With 31 March just around the corner, employers are beginning to think about their Fringe Benefits Tax (‘FBT’) obligations. It can be helpful to know what the Australia Taxation Office (‘ATO’) is focusing its attention on this FBT season.
This year the ATO is focussing on the following key areas:
1. Motor vehicle benefits
If an exemption has been applied to a vehicle, such as a commercial vehicle, has the exemption been applied correctly? Specifically, have the principles in Practical Compliance Guideline 2018/3 (‘PCG 2018/3’) been applied to the private use of the vehicle? In particular, ensuring that you have appropriate evidence to demonstrate that the private use of the vehicle is ‘minor, irregular and infrequent’.
2. Living-Away-From-Home Allowances (‘LAFHA’)
A LAFHA is an allowance paid to an employee to compensate for the additional expenses incurred because their employment requires them to live away from their usual residence.
The value of the LAFHA can be reduced under certain circumstances. The ATO will focus on situations that involve:
- Claiming reductions for accommodation and food in invalid circumstances or for ineligible employees, such as applying the reduction for more than 12 months for a non-Fly-In-Fly-Out employee or for an expatriate employee who has temporarily relocated to Australia.
- Failing to obtain the necessary declarations from employees
- Failing to substantiate expenses where required
3. Car parking valuations
In terms of car parking, situations that attract the ATO’s attention include:
- Using market valuations that are significantly less than the fees charged for parking within a one kilometre radius of the premises on which the car is parked
- Using a rate paid for a parking facility that is not readily identifiable as a commercial parking station, such as a car park not intended for the use of the public
- Using rates charged for parking on properties purchased for future development that do not have car park infrastructure
- Having insufficient evidence to support the rates used in the FBT return
This includes situations where employers are using hospital car parking rates or train station car parking rates to value the car parking provided to their employees. Where the ATO believes an invalid market valuation has been used, they may seek to amend an employer’s FBT liability based on a revised market valuation of their choice.
4. Employee contributions
The ATO will check that where employee contributions are used in the FBT return to reduce the taxable value of benefits, that a corresponding amount has been included in the Income Tax Return.
They will also look to see that any GST on employee contributions has been appropriately accounted for.
5. The FBT rebate
There are specific criteria that organisations must meet in order to be eligible for the FBT rebate, which only applies to not-for-profits and certain other institutions. The ATO will be checking that the employers claiming the FBT rebate are indeed eligible to receive it.
An employer who provides fringe benefits must lodge a FBT return unless the taxable value of all benefits has been reduced to nil – in which case a notice of non-lodgement must be lodged instead.
The ATO will look at employers who fail to identify benefits being provided to employees, and those who miscalculate the value of the benefits or the reduction in taxable value applied.
The ATO can use other sources of information such as Income Tax Returns and Annual Reports to check against the expected disclosures in the FBT return. For example, the ATO will target employers who claim expenses in the Income Tax Return that are normally associated with fringe benefits, such as car expenses and entertainment.
We recommend reviewing the benefits provided to employees to guarantee all fringe benefits are captured in the 2019 FBT return and disclosed correctly. Ensure all the necessary declarations are obtained by employees prior to lodging the FBT return on 25 June. If you have specific concerns regarding any of the issues on the ATO’s FBT watch list, please contact our FBT team.