Fringe Benefits Tax (FBT) is a tax imposed on employers if they provide non-cash/fringe benefits to their employees. Commonly provided fringe benefits that may attract FBT include work cars made available to employees for private use, the provision of entertainment, such as, meals at restaurants, tickets to sporting events, corporate boxes, office Christmas parties and regular Friday afternoon drinks.
The FBT period runs from 1 April to 31 March each year. Employers must self-assess and lodge an FBT return if required. For this FBT year, the Australian Taxation Office (ATO) has outlined the following list of FBT issues that attracts their attention:
- not lodging FBT returns (or lodging them late) to delay or avoid payment of tax;
- not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates;
- failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming reductions for these benefits;
- claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising;
- mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer’s tax return; and
- incorrectly calculating car parking fringe benefits due to either significantly discounting adequate evidence.
If an employer has an obligation to lodge an FBT return but has not done so, the ATO has the power to issue FBT assessments to the employer going as far back as possible. This is because the three-year amendment period that is generally available to employers that lodge their FBT returns is not triggered for employers that have never lodged FBT returns before. Some employers may lodge nil FBT returns every year to get around this issue and get ‘the clock ticking’. However, lodging a nil FBT return may attract an ATO audit and an administrative penalty and interest may be imposed where the employer is found to have an FBT liability.
The better solution is for an employer to have a system in place to identify fringe benefits provided to employees and seek advice from its tax adviser or accountant. In particular, employers should pay attention to the list of FBT issues on the ATO’s radar as outlined above. If it is concluded that there is no FBT liability, a non-registered employer is not required to do anything. If the employer is registered for FBT but has no FBT liability, an FBT non-lodgement advice form should be prepared and submitted to the ATO.
Finally, it is a common mistake to assume that FBT does not apply to the private use of business assets (such as, company cars) by business owners that operate their businesses out of companies or trusts. The definition of an ‘employee’ for FBT purposes is wide enough and could include the business owners even if they are not paid wages/salaries from their businesses.
If you have any queries on FBT in general, please contact Peter Hong.