Fringe Benefits Tax (FBT) affects a number of our clients, and with the end of the FBT year fast approaching (31st March), we ask – are you FBT ready?
FBT? Say what?
FBT is a tax paid on benefits provided to employees or an associated party. If you are a director and run your business through a company or trust, you may be regarded as an employee for FBT purposes.
And Fringe Benefits?
Fringe benefits are the provision of ‘Non-cash benefits’. Common examples include:
- Allowing an employee to use a work car or other vehicle for private use
- Providing an employee with an interest free, or cheap interest rate loan
- Paying for expenses of a personal nature of behalf of your staff
- Paying for staff Christmas parties and other staff social functions
- Providing meals, dinners or gifts to employees
Looking at Car Fringe Benefits in more detail…
When calculating a car fringe benefit we have two options – The statutory formula method and the operating cost method. There is flexibility to choose whichever method yields the lowest taxable value, however to use the operating cost method, a log book is required.
In many situations we see clients that would benefit from using the operating cost method but fail to qualify because they didn’t have a log book – so it’s worth putting one together!
Each logbook you keep must represent at least 12 weeks of continuous travel, with this then being valid for five years – easy!
There are a couple of circumstances where the private use of a car may be exempt from FBT, such as:
- Where the vehicle is designed to carry one tonne or more
- If the vehicle is a taxi, panel van or a utility designed to carry less than one tonne
- Any other vehicle designed to carry a load of less than one tonne, where the private use is limited to:
o Travel between home and work
o Incidental travel when carrying out work-related duties
o Private use that is minor, infrequent and irregular.
A few points worth noting
· Entertainment fringe benefits arise by way of providing food, drink or recreation to employees. This includes gifts and social functions.
FBT is exempt to the extent that the benefits are a ‘minor benefit’ – that is less than $300.00 per employee per FBT year. So celebrate awesome business wins with some champagne, or show some appreciation to the team with a Christmas party, just don’t go crazy!
- Work-related items that are exempt from FBT include items such as:
o Portable electronic devices, such as mobile phones, laptops, tablets, GPS devices, etc
o Computer software
o Protective clothing
o Tools of trade
This exemption is limited to the extent that the items are primarily for business use.
Currently, the ATO only allows for one item per FBT year for items that have a substantially identical function, unless you’re a small business – which can provide multiple items with similar functions! Score!
So, have any questions or think you may be exposed to FBT?
Then get in touch with the illumin8 team.