On 31 March 2017 the Fringe Benefits Tax (FBT) year ended and the ATO will be reviewing whether all employers who should be paying FBT are paying it, and also whether they are paying the right amount.
To assist in meeting FBT obligations every employers must know:
- Should you be registered for FBT?
- What information do you need to give your accountant
- Are there any changes to the FBT rates come 1 April 2017?
- How can you reduce your FBT liability
- Do you need to review your salary sacrifice agreements
FBT Rate Changes
As of 1 April 2017 the new FBT rates are:
– FBT Rate: 47%
– Type 1 Gross Up Rate: 2.0802
– Type 2 Gross Up Rate: 1.8868
Should you be registered for FBT?
You will need to be registered for FBT if you provide any employees including directors with:
• Car Parking
• Food, Drink and Entertainment
• Employee Discounts
• Reimbursement of personal expenses
What items are exempt from FBT?
If you provide these items it is unlikely that you will have to worry about FBT:
• Mobile Phones
• Lap Tops
• Portable Printers
• Protective Clothing
• Other minor infrequent benefits with a value of less than $300
Easier Way to Manage Vehicle Log Books
The ATO has a process for validating the business use percentage of a car for employers with 20 or more cars required for work related purposes This is the ‘simplified method’ and if the access conditions are met an average business use percentage to all ‘tools of trade’ cars in your fleet for first log book year and the next 4 years can be applied. The conditions that must be met are:
• Valid log books are kept for at least 75% of the cars in the log book year
• The model and make of the car are chosen by the employers
• Each fleet car has less value than the ‘luxury car’ limit when purchased, generally $64,132 in 2016/2017
• The cars aren’t provided under a salary packaging arrangement / employee remuneration package
• Your employees can’t choose to receive additional remuneration in lieu of using the cars.
Is it Time to Review your Salary Packages?
As the FBT rate changed on April 1 2017, all existing arrangements should be reviewed so that you and your employee know what the package looks like now that the rate is at 47%. The lower rates makes salary packaging less expensive and potential savings can be found. For example, for employees earning above $180,000 there is a one-off opportunity between 1 April 2017 and 30 June 2017 to reduce their taxable income with the FBT rate drop covering the 2% Debt levy imposed. Be careful though not to drop the individual’s income below the Debt levy threshold, and make sure the benefits provided under the salary sacrifice agreement replace amounts that would have been payable as salary, the employee agrees in writing to forego income before it is earned in return for benefits of a similar value, and the sacrificed amount comes out of the employee’s wages and not reimbursed into their bank account.
New Rules for Entertainment Benefits
Where an employee agrees to receive meal entertainment benefits instead of future salary, i.e. as part of a salary sacrifice arrangement, concessions have been removed as of the 2017 FBT year. The changes that should be noted are:
• These benefits are to be included in the employee’s individual fringe benefits amount being reported on the payment summary when it exceeds the $2,000 reporting exclusion threshold
• You can no longer use the 50-50 split or 12-week register methods to value these benefits
• A new separate $5,000 cap for ‘salary sacrificed’ meal entertainment benefit now exists for employees of charities and not-for-profits. If these benefits exceed the cap the excess will be counted toward their current $31,177 exemption or $17,667 rebate cap
Ways to Reduce your FBT Liability
• Replace your fringe benefits with cash salary
• Provide benefits that your employees would be entitled to claim as an income tax deduction if they had to pay for the benefits themselves
• Look at providing benefits that are exempt from FBT
• Use employee contributions such as an employee paying for some of the operating costs of car fringe benefit such as fuel that you don’t reimburse them for. Though you should note that employee contributions may be deemed assessable income to you and subject to GST
Julie Cameron – HTA advisory 2017
This article is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Integrity One Planning Services Pty Ltd is a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 (which is the holder of AFSL 225051). Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. We recommend that you seek personal advice from an advisor prior to implementing any of the information contained in this publication.