• Federal Budget 2020-2021

Fringe Benefits Tax amendments

The Federal Budget includes a number of Fringe Benefits Tax (‘FBT’) amendments, as outlined below.

No more car parking fringe benefits for SMEs

This proposed measure will expand the current FBT exemption for small business car parking fringe benefits to include businesses with an aggregated annual turnover between $10 million and $50 million.

The Fringe Benefits Tax law currently includes an exemption for car parking fringe benefits for small business entities, which in this context applies generally to those employers with annual turnover less than $10 million.  This means that medium employer businesses, often referred to as having turnover between $10 million and $50 million, are currently ineligible for the car parking fringe benefit exemption.

This measure proposes from 1 April 2021, that eligible businesses will be exempt from FBT on car parking if the car parking is not provided in a commercial car park, where aggregated turnover is less than $50 million. 

Businesses that are not eligible under the current FBT exemption, which presumably will also be ineligible under the proposed changes to the exemption, include the following entities:

  • Public companies, or subsidiaries of public companies;
  • Government bodies.

BDO Comment

In a surprise move, the government has proposed to extensively eliminate fringe benefits tax on car parking fringe benefits. We join in the chorus of cheers around the nation as medium sized employers learn of this proposed development.

Interestingly, the announcement refers to aggregated annual turnover, when stating the turnover thresholds of between $10 million and $50 million.  However, the current FBT exemption in Section 58GA of the FBT legislation does not refer to aggregated turnover, but instead refers generally to turnover only.  Therefore under the current FBT exemption, where a group of entities has aggregated turnover of greater than $10 million, but the employer entity in the group has less than $10 million in turnover, then the current FBT exemption can still apply to that employer entity to exempt car parking fringe benefits.

This is also an interesting development, considering the release in November 2019 of the updated draft tax ruling on car parking fringe benefits and the FBT Employer Guide Chapter 16 re-write by the Australian Taxation Office, which potentially expands the meaning of commercial parking stations to include commercial shopping centre paid car parking facilities.  These changes were viewed as having the potential to significantly increase employers’ FBT liabilities and compliance costs.  Perhaps the government has realised that employers will not have an appetite for these changes from the draft tax ruling in the current economic COVID-19 environment. 

BDO welcomes these Federal Budget measures to expand the exemption for car parking fringe benefits, thereby reducing employers’ FBT liabilities and compliance costs.

Fringe Benefits Tax exemption – employer-provided retraining

The Government announced that certain employer-provided retraining and reskilling will be exempt from Fringe Benefits Tax (‘FBT’).

FBT applies where an employer provides training to its employees that is not sufficiently connected to the employee’s current employment.  For example, a business that retrains their sales assistant in web design, to redeploy them to an online marketing role in the business, can be subject to FBT on the retraining costs. 

The Government clearly wishes to encourage employers to help workers transition to new employment opportunities within or outside their business.  Therefore, this proposed measure will treat retraining and reskilling costs incurred by employers and provided to redundant or soon to be redundant employees, as exempt from FBT from 2 October 2020.

However, the exemption will not extend to:

  • Retraining acquired by way of a salary packaging arrangement; or
  • Training provided through Commonwealth supported places at universities (ie generally undergraduate degrees).

In addition, the Government will consult on potential changes to the current arrangements for workers that undertake training at their own expense. The current rules, which limit deductions to training related to current employment, may act as a disincentive for Australians to retrain and reskill to support their future employment needs

BDO Comment

Any FBT exemption is welcomed as it will reduce costs and compliance burdens for employers. However, one would think that where the employee was moved into the new position first and then retrained, the employer would not need to rely on this proposed FBT exemption, and therefore it may not be as relevant in practice.

It is important to note that this proposed measure will not provide an exemption for FBT on expenditure on undergraduate degrees, as this is specifically excluded from the measure.  Also it only provides tax relief for employers. Where the employee incurs such expenses themselves without reimbursement from their employer, there is no tax relief as such expenditure remains non-deductible. 

Multiple work-related electronic devices to be FBT exempt for SMEs

Small and medium sized employers will be able to provide multiple work-related portable electronic devices without incurring FBT liabilities under this proposed measure.

Under the current FBT law, eligible work related items such as phones, tablets and laptops provided primarily for use in the employee’s employment are treated as exempt from FBT.  However, additional items acquired in the same FBT year for that employee, would not be exempt, where there are substantially identical functions to an earlier item acquired (unless it was a replacement item eg where the item was lost or destroyed). 

The law was changed for the 2016/17 FBT year and later years to remove this requirement that the items have substantially identical functions, for small business entities (generally entities with aggregated annual turnover of less than $10 million).

The proposed Federal Budget measure will also remove this requirement for entities commonly referred to as medium sized entities, being those entities with aggregated annual turnover of between $10 million and $50 million.  It is proposed that this measure commence from 1 April 2021.

BDO Comment

This exemption helps reduce uncertainty in the application of the FBT law, and prevents eligible employers from having to track previously provided equipment and determine whether those portable electronic devices have substantially identical functions.  BDO supports this measure as it allows eligible employers to provide employees with the equipment they need to carry out their work duties without the risk of incurring FBT liabilities. 

Fringe benefits tax – reduced compliance burden on employers

The Government is proposing to reduce the current fringe benefits tax (FBT) return record-keeping obligations by allowing employers to use existing corporate records.

Currently, employers have an obligation to keep records for up to five years that are adequate to enable their FBT liability to be assessed. These records need to validate the taxable value of the fringe benefits provided and the method of allocation to employees where relevant. Although there are some standard records that need to be kept, such as invoices and receipts, there are additional records that employers need to create such as employee declarations. 

This can be quite burdensome for employers. For example, there are currently 20 different forms available on the ATO website, providing different declarations for employers to use for their record keeping. It can be quite time consuming in practice to prepare and obtain all the relevant signed declarations from employees in time for lodgement of the FBT return.

This proposed measure will reduce the record-keeping obligations by allowing employers to rely on existing corporate records that are determined by the Commissioner to be adequate alternative records. This reduces compliance costs and removes the need for employers to create additional records. This measure is proposed to begin on 1 April from the start of the first FBT year following the Royal Assent of the relevant legislation.

BDO Comment

Whilst the Government aims to reduce the burden of record-keeping for employers, there is ambiguity in the proposed measure that leaves the employer in the position of a rider without a designated track. Until further clarification from the Commissioner is provided to determine which corporate records will be considered ‘adequate’ as alternatives, employers will be navigating their way through rough and dangerous terrain. Will employers really be willing to risk non-compliance by leaving these ‘additional records’ uncompleted?  What type of records will be considered adequate alternatives in the place of an employee declaration for the private use of a fringe benefit?

When focussing on the impact of this budgetary measure on employee declarations, there are some potentially positive impacts for the employer. Employee declarations require signatures and there are often difficulties in obtaining them in time for lodgement of the FBT return. Where employees have left during the year or no signature is obtained, employers are often left in the position of paying more FBT than they should. This measure will have the potential flow-on impact of reducing the overall FBT paid by an employer.