FBT deadline looms

This article was current at the time of publication.

Australia’s unemployment rate is hovering at just 4 per cent, with a spike in job vacancies seeing many businesses struggle to source new workers.

In order to attract or retain staff due to high job vacancies, employers are under pressure to offer higher wages and extra incentives to keep existing employees and to attract new ones.

It’s these added incentives within salary packages – such as the use of business vehicles, the reimbursement of fuel, parking expenses and other costs, and other employment-related perks – that’s likely to see a surge in the amount of Fringe Benefits Tax [FBT] payable by businesses for 2021-22.

The 2022 FBT year ended on 31 March, and any business with a tax liability must lodge an FBT return and make payment by 23 May 2022. This deadline includes tax agents making paper lodgments.

Businesses using a tax agent to make electronic lodgments have until 27 June 2022.

“It’s a good time to start considering what you need to do to lodge and pay your FBT,” says the Australian Taxation Office (ATO).

“You'll need to work out if you have an FBT liability for fringe benefits you’ve provided to your employees (or their associates) between 1 April 2021 and 31 March 2022.”

Importantly, businesses registered for FBT must still complete and lodge a Notice of Non-lodgement Fringe benefits tax form with the ATO if it doesn’t have an FBT liability.

“Don’t forget to keep all records relating to the fringe benefits you’ve provided, including how you calculated the taxable value of benefits,” says the ATO.

Calculating GST

Reportable fringe benefits are any benefits provided during the FBT year with a total taxable value of more than A$2000.

FBT liabilities are calculated by grossing up the taxable value of benefits provided. This is done to reflect the gross salary employees would have to earn at the highest marginal tax rate (including Medicare levy) to buy the benefits after paying tax.

Tax agents need to use different gross-up rates. Use the higher gross-up rate (where the benefit provider has paid GST on the employee benefits and is entitled to a GST input tax credit), and the lower gross-up rate (where there is no GST input tax credit).

For 2022, the higher gross-up rate is 2.0802. The lower gross-up rate is 1.8868.

Once calculated, both amounts are added together and multiplied by the FBT rate (47 per cent) to determine the amount of tax payable.

FBT and COVID-19

While motor vehicle expenses and entertainment allowances typically represent the bulk of FBT liabilities, FBT may apply to payments for some items used by employees working from home during the pandemic.

“If you provide your employees with incentives or rewards for getting their COVID-19 vaccination or booster dose, there may be tax and super consequences in doing so,” says the ATO. “The consequences differ depending on whether a cash payment, paid leave or non-cash benefit is provided.”

FBT may be payable on non-cash benefits unless an exemption, such as for minor benefits, work-related preventative health care, or in-house benefits exemption apply.

The ATO has published a fact sheet for businesses detailing FBT and superannuation obligations for incentives and rewards paid to employees to receive COVID-19 vaccinations and booster doses.

“The tax and super consequences differ depending on whether you give your employees a cash payment, paid leave, transport to and from the vaccination, or other non-cash benefits,” says the ATO.

The ATO also has a website page specifically covering COVID-19 and fringe benefits tax, with information on the treatment of vaccination incentives and rewards, not-for-profit salary packaging, working from home, car parking, accommodation, food and transport, emergency health care and cancelled events.

There’s also specific information on the impact of COVID-19 in relation to FBT liabilities arising from car fringe benefits.

For example, for cars garaged at an employee’s home during lockdowns or business premises closure periods, or cars which were only driven for basic maintenance purposes can have their taxable value reduced to nil for this period if applying the operating cost method.

Those vehicles which continued to be driven during lockdown periods and whose taxable value is calculated using the operating cost method may have their taxable value reduced where a valid logbook is maintained.

FBT exemptions and concessions

Businesses that have provided employees with equipment to allow them to work from home (or another location) due to COVID-19, such as laptops, printers and other electronic devices, will be exempt from FBT on these items.

In addition, minor benefits worth less than A$300 in notional taxable value are exempt.

However, an exemption won’t apply to in-house fringe benefits, entertainment benefits provided to employees of income tax-exempt organisations, and meals where businesses elect to use the ATO’s meal entertainment provisions.

FBT checklist for 2022

CPA Australia has created the FBT checklist 2022 to help tax practitioners navigate through the FBT process.

It’s a summary guide to all the procedures and mechanics for preparing 2022 FBT returns. However, because it can’t cover every potential FBT issue, practitioners are recommended to refer to the relevant legislation or seek specialist advice if required.

The checklist identifies the potential areas of expenditure or benefits that may be subject to FBT, including information on where a benefit arises, exemptions applicable, and the data required to be extracted from accounting records for FBT calculations.

In addition, the checklist details the relevant formulas for different types of benefits that will give the most tax-effective result for the effort expended.

These include various formulas for car fringe benefits, loan benefits, debt waivers, housing, living away from home allowances, expense payments, airline transport, meals, entertainment, car parking, board, and property and residual benefits.

Keeping FBT records

All records relating to fringe benefits provided, including how the taxable value of benefits was calculated, must be retained.

Businesses must also keep records if they want to take advantage of various exemptions or concessions that reduce their FBT liability.

These records must be kept for five years from the date of the FBT return.