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FBT Year-End is Fast Approaching

FBT Year-End is Fast Approaching

23 January 2013

Fringe Benefits Tax (FBT) is a tax payable by employers for benefits paid to an employee or the employee's associate in place of salary or wages. 

If an employer provides fringe benefits to employees during the year, they typically must pay fringe benefits tax (FBT) and lodge an FBT return with the Australian Taxation Office (ATO) unless all benefits are being “cashed out”. 

The fringe benefits tax (FBT) year ends 31 March 2013; the FBT return declares fringe benefits provided during the period 1 April 2012 to this date. FBT returns must generally be lodged and associated payments made by 28 May 2013. 

Are you providing fringe benefits? 

The first step is to consider you are providing 
your employees with a fringe benefit. If you answer yes to any of the following questions, you may have an FBT liability. 

  • Do your employees take cars home and garage them overnight, even if only for security reasons? 
  • Do you make a car or other vehicles owned or leased by the business available to employees for private use? 
  • Do you provide loans at reduced interest rates to employees? Or have you released any employees from a debt they owed? 
  • Have you paid for, or reimbursed, a non-business expense incurred by an employee? 
  • Do you provide employees with accommodation or non-specific allowances? 
  • Do you provide entertainment by the way of food, drink or recreation to your employees? 
  • Do any of your employees have a salary package arrangement in place? 
  • Have you provided your employees with goods at a lower price than they are normally sold to the public?

FBT rates for the 2013 FBT year 

An employer’s FBT liability is calculated by applying the FBT rate (46.5% for the FBT year ending 31 March 2013) to the fringe benefits taxable amount. 

To calculate the fringe benefits taxable amount, the benefit is “grossed-up”. If you are entitled to claim a Goods and Services Tax (GST) input tax credit in respect of the benefit the gross-up rate is 2.0647; if a GST input tax credit is not able to be claimed the gross-up rate is 1.8692. 

Reportable fringe benefits 

If you provide fringe benefits with a total taxable value of more than $2,000 to an employee in an FBT year, you must report the grossed-up taxable value on the employee’s payment summary for the corresponding income year. 

The grossed-up amount you show on the payment summary is calculated by multiplying the total taxable value x gross-up rate. Regardless of the type of benefit provided the lower gross-up rate of 1.8692 should be used. For example, if you provide benefits with a total taxable value of $1,500 to an employee during the FBT year 1 April 2012 to 31 March 2013, you would show the grossed-up taxable value of $2,803 ($1,500 x 1.8692) on their payment summary for the year ended 30 June 2013. 

FBT-exempt benefits 

Some benefits you provide to employees are exempt from FBT, for example: 

  • Certain work-related items such as a briefcase, tools of trade, a mobile phone or laptop computer (if primarily used for work-related purposes); 
  • Minor benefits to a maximum value of $300 each that are provided infrequently and irregularly;

Preparing for FBT Year End 

  • For cars valued using the statutory formula method, the kilometres travelled prior to 31 March 2013 should be maximised if close to reaching the next kilometre threshold. 
    The Government has legislated to move to a single statutory rate of 20% from 1 April 2015. In the interim period, transitional arrangements are in place whereby the statutory rate for cars travelling between 25,000 and 40,000 kilometres is 17% and for cars travelling in excess of 40,000 kilometres the rate is 13%. This statutory fraction decreases the taxable value of the car, thereby lowering the corresponding FBT liability.
  • Employers should request odometer readings for each car used to provide a fringe benefit on 31 March 2013.
  • Employers should commence collating receipts/records in relation to any unreimbursed employee expenditure incurred in respect of car fringe benefits for example, fuel, car wash expenses, repairs, insurance and registration. These GST inclusive amounts can be used to lower the taxable value of the car fringe benefit. 
  • Employers should review salary packages and general ledger accounts to identify potential fringe benefits. 
  • Receipts relating to any other employee expenditure associated with the provision of benefits should start to be collected. This can be a time consuming process, so it is advisable for employers to start FBT administration early before the return lodgement deadline arrives. 

Statistics from a few years ago indicated that 70% of employers were non-compliant with their FBT obligations and 69% failed to lodge an FBT return. In response the ATO has broadened its reach over the past few years to the small and medium business sectors for FBT compliance and auditing activities. 

The rules in relation to FBT are complex. It is advisable to seek advice from your local Boyce Accountant about strategies to reduce your FBT liability and for assistance in ensuring your FBT return is accurate and your records will withstand an ATO audit. 

Brian Wray, Boyce Tax Specialist

Source: Australian Taxation Office

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