Fringe Benefits Tax Guide 2020: the Good, the Bad, the Ugly

Article by Julian Caruana

As many business owners may be aware, there is a tax imposed on those who provide Fringe Benefits to their employees, associates and themselves. Fringe Benefits Tax is one of those quirky taxes in place that has a separate financial year than the traditional 1 July – 30 June period. The FBT year is from 1 April to 31 March. Consequently, we must ensure we include the expenses from the correct period.

This year there have been some changes but nothing too significant to worry employers. Here is a quick summary of the good (to an extent), the bad and the ugly of FBT 2020.

The Good

 

1. The FBT Rates Are Steady On

The fringe benefits tax rates are the same as last year which means if you provided a benefit last year, you won’t be up for any additional tax.

 

2. FBT Work-Related Exemption is Still Available

Tradies and Weekend Warriors will be happy to know that work-related fringe benefits tax exemptions are still available for dual-cab utes as well as panel vans per previous years.

This means if you can substantiate that the vehicle is not designed for the principal purpose of carrying passengers, then it may be exempt from certain work-related travel. This is relevant as the Government has recently increased the Small Business immediate write off to $150k.

Click here to download the COVID-19 Stimulus Package Summary

 

3. Associate Leases > Novated Leases?

There is an opportunity for associate leases to provide a greater benefit than fringe benefits tax novated leases.

This is a bit of a niche opportunity, however, if you have a spouse who is not generating much income, there is an opportunity to save tax in the long run by leasing the family car to the employer with the other partner claiming a fringe benefit in relation to the motor vehicle. In simple terms, the associate lease is a novated lease without the financier. This is best utilised when the car is unencumbered (no loan attached). If you want to know more, please contact our office.

 

The Bad

 

1. Workhorse Vehicles ≠ Work-Related Exemption

The Australian Tax Office has announced that the audit spotlight will be focusing on vehicles who are applying the FBT exemption for “workhorse vehicles”. Effectively, this relates to the work-related exemption mentioned above whereby FBT will be exempt if the purpose of the motor vehicle is not to carry passengers.

Substantiation and documentation are critical here to abide by the FBT legislation.

 

2. The ATO is Monitoring Avoidance of FBT by Not Claiming a Tax Deduction

The ATO considers that if there is an entertainment or motor vehicle expense in the financial statements of an entity however it has been removed for income tax purposes, then there could be a corresponding fringe benefit provided.

They are focusing on situations where businesses not claiming a tax deduction for expenditure may in fact have provided a fringe benefit by removing the tax deduction.

For example, if the business has entertainment expenses and chooses to remove it for tax purposes, then there may be an FBT liability. This is because any decision by an employer not to claim a tax deduction in relation to a fringe benefit does NOT affect whether FBT is payable in relation to the benefit.

Generally, businesses do this as an attempt to avoid increasing a drawings/directors loan account. Consequently, there should be an FBT return prepared for the entertainment provided. If the business chooses not to lodge an FBT return, then there is a possibility of an audit and penalties. Our recommendation, lodge the returns with the NIL Fringe Benefits Tax liability to avoid any future issues.  Learn more about FBT and your record-keeping obligations. 

 

The Ugly

 

1. FBT Traps Regarding Door Prizes Won by Employees at Christmas and Social Functions

This one is a bit of a kick in the gut. Door prizes that are won at staff functions, may attract FBT. Now, this is where HR and the finance team have got to see eye-to-eye.

Say at the Christmas Party a ticket is handed out to every staff member who enters the function for a $2,000 flight centre voucher. Now, although the employee has not directly received the benefit straight from the employer i.e. luck played a big factor, according to TD 94/55, this is considered entertainment and therefore FBT may be liable.

This is on the basis that the character of the prize is of an entertainment nature. Thankfully, there are some examples of door prizes which can assist with organising the staff functions. Number one of the list is bottled spirits and wine. Why? Because it is assumed that it will be consumed outside of the work function…. My advice? Don’t share with your work colleagues the Penfolds you just won.  Learn more about Christmas parties, gifts and tax. 

 

Seek Professional Advice Regarding Fringe Benefits Tax

FBT is another joy that business owners must be aware of. If our Fringe Benefits Tax Guide has cleared everything up for you, great! However, should you wish to discuss your current situation or simply want a chat surrounding a possible FBT concern, please do not hesitate to contact the SRJ Walker Wayland Team

 

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