We know that no one likes to pay tax and certainly no more tax than they should. But very few people want to be on the wrong side of an Australian Tax Office (ATO) audit where fees and penalties are paid for neglecting your obligations.
The Fringe Benefits Tax (FBT) year ended on 31 March which means the ATO will be looking closely at whether or not every employer who should be paying FBT is, and whether they are paying the right amount.
If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car.
Should I be registered for FBT?
If you have employees (including Directors of a company) then it’s possible your business needs to register for FBT. Generally, your business needs to register for FBT if you are providing benefits to employees that are not exempt from FBT. So, if you provide cars, car spaces, reimburse private (not business) expenses, provide entertainment (food and drink), employee discounts etc., then you are likely to be providing a fringe benefit.
There is a list of exemptions that are considered exempt from FBT, such as portable electronic devices like laptops and iPads (although there are rules around how many), protective clothing, tools of trade etc. If your business only provides these exempt items, or items that are infrequent and valued under $300, then you are unlikely to have to worry about FBT.
Review salary packaging & the opportunity for high-income earners
With the FBT rate changing again on 1 April 2017, it’s important to review all existing agreements and make sure that everyone understands – employers and employees – what the package looks like once the rate decreases. In general, salary packaging will become less expensive to provide once the rate goes down again so look for the opportunities to save.
For high income earners earning above $180,000, you have a one-off opportunity to reduce your taxable income when the FBT rate is reduced from 1 April 2017 until the debt tax is removed on 30 June 2017 (see the FBT rate is changing). Just be certain that any arrangements put in place are executed correctly.
Briefly, an effective salary sacrifice arrangement is one that:
- Forms part of the employee’s remuneration, i.e. the benefits are replacing amounts that would have been payable as salary.
- Is documented in writing. The employee needs to agree in writing to forgo a certain amount of income before that income has been earned, in return for benefits of a similar value. If the ATO want to clarify this point there will need to be documentation and a trail – paperwork and transactions – backing it up.
- Is not reimbursed to the employee’s bank account. The salary sacrificed amount needs to come out of the salary or wages.
What is the ATO targeting this year? Businesses who bought cars.
Data-matching has become more sophisticated over the years to the point where there are not many transactions businesses or individuals can make without the ATO knowing about it. While the team at the ATO don’t go through data line by line they do look at anomalies. These anomalies, or exception reports, narrow down who should come under scrutiny. If you or your business comes up on one of these lists the first thing that will happen is that the ATO will reach out and start asking for more information to validate your position. This is why having your documentation in place is so important. If you don’t have records validating your position the next step might be an audit.
One of those anomalies this FBT year is where a business has purchased vehicles but fringe benefits have not been reported to the ATO. While this position might be legitimate, it’s important to have the documentation backing up your position.