Fringe benefit tax (FBT) is a topic that often isn't well understood. What might seem like a generous gesture to an employee may actually see you digging into your pockets to pay extra to the tax man!
To help you better understand this area, below is an overview of the types of activities subject to FBT, with a particular discussion on use of motor vehicles which is the most common scenario our clients face.
Broadly speaking, FBT may apply to any situation where you provide benefits to employees, shareholders, or other people associated with your business on top of their salary or wage.
In the case of cash benefits though, FBT does not apply on a cash payment to an employee. Instead, you treat the cash payment as part of the employee's salary or wage and make normal employee deductions, such as PAYE.
Types of FBT
1. Fringe benefit tax on employer contributions
Special rules apply to FBT on employer contributions to some benefit funds, insurance policies and funds, superannuation schemes and funeral trusts.
2. Fringe benefit tax on goods and services
There are some situations where you need to pay FBT on goods and services, such as if you pay in full for an employee's private home telephone, internet or mobile phone.
3. Fringe benefit tax on low-interest loans
If you give an employee a loan at an interest rate that is lower than the rate you would offer the public, you may have to pay FBT.
4. Fringe benefit tax on motor vehicles available for private use
You must pay FBT if your business makes a vehicle available for employees, their associated persons and shareholder-employees to use privately – even if they don't actually use it.
The vehicle is exempt from FBT during any period when it is not available to be used for at least 24 hours, such as if it has broken down or is being repaired.
Sole traders and partners in a partnership do not pay FBT on business vehicles they use. Instead they make income tax and GST adjustments for private use.
Exemptions from FBT on motor vehicles
1. Work-related vehicle exemption
FBT does not apply to a vehicle if it meets all of the following conditions:
• It is drawn or propelled by mechanical power (this includes trailers)
• It has a gross laden weight of 3,500 kg or less
• It is not principally designed for carrying passengers. Please note, driving a ute does not automatically exempt you.
• It has prominent company branding that cannot easily be removed
• You tell your employees in writing that the vehicle can only be used for travel between home and work, and for travel related to the business, such as stopping at the bank on the way home from work.
You should regularly check logbooks, petrol receipts etc to make sure employees are using the vehicle appropriately. You should also keep a record of these checks.
2. Emergency calls exemption
If an employee uses a vehicle to attend an emergency call, FBT will not apply for that whole day when the employee travels from their home. This includes emergency calls related to operation of plant or machinery for you or a client and emergency services relating to health and safety of any person.
The visit must take place between 6pm and 6am during the work week, or at any time on a Saturday, Sunday or statutory public holiday. There are no time restrictions in the case of health or safety of a person.
3. Business travel
If an employee regularly travels with a vehicle, FBT may not apply when:
• They stay away from home overnight with the vehicle
• They are away for more than 24 hours, and
• They need the vehicle to perform their work
Fringe benefit tax and various scenarios related to it can be quite complex, but it is an important area. We can help you understand your obligations based on your own business circumstances and can also prepare and file the returns for you. To discuss FBT or other accounting and tax matters, please contact us for an appointment today.