliance.
FBT – new developments
Following a restructure of the ATO’s Client Engagement Group in March 2019, FBT matters are now managed by the ATO through the Superannuation and Employer Obligations business line.
ATO guidance in progress
i. The ATO has released Draft TR 2019/D5, which replaces TR 96/26 (withdrawn) and sets out when the provision of car parking is a car parking benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). The ATO has also released a draft update of Chapter 16 of the Fringe benefits tax – a guide for employers. This chapter provides further explanations and examples to complement Draft TR 2019/D5.
Of particular note is a change in view in Draft TR 2019/D5 to the concept of commercial parking station. TR 96/26 took the view that parking spaces that were available to the public where a penalty rate was charged to disincentivise all day parking would not fall within the meaning of a commercial parking station. Following the decision in FC of T v Qantas Airways Ltd ATC 2014 ¶20-477, the ATO has determined that this position is no longer sustainable.
In Draft TR 2019/D5 the ATO takes the view that a car park that allows all day parking but charges high fees to discourage this parking can still be considered a commercial parking station for FBT purposes. Employers with employee car parking facilities both in the vicinity of the workplace and within a 1 km radius of such a car park may now have to pay FBT on the taxable value of their employees’ car spaces, if certain other conditions are satisfied, when previously they did not.
When Draft TR 2019/D5 is finalised, the intention is to apply this view to car benefits provided from 1 April 2020.
See further the draft update of Chapter 16 of the Fringe benefits tax – a guide for employers where the ATO lists the conditions that must be met for a car park to qualify as a commercial parking station. Also see Example 10 in the draft update of Chapter 16 where the ATO describes a shopping centre car park as a commercial parking station for FBT purposes.
ii. Draft TR 2019/D7 sets out the ATO’s view on whether a transport expense would be considered deductible for income tax purposes, or otherwise deductible for FBT purposes. Draft TR 2019/D7 partially replaces Draft TR 2017/D6 which provided a wider view on when an employee’s travel expenses, including transport and accommodation, are, or would otherwise be deductible for income tax and FBT purposes.
Separate issue specific rulings will be released by the ATO in draft form for consultation this year covering the deductibility of meals, accommodation and incidental expenses which also have FBT implications in respect of the otherwise deductible rule and when an employee is living away from home.
Taxi travel exemption
The current ATO view is that the taxi travel exemption is limited to travel undertaken in a vehicle that is licensed to operate as a taxi by relevant state and territory authorities. The view is that the exemption does not extend to ride-sharing vehicles, or other vehicles where the driver does not hold such a licence.
However, legislation (Treasury Laws Amendment (2019 Measures No 3) Bill 2019) introduced on 5 December 2019 proposes to amend the law so that the taxi travel exemption will apply to travel by way of a motor vehicle (other than a limousine) involving the transport of passengers for a fare. If enacted as introduced, the exemption will apply to travel in ride-sharing vehicles from 1 April 2019.
The ATO will look to develop public guidance on the definition of “limousine”, pending the passage of the law through parliament.
The ATO has acknowledged the difficulties faced by those impacted by the 2019/20 bushfires and will automatically defer any lodgments or payments due for businesses in identified impacted postcodes. Income tax, activity statement, self-managed superannuation funds and FBT and excise return lodgments, and their associated payments, will be deferred until 28 May 2020. The FBT returns lodgment date has been extended from 21 May 2020 to 28 May 2020 for self-preparers and tax agents who lodge by paper.
Deferrals do not apply for “large withholders” i.e. withholders that have previously withheld more than $1m annually, or as part of a corporate group that has.
Further information about assistance is available at www.ato.gov.au/NaturalDisasters.
Exemptions: FBTAA s 58N – exempt emergency benefits assistance
There is an FBT exemption in FBTAA s 58N for benefits provided as immediate relief for a victim of an emergency where the benefit is first aid or other emergency health care, emergency meals, food supplies, clothing, accommodation, transport or use of household goods, temporary repairs, and any similar matter. Long term benefits are not exempt.
