Remember, the Fringe Benefits Tax (FBT) year runs from
1 April to 31 March.
Now is the time to prepare information for the Australian Tax Office.
By Paul Rattray
The end of the FBT year has a way of sneaking up on Small Business, because unlike the usual financial year, which runs 1 July, to 30 June, the FBT year runs from 1 April to 31 March. All FBT returns must be submitted by 21 May.
The ATO considers a ‘fringe benefit’ as anything that you pay or provide to an employee outside of their salary. It can also cover private use of business assets by a business owner.
Fringe benefits are not actual salary and wages or clothing, phones, and other items that are necessary for a person to perform their job. They could be something like allowing employees to use company cars for private purposes, expenses such as sporting tickets, or providing health insurance or an annual gym membership as part of a remuneration package.
FBT can also apply to rewards such as entertainment or meal vouchers, or weekend getaways.
FBT is calculated on the ‘taxable value’ of a fringe benefit and here’s where things can get confusing if you’re not adept with the ATO systems and requirements. This is when the expense can be “grossed up” to represent the value of the gift or the asset provided in pre-tax dollars.
There are many different methods provided by the ATO for accountants to calculate the actual fringe benefit tax amount to be paid. This is why it is important for your accountant to have all the information required, in order to minimise the impact for you.
If the total taxable value of the fringe benefits provided to an employee in a FBT year exceeds $2,000, then employees must report the amount to the ATO, and employers are responsible for ensuring their employees have the correct information to report to the ATO in their PAYG summaries via Single Touch Payroll.
Superannuation contributions are exempt from FBT. Benefits given to volunteers or contractors, or students/interns are also considered exempt.
It’s also important to understand the bigger picture and whether the FBT benefit is the right thing for your business. For example, when a husband and wife work together, there are considerations around whether it’s better for the business to provide the car (and pay the FBT) or if it’s more advantageous to keep the car ownership personal. It very much depends on your individual circumstances.
The other thing to consider this year is whether or not fringe benefits were impacted by Covid-19 closures in 2020 – were gym memberships suspended? Car usage and petrol consumption reduced? Holidays or entertainment deferred? These circumstances and many others could impact what you need to report.
It’s no secret that Australia has one of the most complicated tax systems in the world, and FBT is no different – it can be complicated and time consuming to pull information together, particularly if you’re not using a system such as Xero which is designed to flag and collate information required for seamless reporting. This makes accounting and reporting so much smoother all year round, but especially when it comes to tax time.
While the ATO does take a fair view of genuine errors, mistakes can be costly – full audits or meeting requests to work through discrepancies with the tax office can be stressful and time consuming. This rise in audit frequency is why we recommend you take out audit insurance. Many times the audits are not your fault, so why should they cost you money.
It’s wise to consider getting professional advice from a licensed tax professional who understands the nuances of the legislation and will ensure that you meet your reporting obligations.
Aside from experience and up-to-date knowledge of the tax regime, the other advantage of engaging a tax professional is having a competent ‘go-between’ if you have to deal with the ATO for any reason. Not only does this free you up, but the ATO has a preference for dealing with tax professionals, simply because they can ‘talk the same lingo’ and resolve matters more quickly and easily. At ATB Partners we also recommend audit insurance for this reason.
There is a lot of information available on the ATO website, but If you need help, please contact the ATB Partner’s specialist tax team. The FBT lodgement deadline is 21 May, so now is the time to get organised.