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RSM SWITZERLAND AG | NEWSLETTER 09/16
The deductible amount for commuting expenses has been reduced to an annual maximum of CHF 3,000 as far as the direct federal taxes are concerned. The cantons are free to apply different thresholds. For employees with company cars, the employer is obliged to provide additional information on the (annual) salary certificate. The calculation of the additional information could be a challenge for the employer. We will explain what FABI entails and we also provide some options to deal with it.
What is it about?
The FABI-Framework restricts the deductible amount related to commuting expenses, which can be deducted in the private tax return of the employees concerned. FABI does not imply “grossing-up” of general expenses related to company cars. The FABI-Framework does also not restrict the private use of company cars.
From the tax period 2016 onwards, employees can only deduct a maximum of CHF 3’000 per year from their direct federal taxes. Many cantons such as Zurich and Aargau currently have no limits for 2016.
The implications for the employer
The restriction of the deductible commuting expenses affects the salary certificate issued to the employees. Employers must declare the portion of external “field” activities of employees with a company car. The portion of the external “field” activities have an impact on the deductible commuting expenses. In case an employee drives directly to a customer at the start of his working day and returns directly back home at the end of his working day from a customer, then no private commuting expenses can be taken into consideration.
On July 15, 2016 the tax authorities published a Directive on this subject. The tax authorities are aware of the fact that the accurate “logging” of the employees’ external “field” activities days can become an excessive administrative burden for the employer. Therefore, the use of fixed/flat rates has been introduced, as well. The percentage of external “field” activity is important for the employee since it reduces the amount, which can potentially be set-off. The following calculation example helps to illustrate this:
Calculation example from the tax authorities (DBST)
If an employee commutes 25 kilometers from home to his work with a company car, the applicable equation of CHF 0.70 multiplied with 220 working days results in an amount of CHF 4'700.
|25 km x 2 x 0.70 x 220 x 40% =||CHF||7'700|
If the employee has worked for 60 % of his time working in the field (driving 3 of 5 working days a week back and forth from home to the customer), the results looks as follows:
|25 km x 2 x 0.70 x 220 x 40% =||CHF||3'080|
Determining the percentage of the employees external “field” activities
The example above shows that the portion of the external “field” activities is key to determine a tax benefit for employees with a commuting distance of only 10 kilometers (10 km x 2 x 0.70 x 220 = 3'080). Which approach is commonly used to determine the percentages?
Application of the fixed/flat rates according the directive of the tax authorities
The employer determines the employees’ portion of external “field” activities based on the tax authorities’ directive and applies this consistently for all employees. The salary certificate is created without involvement of the employees. The responses from employees that will come are predictable. At the latest during their preparation of the tax return, the comments from the employees will be claiming that the percentage rate stated in paragraph 15 is too low. It is to be expected that the employees are concerned that the percentage should be higher, for example, for external training and further education, illness or accident abroad, additional trips directly to the customer, etc.
The salary certificate is a legal document. The employer is obliged to provide truthful information on the salary certificate. The declaration of arbitrarily high percentage of external field activities is not allowed.
Determination of the “effective” portion of the employees’ “field” activities
The portion of external “field” activities is based on the “AS IS” data. The employees must document all commuting time (incl. trips to and from customers) in a logbook. The employer must verify the self-declaration, to ensure that the resulting information is correct for the salary certificate. The records are to be archived.
Under certain circumstances, other existing records (calendar records, information from the work-time recordings) can be used.
For the employees, the documentation of the effective travel will take some effort and is likely to be unpopular. With only a few employees affected by the scheme, the situation for the employer is still manageable and controls are easily possible. However, if more than a dozen of employees are concerned, the correct preparation of the salary certificate will be very complicated, if no automated processes can be implemented.
For the employees, the essential basis of their taxation is the salary certificate. The employer must confirm the portion of the employee’s external “field” activities in the comments section of the salary certificate (paragraph 15). This certification is to be stated for the first time on the salary certificate for the year 2016.
It is recommended that the employer contacts the employees prior to the preparation the salary certificate to inform the employees of the declaration of the percentage related to the external “field” activities. Clear rules ensure transparency. The latter allows the employer to avoid difficult discussions with the employee.
This information should give you a rough overview. The most suitable option (fixed/flat rates or effective determination of employees’ portion of external “field” activities) should be discussed in detail. We would like to support you in the implementation of FABI. Our consultants will be happy to help in case you have any questions.