A guide to FBT returns for employers

Employers who are not lodging Fringe Benefits Tax (FBT) returns should be aware that this is a key risk and ongoing area of focus for the ATO. Not all employers are required to lodge FBT returns, however the ATO may require them to justify their decision not to lodge. To assist employers in navigating FBT requirements, we’ve outlined some key points and provided a checklist.

When is a return necessary?

Whenever a benefit is provided to employees, the requirement to lodge an FBT return may be triggered. This requirement may be satisfied quite easily for a number of reasons:

  1. The definition of ‘benefit’ is quite broad. The ATO have provided a list of questions to help employers identify when a benefit is being provided and our checklist is a good reference
  2. The benefit does not have to be provided directly to the employee. A benefit provided to an associate of the employee may also trigger FBT
  3. The benefit does not have to be provided by the employer, or even with the employer’s knowledge.

What about benefits with nil value?

Employers providing benefits that have nil taxable value for FBT purposes are not strictly required to lodge an FBT return. However, it may well be advisable to do so. Without lodgement of an FBT return there is no time limit on the ATO’s power to revisit prior years. In contrast, where returns are lodged the ATO review powers are generally limited to between three and six years prior.

This is particularly important when benefits have a nil value due to employee contributions.  If an error is detected in how benefits have been calculated, the employee contribution could be insufficient to eliminate the amount of FBT payable.  In this situation, there is no time limit on the ATO’s power to raise additional assessments of FBT for prior years.

The impact of specific types of benefits

Vehicle fringe benefits are very common and employers are provided choice as to the method they use to calculate the taxable value of car fringe benefits. However, the election which must be made in order to use one of these methods – the ‘operating cost method’ - can only be completed when lodging an FBT return. Employers that use the operating cost method, even where the taxable value of the benefit is reduced to nil via employee contributions, are effectively required to lodge FBT returns.

We’ve prepared a checklist to help determine whether you may be liable for FBT. If you would like to discuss your situation and whether you are required to lodge a return, please contact your local BDO Adviser.

Watch our webinar: Fringe Benefits Tax Update 2022