FBT: The Forgotten About Tax
Fringe Benefits Tax (FBT) is tax that is levied on non-salary benefits that employers provide to their employees (or associates), including company shareholders and directors. This tax is designed to ensure that employees are not receiving hidden benefits that are not being taxed. Examples of fringe benefits that may be subject to FBT include company cars, health insurance, gym memberships, and more. FBT is separate from income tax with the FBT year running from 1 April to 31 March, with the annual return lodgement due by 25 June each year. Due to the timing of the FBT year it is too late to consider the tax at the same time your company tax return is prepared.
The ATO has identified a $1 billion FBT gap (22% gap) between what is collected in FBT and what should be collected. This means that they are now increasing their compliance activities around FBT.
One of the most common types of fringe benefits that employers provide is the use of a company car. If an employer provides a car to an employee for both business and personal use, then FBT will usually apply. Motor vehicles therefore represent the low hanging fruit for the ATO. They have already identified significant levels of non-compliance in situations where an employer provides a motor vehicle to an employee for their private travel or makes it available to use privately. Situations that concern the ATO include when employers:
treat cars as 100% business use, even though they are used or available for private purposes
don't have a valid logbook, or the logbook is not a representative sample of actual travel
treat all eligible commercial vehicles as FBT exempt, without considering if the private use of the vehicle was limited.
The ATO also has sophisticated data matching programs, including:
Access to registration records to see if a company owns vehicles
Access to immigration records (looking for reported car usage when an employee is actually out of the country on holidays) and toll records (looking for trips on weekends and otherwise outside of work hours) to confirm what is declared in logbooks is correct.
You can read more about how FBT on motor vehicle benefits in our blog post, Fringe Benefits Tax Deep Dive: Motor Vehicles.
All in all there are a total of 13 fringe benefit categories. We have put together this handy FBT Checklist, adapted from the ATO’s very own FBT Audit Checklist, to help you identify the FBT risk areas within your business and as always we are here to help.
As with all other ATO compliance matters, there are risks in not complying with the FBT requirements. These include:
a) becoming a victim of ATO data matching programs
b) unlimited time for ATO to review, compared to a 3 year limit if a return is lodged (except in cases of fraud or evasion where there is no time limit)
c) Accumulating unknown and unquantified FBT liabilities
d) Failure to report Reportable Fringe Benefits which can have significant impacts on employees and former employees should the ATO perform a review on your business and require you to amend employee payment summaries.
In conclusion, FBT is an important tax that employers must pay on certain non-salary benefits provided to employees, which may not always be obvious. It is important to seek professional advice if you are unsure about your obligations.
If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.