FBT Return – To Lodge or not to Lodge?
What is Fringe Benefit Tax (FBT)?
Fringe benefits tax (FBT) is completely separate from income tax. It is paid on certain benefits provided to employees or their associates (generally family members), including directors or beneficiaries of a trust, working in the business.
Examples of fringe benefits include:
- making vehicles owned or leased by the business available to employees for private use
- providing any employees with goods at a lower price than they are normally sold to the public
- forgiving or releasing any debts owed by employees
- paying for, or reimbursing, any private expenses incurred by employees
- providing a house or unit for accommodation to employees
- providing loans at reduced interest rates to employees
- providing entertainment by way of food, drink or recreation to employees (including Xmas parties)
- providing any employees with a salary package (salary sacrifice) arrangement
- providing employees with living-away-from-home (LAFH) allowances
Similarly to any other tax returns, you as a business owner are responsible for telling the ATO of your potential liability. Because even though Fringe Benefits Tax (FBT) is designed to capture benefits an employee enjoys, it is levied on the employer. Unless your employment agreement allows for any FBT that becomes payable to be recouped from the employee, the employer will have no recourse for reimbursement.
I don’t have any FBT payable. Why should I lodge?
The ATO says that you are not required to lodge FBT return if you don’t have FBT liability (i.e. if the liability has been completely eliminated by the employee contribution). However… Lodging your FBT return REDUCES RISK OF ATO AUDIT to just the past 3 years.
Without an FBT return being lodged, the ATO has the discretion to launch an audit into activities as far back as a business has had employees. Without the evidence (e.g. signed declarations, logbooks, meal entertainment records, etc.) that FBT was NOT payable in each year, the ATO is likely to raise FBT liabilities, even where the employee who enjoyed the benefit no longer works for the business. Thereby making it impossible for the business to recoup anything.
When an employer believes they have done everything in accordance with legislation, people will make mistakes. A common mistake occurs when an employee is provided with a car, and the private use is worked out using the operating cost (logbook) method. A part of using the logbook method is working out deemed depreciation each year. Many accountants overlook this or work it out incorrectly by relying on the depreciation claimed on the business’s financial statements. This mistake can give rise to an FBT liability where the calculated employee contribution is insufficient to remove the car’s taxable value.
If a mistake like this is identified, the ATO is likely to review the entire period that the business owned the car. Lodging an FBT return would limit the length of time the ATO can audit to three years.
Another common mistake is not maintaining a register of which employees are the recipient of meal entertainment benefits.
Not all meal entertainment benefits are treated the same, so maintaining a register is vital.
For example, you have two employees, John & Dave. John’s job is to go out and impress current and potential clients at various social events where food and beverages are consumed. On the other hand, Dave’s role is to remain in the office and complete the projects that John wins. At the year-end social function, the food and drink that John consumes will not qualify as exempt meal entertainment; however, the food and beverage consumed by Dave will be exempt. Without the records to confirm who received meal entertainment benefits and the absence of a completed FBT return, the ATO has unlimited scope to audit your records for liabilities.
The ATO has signalled that there will be an increased focus on FBT this year, so if you would like to limit the ATO’s ability to launch an audit retrospectively, please get in touch with your advisor at DJ Grigg Financial today.