What every employer needs to know about fringe benefits
On 31 March 2017, the Fringe Benefits Tax (FBT) year ends. The ATO will be reviewing whether all employers who should be paying FBT are, and that they are paying the right amount.
To help you meet your fringe benefits obligations, we’ve put together a list of essentials every employer needs to know about FBT and review every year, such as:
- Should I be registered for FBT?
- What information do I need to give my accountant?
- Are there any changes to the FBT rates come 1 April 2017?
- What is exempt from FBT?
- How can I reduce my FBT liability?
- Do I need to review our salary sacrifice agreements?
These questions are all answered for you below, as well as some log book management tips and new rules that have been introduced to salary sacrificed meal entertainment benefits.
1. FBT Rate changes
On 1 April 2017, the FBT rates will decrease to:
FBT Rate 47%
Type 1 Gross Up Rate 2.0802
Type 2 Gross Up Rate 1.8868
2. Should you be registered for FBT?
Generally, if you have employees, including directors and you provide them with cars, car parking, entertainment (food and drink), employee discounts, reimburse private expenses etc, then you are likely to be providing a fringe benefit and we will need to register your business for FBT.
3. What items are exempt from FBT?
If you’re providing items like mobile phones, laptops, tablets, portable printers, protective clothing, tools of trade etc., or minor and infrequent benefits that are less than $300 in value, you are unlikely to have to worry about FBT.
4. An easier way to manage your vehicle log books
For employers with 20 or more ‘tools of trade’ cars – a car required for the job, like for a sales rep travelling extensively for the business – the ATO has a new process for validating the business use percentage of the car.
It’s called the ‘simplified method’, and if you meet the access conditions, you can apply an average business use percentage to all ‘tools of trade’ cars in your fleet for first log book year and the next 4 years. Conditions to be met are:
• valid log books kept for at least 75% of the cars in the log book year;
• the employer chose the make and model of the car, not the employee;
• each fleet car has less value than the ‘luxury car’ limit when purchased, generally $64,132 in 2016/2017;
• the cars aren’t provided under a salary packaging arrangement / employee remuneration package; and
• your employees can’t choose to receive additional remuneration in lieu of using the cars.
5. Is it time to review your salary packages?
With the FBT rate changing again on 1 April 2017, it’s a good time to review all existing agreements so that you and your employee know what the package will look like once the rate drops to 47%.
The lower rate will, in general, make salary packaging less expensive to provide and an opportunity to look for potential savings. For example, for employees earning above $180,000 there is a one-off opportunity between 1 April 2017 and 30 June 2017 to reduce their taxable income with the FBT rate drop covering the 2% Debt levy imposed.
Be careful though not to drop the individual’s income below the Debt levy threshold, and make sure the benefits provided under the salary sacrifice agreement replace amounts that would have been payable as salary, the employee agrees in writing to forego income before it is earned in return for benefits of a similar value, and the sacrificed amount comes out of the employee’s wages and not reimbursed into their bank account.
6. New rules for meal entertainment benefits that are salary sacrificed
Where an employee agrees to receive meal entertainment benefits instead of future salary, i.e. as part of a salary sacrifice arrangement, concessions have been removed as of the 2017 FBT year. There are 3 key changes to note:
• these benefits are to be included in the employee’s individual fringe benefits amount being reported on the payment summary when it exceeds the $2,000 reporting exclusion threshold;
• you can no longer use the 50-50 split or 12-week register methods to value these benefits; and
• a new separate $5,000 cap for ‘salary sacrificed’ meal entertainment benefit now exists for employees of charities and not-for-profits. If these benefits exceed the cap the excess will be counted toward their current $31,177 exemption or $17,667 rebate cap.
7. Ways you can reduce your FBT liability
Here are some ways in which you can reduce your FBT liability:
• replace your fringe benefits with cash salary;
• provide benefits that your employees would be entitled to claim as an income tax deduction if they had to pay for the benefits themselves;
• look at providing benefits that are exempt from FBT; and
• use employee contributions, for example, an employee paying for some of the operating costs of car fringe benefit such as fuel that you don’t reimburse them for. Though you should note that employee contributions may be deemed assessable income to you and subject to GST.
How we can help you!
As the FBT year ends on 31 March 2017, we will be in contact shortly to assist you in attending to your FBT obligations, or alternatively please call Lauren Smith at our office on 08 9780 7555 to discuss if FBT applies to your business.