Extension of FBT Concessions for Small Businesses
Recently, there has been some push for the abolition of Fringe Benefits Tax (FBT) as part of a wider tax reform. While there are merits to the idea, we are yet to see a credible, concrete alternative being proposed to impose tax on non-cash benefits. Until we do, tax accountants and advisers must still deal with FBT in the meantime.
In the latest development, many businesses will be eligible for a number of small business concessions for the first time due to an increase in the aggregated turnover threshold from $10 million to $50 million. The threshold increase was first announced in the 2020–21 Federal Government Budget in October 2020 and has now become law.
While most of the concessions will apply from 1 July 2021, the FBT related exemptions will apply for eligible businesses in respect of benefits provided on or after 1 April 2021. In particular, the following fringe benefits provided by newly eligible businesses will be exempt from FBT:
- car parking benefits; and
- multiple work-related portable electronic devices.
As it will be the first time businesses with an aggregated turnover between $10 million and less than $50 million to access these concessions, it is important to understand the respective requirements of the FBT concessions. Failure to satisfy the requirements mean the employers will be subject to full FBT.
Small Business Car Parking Exemption
A car parking benefit provided in an FBT year in respect of the employment of an employee is exempt from FBT if:
- the car is not parked at a commercial parking station;
- the employer is not a government body, a listed public company, or a subsidiary of a listed public company; and
- the employer is either:
- a Small Business Entity (SBE) for the last income year before the relevant FBT year; or
- the total of the employer’s ordinary income and statutory income is less than $10 million for the last income year before the relevant FBT year.
Employers can choose to utilise either one of the turnover/income tests for the third requirement.
The first turnover test is the SBE test. As mentioned above, the aggregated turnover threshold will increase from $10 million to $50 million effective 1 April 2021. This means employers that qualify as SBEs under the new aggregated turnover threshold in the 2020 income year will meet the third requirement.
However, there has not been a corresponding increase in the income threshold for the second turnover test. This means an employer wanting to rely on the second turnover test for the 2022 FBT year must ensure that the ordinary income and statutory income is less than $10 million in the previous income year (the 2020 income year).
The second test is particularly useful for group employers as the income of the employer’s associated entities (e.g. Head Company, subsidiaries, etc) are not included in the calculation under this test, whereas under the SBE test you must aggregate the turnover of all associated entities. Unfortunately, we now have two different thresholds depending on which test an employer may want to rely on.
Multiple Work-related Portable Electronic Devices (PEDs)
Businesses with an aggregated turnover between $10 million and less than $50 million will also be able to provide multiple work-related PEDs from 1 April 2021.
The provision of eligible work-related PEDs to an employee is exempt from FBT provided that the devices are primarily used for work purposes (e.g. more than 50% business use). Importantly, the exemption is not available to associates of the employees (e.g. family members), so the PED must be for the use of the employee.
PEDs include laptops, tablets, mobile phones, electronic diaries, personal digital assistants, portable printers and GPS navigation receivers. In addition, the cost of mobile phone calls, rental charges and phone accessories can also qualify for the exemption provided the phone satisfies the “primarily for use in the employee’s employment” test by reference to the ongoing actual use of the phone. This requires the phone to be used more than 50% for employment purposes.
However, PEDs do not include PCs, computer monitors or non-portable printers that are commonly provided by employers during the COVID-19 lockdown period. An FBT exemption or reduction may nevertheless be available for those items under the minor benefits exemption or the otherwise deductible rule provided the relevant requirements are satisfied.
MKT Note – WA lockdown and Work from Home Opportunities
At the time of writing this article, we do not know yet when the latest lockdown will end in WA. However, businesses with an aggregated turnover between $10 million and less than $50 million will soon be able to access these concessions for the first time. With many employers offering more flexible working arrangements and preparation for any future lockdowns, the provision of PEDs as part of an employee’s remuneration package could benefit both employers and employees.
If you have any queries on these FBT concessions or FBT in general, please contact Peter Hong.