Putting systems in place to ensure data is captured and accurately categorised for FBT purposes throughout the year could save you and your accountant a big chunk of time and effort at the end of March. Here’s some expert advice to get you on the right track.
Nearly all of us have heard about Fringe Benefits Tax (FBT), which is a tax of 46.5 percent imposed on an employer for items provided in a business. The FBT year runs from 1 April till 31 March each year and here are some of the items that attract FBT:
- Motor vehicles
- Expense payments
- Living away from home allowances
- Airline transport
- Board meals
- Meal entertainment
- Car parking
One of the most popular fringe benefits is in relation to motor vehicles. Here, the fringe benefit is a tax imposed on the personal use of the motor vehicle. If a work car has been used for personal reasons, fringe benefits tax would be payable on the proportion of expenses related to personal use.
For fringe benefits purposes, a car is defined as:
- A station wagon, sedan, panel van (including four-wheel drive utes);
- Any other goods-carrying vehicle that has capacity to carry 1 tonne or less; and
- Any other vehicle designed to carry less than nine passengers.
There are two methods you need to be aware of when calculating FBT:
- Statutory Method: Any FBT liability is determined on the total kilometres travelled in the FBT year, regardless of whether they were for business or pleasure. Using the statutory fraction method, FBT is calculated as the capital cost of the car multiplied by the statutory fraction (see ATO) multiplied by the number of days in the year the car was available for use. This figure is then divided by the number of days in the FBT year.
- Operating Method: The FBT liability is determined using a formula from the total running cost of the car, deemed depreciation and deemed interest and your business usage. The lower the incidence of actual private use, the lower the taxable value. You will need to maintain a log book over a twelve week period to determine your business use percentage.
Employers are required to record the gross taxable value of any FBT paid in an FBT year (1 April – 31 March) on an employee’s group certificate for the corresponding financial year (1 July – 30 June), as long as this value is greater than $2,000.
The other main fringe benefit provided deals with entertainment – such as Christmas parties and gifts provided to staff and clients. The 50/50 method is normally used to calculate the taxable value, although there are some exemptions for minor benefits provided under $300. You should really discuss this with your accountant before Christmas party time.
Putting systems in place to ensure the data required is captured and accurately categorised for FBT purposes throughout the year can save you and your accountant a large amount of time and pain at the end of March.
So, get organised now!