As the Fringe Benefits Tax year runs from 1 April to 31 March, the months of October to December mark the “third quarter” of the FBT year, and so, as an early fix before year’s end, here is an overview of the FBT elements that can attract the ATO’s attention.
This can be a timely period for a compliance check-up, so that employers who provide fringe benefits to staff can have better assurance they are not going to be tapped on the shoulder. This may still leave time for a fix-up (if possible) before the Fringe Benefits Tax year winds up, but certainly might help steer you clear of obstacles for the next FBT year.
FBT topics that can benefit from a clean-up include (but are not limited to) issues with living away from home allowances, car parking fringe benefits, employer-provided vehicles, employee contributions, employer rebates and of course the non-lodgement of FBT returns.
Living Away From Home Allowance (LAFHA)
LAFHA is an allowance an employer pays to employees to compensate for additional expenses incurred and any disadvantages suffered because the employee’s duties of employment require them to live away from their normal residence.
The taxable value of the Living Away From Home Allowance benefit may be reduced by the exempt accommodation and food components of the allowance (ask us for these).
Errors that will attract the ATO’s attention include:
- claiming reductions for ineligible employees
- failing to obtain required declarations from employees
- claiming a reduction in the taxable value of the LAFHA benefit for exempt accommodation and food components in invalid circumstances
- failing to substantiate expenses relating to accommodation and, where required, food or drink.
Car Parking Valuations
The ATO will focus on the validity of valuations provided in relation to car parking fringe benefits. The common errors that attract its attention include:
- market valuations that are significantly less than the fees charged for parking within a one kilometre radius of the premises on which the car is parked
- the use of rates paid where the parking facility is not readily identifiable as a commercial parking station
- rates charged for monthly parking on properties purchased for future development that do not have any car park infrastructure
- insufficient evidence to support the rates used as the lowest fee charged for all day parking by a commercial parking station.
Provided Motor Vehicles
Another area of focus will be on situations where an employer-provided motor vehicle is used, or available, for private travel of employees. The ATO says this constitutes a fringe benefit and needs to be declared on the FBT return. The ATO says there has been demonstrated inconsistency in the application of exemptions, leading to additional compliance costs, especially where private travel is relatively low.
A change has been made to the rules that will apply from the 2019 Fringe Benefits Tax year onwards. “Private use” will be defined as any diversion in travel that “adds no more than two kilometres to the ordinary length of that trip”. Also that “for journeys undertaken for a wholly private purpose (other than travel between home and place of work), the employee does not use the vehicle to travel more than 1,000 kilometres in total, and a return journey that exceeds 200 kilometres”.
A red flag is also raised in situations where no employee contributions have been paid (which reduces the FBT liability for the employer) yet there are significant motor vehicle expenses included in the entity’s income tax return, and no vehicle expenses accounted for in a Fringe Benefits Tax return (or no FBT return lodged).
The ATO is also keen to ensure that the employer does not:
- fail to report these contributions as income on their income tax return
- incorrectly overstate employee contributions on their fringe benefits tax return to reduce the taxable value of benefits provided.
Another hot spot for the ATO is whether a fringe benefits tax rebate can be claimed. A taxpayer must be a rebatable employer to claim a fringe benefits tax rebate, but the ATO has found that some ineligible employers incorrectly claim this rebate.
Non-Lodgement, No Declarations
Of course non-lodgement of fringe benefits tax returns is of concern to the ATO. Employers that provide fringe benefits must lodge an FBT return unless the taxable value of all benefits has been reduced to nil.
Common errors that attract ATO attention include:
- failure to identify fringe benefits provided
- incorrect calculation of benefit values or reduction amounts
- lack of declarations for expense payment benefits such as telephone, internet connection or power, or recurring declarations for same.
If you have anything you’d like to discuss regarding your Fringe Benefits Tax obligations call Taxwise on (08) 9248 8124.
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