Change in annual FBT taxation determinations
The ATO will be changing how it publishes some key rates and thresholds. From the 2020/21 FBT year the following rates and thresholds will be published on the ATO website (www.ato.gov.au/fbtrates), rather than in annual Taxation Determinations (TDs):
- indexation factors for valuing non-remote housing
- record keeping exemption threshold
- benchmark interest rate
- car parking threshold
Historical data for the previous five years’ rates will also be available.
The following FBT rates and thresholds will continue to be produced as annual TDs:
- Rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car.
- Reasonable amounts under FBTAA s 31G for food and drink expenses incurred by employees receiving a living away from home allowance fringe benefit.
The ATO will review the appropriate format of these two TDs next year.
Remote area concessions – meeting the customary condition
A benefit will be accepted as being “customary” where it is normal or common for employees of that class or job description in that industry to be provided with the same or similar benefits.
The ATO is aware that some salary package providers are promoting arrangements to employers and employees in remote areas regardless of whether it is considered to be customary in that industry.
The ATO highlighted that employers do need to consider whether it is normal or common for employees of the same job description in the same industry to be provided with the same benefits due to the nature of the conditions of employment.
To assist taxpayers in meeting their obligations the ATO is currently preparing additional information to be published on their website.
What attracts the ATO’s attention
See QC 44834 on the ATO’s website for information about what attracts the ATO’s attention.
In the FBT space these include:
- Motor vehicles
- Employee contributions
- Lifestyle assets
- Car parking valuations
For motor vehicles the ATO looks for scenarios where an employer provides a vehicle to an employee who then uses it for private travel or has it available for use privately. A key point to note is that the availability of the car, even if never driven, can still constitute a fringe benefit. Further details are available in Chapter 7 (currently being reviewed and rewritten by the ATO) and Chapter 18.6 of the Fringe benefits tax – a guide for employers.
Exempt motor vehicles
There are some exemptions for certain vehicles, e.g. panel vans and utes where private use is limited to travel between home and work, travel that is incidental to travel in the course of employment duties, and non-work-related use that is minor, infrequent and irregular.
The ATO noted that there is no need to keep special records to be eligible for this exemption. The ATO does expect, however that businesses can demonstrate, and are satisfied that the use of the vehicle always meets the eligibility criteria. This could be done by comparing the opening and closing odometer readings of the vehicle with the total distance you expect the employee to travel between home and work during that particular period.
The ATO also highlighted that under the compliance approach in Practical Compliance Guideline PCG 2018/3 if a business has a policy in place that limits the private use of the vehicle for employees and the business has assurances from employees, prescriptive or otherwise which satisfy them that private use of the vehicles was limited then the ATO does not intend to apply compliance resources to reviewing those arrangements.
In respect of lifestyle assets, the ATO highlighted that their compliance activities are triggered by employers providing cars for the private use of their employees and similarly businesses producing assets that are then used for the personal enjoyment of an employee or their associates.
Entertainment continues to be an area of focus for the ATO, in particular around the provision of food, drink or recreation, and accommodation and travel in connection with the provision of entertainment.
The main issue is the distinction between entertainment and sustenance, and the application of exemptions such as the minor benefits exemption. The ATO noted that employers are uncertain as to what is considered to be infrequent and irregular, and what is a reasonable total value of associated benefits. To help remove the uncertainty, the ATO is committed to reviewing TR 2007/12 for minor benefits to provide more practical examples.
Car parking valuations
The ATO has a particular focus on valuers providing car parking valuations. The ATO expects that businesses confirm the basis on which the valuation has been prepared and seek FBT advice if they suspect the valuation is incorrect, or the liability is considerably reduced. The key point here is that the business must be satisfied that the valuation prepared by a qualified valuer is correct.
If you missed the webinar, you can access the CCH Learning recording here.
Visit our CCH Learning website, to view upcoming FBT webinars and workshops.