Navigating Fringe Benefits Tax compliance: Are you ready for FBT season?
The Australian Tax Office is focussing on FBT compliance, so employers need to ensure they don’t makes these errors in their returns.
As we approach the FBT compliance season for 2024 and with employee benefits being more of a focus in a tight labour market, now is the time to consider the FBT issues of providing benefits to your staff and the associated FBT implications.
The intricacies of FBT compliance are also discussed in our latest Working in Australia webinar episode.
The high cost of compliance for employers in this space led BDO to include a recommendation in our 2024 pre-Federal Budget Submission to abolish the FBT system, underscoring the need for heightened awareness and diligence among employers.
ATO’s approach to FBT compliance
Just like other employer obligations such as Superannuation and Single Touch Payroll, the ATO’s approach to reducing FBT non-compliance is two-pronged:
- The proactive education of employers and their representatives to get it right in the first instance through general awareness and understanding of obligations
- Random and risk-based reviews of employer obligations and implementation of other compliance activities, including liability follow-up communications, to ensure that non-compliant employers don’t have an unfair advantage over compliant ones.
What attracts ATO attention?
The ATO undertakes targeted compliance action against employers who don’t appear to be meeting FBT obligations.
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Factors that attract ATO attention aren’t limited to deliberate avoidance, but also include employers who make common and recurring accounting mistakes or demonstrate a lack of understanding around obligations.
This includes:
- Not keeping appropriate records such as log books, odometer readings, travel diaries and invoices, to confirm FBT position
- Not identifying the types of fringe benefits provided to employees and their appropriate taxable values
- Not reporting each employee’s reportable fringe benefit amount on their annual earnings statement.
Common FBT compliance mistakes
Many employers are still struggling to understand FBT law.
This is because there are different rules around valuations and calculations based on the types and value of benefits that employers are providing, different concessions and exemptions that are available to employers, as well as different types of record-keeping required for different benefit types.
There are several specific areas within FBT that employers should pay particular attention to, with both the ATO and our advisers commonly seeing mistakes in the following areas:
- Motor vehicles as they pertain to PCG 2018/3
- Misclassifying a vehicle for either private or business use and understanding which vehicles are FBT exempt, and which are not. This particularly relates to commercial vehicles such as dual cab Utes.
- Not accurately keeping logbooks
- Employee contributions
- Inconsistencies between FBT and income tax returns
- Miscategorising employee contributions during reporting
- Incorrectly applying employee contributions
- Fringe benefit amounts being incorrectly reported or not reported at all
- Employers applying a consolidation approach to filing FBT returns and not lodging a separate FBT return for each employing entity or not submitting a notice of non-lodgement when there is no FBT to declare
- Not taking prompt action when a mistake has been made.
Recent FBT changes
Employers should also be aware of the recent changes to the FBT regime and other areas of tax reform that affect FBT application for FBT compliance season 2024.
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Electric vehicle charging
Updates have been made to the electric vehicle home-charging rate – PCG 2024/2.
This is the introduction of a safe harbour of 4.2 per cent per kilometre that can be used for calculating electric charging costs of vehicles at home-charging stations in effect from 1 April 2022 for FBT tax and 1 July 2022 for income tax purposes.
While electric vehicles are exempt from FBT, they are required to be included on individual’s employee’s earnings statement meaning that this safe harbour method provides a practical alternative where employers use the operating cost method to calculate the taxable value.
Record keeping
The introduction of alternative record-keeping measures is intended to reduce and simplify FBT record-keeping requirements for employers while producing similar compliance outcomes with lower compliance costs.
It allows employers the choice to use existing records in place of travel diaries or employee declarations for certain types of benefits.
This applies to the 2025 FBT year (1 April 2024 to 31 March 2025) and onwards.
Employee salary packaging
Following Stage 3 tax cuts being passed into law, employees of not-for-profit entities may no longer be better off salary packaging fully taxed benefits due to a change in the marginal tax rates.
Employers need to be prepared to adjust salary packaging arrangements where applicable. This will especially be the case for rebatable employers.
How BDO can help
It is essential that employers understand the implications of fringe benefits prior to their implementation and, once implemented, put in place payroll and governance practices to avoid an unexpected FBT liability.
For more information on your FBT obligations and our employment tax-related services please don’t hesitate to reach out to our team.
Our experts not only provide recommendations to Government in advance of budget announcements but analysis following.
If are you interested in expert commentary around the Federal Budget and how the tax changes announced will affect you, particularly any that may arise in the employment tax space, subscribe to receive our 2024 Federal Budget analysis.
