Top 5 Fringe Benefits Tax Black Spots

With another Fringe Benefits Tax year about to end, it’s a good time to look at the common pitfalls in Fringe Benefits Tax – the ‘black spots’.

Black Spot 1: Motor Vehicles
If a car either owned or leased by the employer is available for the private use of an employee, this may constitute a fringe benefit. The key word here is ‘available’.

The ATO will consider a car to be available for an employees private use:

    1. Where the employee used it for private purposes
    2. Where the employee was permitted to use it for private purposes
    3. Where it was garaged at or near the employees home, even if for security reasons, or if the place of residence is the same as the place of employment

This applies even if the vehicle is used for work purposes as well.

Travel to and form work is generally considered as private use of a vehicle.

It is not safe to assume that what isn’t reported to the Australian Taxation Office (ATO) isn’t known or can’t be known by the ATO. Their intelligence has been significantly increased with more data matching being done and audits are regularly undertaken. For example – by looking at your odometer readings and matching them to the business work schedule they can ascertain whether a car has been used for private purposes.

The definition of a car for Fringe Benefits Tax purposes can be viewed at:

Black Spot 2: Utes and Commercial vehicles
The Fringe Benefits Tax Act provides exemptions regarding the provision of selected vehicles (such as utes and commercial vehicles) where the private use is limited to work related travel and “minor, infrequent and irregular” personal use. The challenge has been knowing whether private use is consider “minor, infrequent and irregular in the eyes of the ATO.

For the exemption to be granted:

    1. The employer must provide an ‘eligible’ vehicle to the employee for use in performing their work duties – there are strict guidelines on what constitutes an ‘eligible’ vehicle
    2. The employer must take reasonable steps to limit private use
    3. The employer must have measures in place to monitor private use
    4. The vehicle can not be fitted with any non-business accessories (eg baby capsule or booster seat)
    5. When the vehicle was aquired the value must have been less than the luxury car tax threshhold ($75,526 for fuel efficient vehicles in 2017-2018, or $65,094.00 for other vehicles)
    6. The vehicle cannot be provided under a salary sacrifice arrangement
    7. The vehicle is not used for wholly private travel amounting to more than 750 km in total for each FBT year
    8. The vehicle is not used for wholly private travel amounting to more than 200 km for a single return trip
    9. Where the vehicle is used for travel between work and home no diversion adds more than 2 km to the ordinary length of that trip
    10. Where it was garaged at or near the employees home, even if for security reasons, or if the place of residence is the same as the place of employment
    11. The employer needs to keep records to show that these conditions have been met and that private use is monitored and restricted.

If you can meet everything listed above, the ATO has stated it will not investigate the use of the FBT exemption further. We’d hope so!

Black Spot 3: Car Parking
The ATO has picked up that where the provision of car parking benefits is being declared, the value declared is rather less than what they would expect to see for a commercial rate.

If you are providing car parking fringe benefits ensure that:

    1. You retain sufficient evidence to support the rates used as the lowest fee charged for all day parking for a commercial parking station
    2. The value of the car parking benefit provided is comparable to what would be charged for parking within a one kilometre radius of the premises where the vehicle is parked
    3. You don’t use rates or premises that are not easily identifiable as a commercial parking station or do not have any car parking infrastructure.

Note there are exemptions on car parking benefits provided by small businesses where certain criteria is met. Check out this link to see if you qualify:

Black Spot 4: Living Away From Home Allowances
An employer can pay a Living Away From Home Allowance (LAFHA) to an employee where they are required to live away from their normal residence as perform their job. The purpose of this is to offset additional expenses the employee may incur or disadvantages they may suffer as a result of not being able to live at home. Normally fringe benefits tax would apply to the full allowance paid.

However there is a provision whereby if certain conditions are met the taxable value of this fringe benefit can be reduced by the exempt accommodation and/or food components which can cause confusion.

To make sure you get the Fringe Benefits Tax right on this one:

    1. Remember an employee just travelling in the course of their work would not normally be considered as living away from home
    2. Make sure you obtain the necessary declarations from any employees who have been paid an LAFHA
    3. Make sure that any reductions being claimed for exempt accommodation and/or food actually meet the criteria
    4. Ensure all accommodation and/or food and drink expenses are substantiated, and have actually been incurred. The ATO is on the lookout for scenarios where an employee is paid an allowance but then says with friends or relatives or somewhere cheaper, and pockets the difference.

Black Spot 5: Salary Sacrifice or Employee Contribution
It is important to recognise the differences between an employee Salary Sacrificing to receive a fringe benefit and an employee making a contribution towards the value of the fringe benefit. This is because the income tax, GST and FBT implications are different so if you get it wrong then you may be exposed to FBT or have a GST or income tax liability.

Under a Salary Sacrifice arrangement:

    1. An agreement is entered into before the employee earnt the income that is being salary sacrificed
    2. Once the income has been earnt the salary sacrifice amount is withheld from the employee’s gross pay as a pre-tax deduction
    3. The employer then has a fringe benefits tax obligation on the value of the fringe benefit, which is offset in the savings they make through having lower salary/wages for the employee
    4. The employee receives a reduced amount of salary/wages but also receives a non-cash payment in the form of the fringe benefit.

Under an Employee Contribution arrangement:

    1. An employee pays a contribution back to the employer from their post-tax income towards the fringe benefit
    2. The employee reports their gross salary/wages on their income tax return, including the amount paid back to their employer
    3. The employee’s post-tax payment back to the employer would generally reduce the taxable value of the fringe benefit provided by the employer
    4. The employer is still responsible to withhold PAYG and pay superannuation on the gross salary and wages amount paid to the employee.

If you have any question about Fringe Benefits, we would be happy to discuss this with you. Call us on 03 5339 3200 or contact us here.

Thanks for reading.

By Genna Kidd

The information contained on this website has been provided as general advice only.  The contents have been prepared without taking account of your personal objectives, financial situation or needs.  You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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