Caravan park and tourist park owners are busier than ever – but it’s important to stay on top of the books. In particular, the proper valuation of fringe benefits and properly calculating Fringe Benefit Tax (FBT) to stay tax-compliant.
Owning or operating a caravan park can be a fantastic lifestyle, but it certainly isn’t a permanent vacation. There is little opportunity for downtime with employees and finance to manage and asset maintenance to keep on top of.
With domestic travel at an all-time high as Australians take off to explore their own backyard, it’s certainly a great time to be a caravan park or tourist park owner – Many are experiencing exceptionally high, or even record level, revenue and turnover.
The value of caravan and tourist parks has increased over the past couple of years, with some exceptions. In addition, the market value of accommodation each night has increased more than it usually would year on year.
With more guests, owners will need to take more time out of their busy schedules to keep up with the books. In particular, paying attention to the proper valuation of fringe benefits and properly calculating Fringe Benefit Tax (FBT) to stay tax-compliant.
We’re all on the road
As one of the few forms of travel that’s remained open during the pandemic, business in many tourist parks is booming. Data collected and analysed by our team, in partnership with the Caravan Industry Association of Australia, shows those states which have not experienced extended lockdowns enjoyed record monthly occupancy rates and significant increases in revenue in 2021 when compared to 2019.
While the sector is yet to make up for the huge losses experienced in 2020, it is positive to see this upturn in Australians booking trips to their local tourist parks.
Looking at the books
Fringe benefits often catch out tourist park owners when handling their bookkeeping. FBT is paid by employers on non-cash, non-salary benefits paid to employees or the employee’s family. A fringe benefit is any compensation to an employee paid in addition to, or instead of, salary.
The most common fringe benefits relevant to tourist park owners are:
- Accommodation for site managers
- Utilities for those accommodations such as gas or electricity
- Phones, phone plans, laptops, tablets or printers
- Use of a company-owned motor vehicle.
Other fringe benefits might include paying school tuition for an employee’s child, a gym membership or discounted loans. Whenever employers are compensating their employees in a way that isn’t their salary, they need to stop and think about FBT.
Employers are often prone to thinking ‘it’s fine, it’s work-related,’ or - in the case of accommodation - ‘It’s necessary.’ Rather than making these assumptions, tourist park owners should speak to their accountant or tax adviser to make sure they aren’t getting it wrong.
How is FBT calculated?
First, know that any fringe benefit you give must be valued.
For example, you may have given your full-time groundskeeper a ute to drive. Even if you’ve fully depreciated that vehicle for income tax purposes, it still has value for the purpose of FBT.
The value of lodging accommodations will also need to be calculated. When the nightly rate at your park increases, so too does the value of accommodation you provide your employee.
Your accountant or tax professional can employ several methods to help you assign a taxable value to the fringe benefit. There are different rules for calculating each type of benefit, and once made, a further series of calculations will help determine your FBT bill. Typically, fringe benefits are taxed at the highest marginal rate of 47 per cent.
Employers can usually claim an income tax deduction for the cost of providing a fringe benefit when it has been included in an FBT return. It may also be possible to claim GST credits on these benefits.
Once you have registered for FBT through the ATO, you will be able to lodge an FBT return. Payment for any FBT liability that arises can be processed through the same avenues as your standard income tax or activity statement liabilities.
Reducing your FBT rate
If your tourist park is located in a remote area, you may be able to reduce the taxable rate of the fringe benefits you offer employees.
A remote area is defined as any area outside, and not adjacent to, an eligible urban area. Areas in Classification 1 and Classification 2 may be considered remote for the purposes of reducing FBT. For FBT purposes, park owners in these areas might be able to receive an exemption or calculate a discounted rate for:
- Housing / accommodation
- Utilities (including electricity and gas)
- Water rates
- Residential fuel - a 50 per cent reduction
- Transport reductions — such as overseas holiday employment transport or relocation costs.
For parks not located in a listed remote area, concessions may still apply to any fringe benefits provided to reduce any potential liability. Reach out to your tax professional for any assistance in identifying these.
FBT non-compliance will be a hindrance if you want to sell your tourist park, as it will be discovered by any prospective buyers when they go through their rounds of due diligence. Should an ATO audit transpire, it could also result in penalties being applied.
If you’d like more information about FBT compliance or to find out more about our tax and advisory services for the tourist park industry, contact the BDO Tourist Park team today.