RSM Australia

Fringe benefits tax – tax tips for year end

With 31 March just around the corner, many businesses are focusing on ways to reduce their fringe benefits tax (FBT) liability.

We have therefore provided the following strategies that may help in reducing FBT.

Car fringe benefits

For employers using the statutory method to calculate car fringe benefits, the employer must use one of the following two sets of rates, depending on when the arrangement with the employee was entered into:

Distance Travelled (km) Category 1
Pre-existing agreements entered into before 10 May 2011 (%)
Category 2
Agreements entered into after 10 May 2011 (%)
0 – 14,999

26

20
15,000 – 24,999 20 20
25,000 – 39,999 11 20
40,000+ 7 20

Category 1 include car fringe benefits where there was a pre-existing arrangement in place before 10 May 2011 that commitment has not been materially altered, including:

  • refinancing a car
  • alterations to existing lease contracts eg. changing the duration of an existing lease contract or changes to a lease to reflect a revised residual value
  • change of car
  • employer pays out a lease residual and continues to provide the cars as a fringe benefit

Given how common these events are, the reality is that most car fringe benefits calculated under the statutory formula method will now use Category 2 rates. This FBT year (2014/2015) is the first year in which all Category 2 rates have been set at a flat 20%. However, for those still qualifying for Category 1 rates, the old law still applies with all the progressive rates. Therefore, leading up to 31 March, if the vehicle is nearing the 15,000, 25,000 or 40,000 kilometre thresholds, where possible, drive it a few extra kilometres so it crosses one of the above thresholds and therefore attracts a lower rate.

If the log book method is being used to calculate car fringe benefits, you will need a valid log book over 12 weeks to establish the business use percentage for the vehicle by 31 March.

Log books are valid for five financial years. If you first kept a log book for the 2009/2010 FBT year, you must have kept a new log book for 2014/2015. If you do not yet have a valid 2014/2015 log book, it is not too late to keep a log book to substantiate the private use of the vehicle for 2014/2015. Log books can commence at the end of the FBT year even though the end of the 12-week period for which it needs to be maintained may extend beyond the end of the FBT year.

Car parking

Car parking FBT only applies if employees are parking a 'car' for a period or periods exceeding 4 hours in the day. In a lot of cases where employees use their cars for business, away on leave or business trips, they will not be using their parking bays for more than 4 hours. Therefore, if employers have records (eg. employee declarations, log books etc.) which can substantiate that employees are not using the parking bay for more than 4 hours in the day, they can reduce their FBT on parking significantly.

Furthermore, car parking fringe benefits only apply to 'cars', therefore employees parking vehicles which are not cars will not be subject to car parking FBT. Vehicles designed to carry loads of 1 tonne or more, 9 passengers, or in some cases, utes, dual cabs and vans may not be subject to car parking FBT.  It may be a good idea for an employer to find out what type of vehicle the employee is driving as this may reduce the car parking fringe benefits.

Entertainment

In a lot of cases, employers include items such as meals whilst travelling on business, coffee with clients and working lunches etc., as meal entertainment. In most cases these expenses do not qualify as meal entertainment and are not subject to FBT. We would recommend that the entertainment account be scrutinised and this non-entertainment expenditure be removed, reducing the FBT liability.

Minor benefits

Work related items such as portable computers, mobile phones and portable printers are exempt from benefits. However, these benefits are limited to one item per FBT year.

In-house benefits

The taxable value of in-house benefits is reduced by $1,000 per year. The provision of in-house benefits (ie. goods or services usually sold by the employer) may be a tax effective way of rewarding employees. However, this $1,000 reduction is not available if the benefit is provided under a salary sacrifice arrangement.

Documentation

Employers should ensure they have processes in place to capture employee declarations, log books, travel diaries etc., to enable them to reduce any FBT liability.

New rates

Don’t forget when preparing your FBT calculations for 2014/15 that the new FBT rate is 47% and the gross up rate is:

  • type 1:   2.0802
  • type 2:   1.8868

These rates will change again for 2015/16.

The reporting rate on employees’ payment summaries is 1.8868.

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