Tips in Preparing the 2023 FBT Return
The 2023 FBT year ended on 31 March 2023. Businesses should start planning to ensure their documentation is in place to accurately prepare and lodge their FBT returns on time. The impacts of COVID-19 have now subsided, so it is important for businesses to understand what concessions are still available in 2023 and how businesses can adapt to changes in the FBT law.
FBT registration
The first thing businesses should check is whether they are registered for FBT. Many business owners, particularly those who have recently set up a business, don’t think that they will provide their employees with fringe benefits, and therefore don’t register. But as the year progresses, they may realise that an FBT return is necessary.
If the business isn’t registered, registration forms can be accessed on the Australian Taxation Office (ATO) website – go to https://www.ato.gov.au/Forms/Application-to-register-for-fringe-benefits-tax/. Alternatively contact your tax agent who can process this registration for you.
Lodgement and payment dates
Where businesses lodge their own FBT returns, the final date for lodgement of their 2023 FBT return and payment of any outstanding FBT is 22 May 2023.
If the 2023 FBT return is lodged by a tax agent, the lodgement due dates are:
26 June 2023 for electronic lodgement
22 May 2023 for paper lodgement
Businesses who are registered and do not provide any fringe benefits during the year must still fulfil their lodgement obligations by submitting a ‘notice of non-lodgement’ with the ATO to avoid follow up action.
If businesses are liable to pay FBT for the FBT year or have paid FBT instalments for the year, a Fringe Benefits Tax (FBT) return must be lodged.
MAJOR CHANGES - 2022 AND 2023 FBT YEARS
Government introduces a new blanket FBT exemption for Electric Cars
On 27 July 2022, the Government introduced Treasury Laws Amendment (Electric Car Discount) Bill 2022 (the ‘Electric Car Bill’) into Parliament, accompanied by an Explanatory Memorandum (the ‘EM’). The purpose of this was to introduce a new blanket FBT exemption for new and some second hand electric cars, referred to as the ‘FBT exemption for electric cars’.
Although the Bill only received Royal Assent on 12 December 2022, it is important to be aware that new exemption applies retrospectively to qualifying car benefits provided on or after 1 July 2022.
While associated car expenses (such as registration, insurance, fuel and repairs or maintenance) on electric vehicles are also exempt for FBT, it is important to note that home charging stations provided to employees for an eligible electric vehicle are not covered by the exemption. That is, employers will still be required to pay FBT on the taxable value of any home charging stations provided to employees – this has been confirmed in a recent ATO Fact Sheet.
Note that employers will still need to calculate the taxable value of electric car benefits using either the statutory formula or operating cost methods (see below) and add this to any other reportable fringe benefits amounts (RFBA) for an employee. If the total taxable value of the fringe benefits provided to an employee and/or their associates exceeds $2,000, this amount must be reported on the employee's PAYG Payment Summary for that year.
High Court decision highlight the dangers of hiring independent contractors
On 9 February 2022, the High Court handed down the following important decisions that have clarified the meaning of ‘employee’ (i.e. the meaning of a common law employee):
Construction, Forestry, Maritime, Mining and Energy Union [CFMMEU] v Personnel Contracting Pty Ltd [2022] HCA 1 (‘Personnel case’); and
ZG Operations & Anor v Jamsek & Ors [2022] HCA 2 (‘Jamsek case’)
In response to the High Court decisions, the ATO has released the following guidance:
Taxation Ruling (‘TR)’ 2022/D3 – who is an employee?; and
Draft Practical Compliance Guideline (‘PCG’) 2022/D5 – Classifying workers as employees or independent contractors – ATO compliance approach
The High Court decisions have changed the way in which businesses must now approach the employee vs contractor distinction. Employers will need to consider who their ‘employees’ are, and whether any fringe benefits have been provided to them.
Parking benefit changes for 2023 FBT Year (TR 2021/2)
In June 2021 the ATO finalised their tax ruling to replace their longstanding view concerning Car Parking benefits. The update applies from 1 April 2022, for the FBT year ending 31 March 2023. This ruling expanded the definition of ‘commercial car parking stations’ that were previously considered non-commercial, and therefore attracted no FBT, under the old TR 96/26.
Businesses that provide parking to their employees, and within 1km from where the employee’s car is parked, a commercial parking station (now specifically including shopping centres, hotels, hospitals, universities and airports) charges more than $9.72 (the car parking threshold) on 1 April 2022 could now be subject to FBT.
Please note that for most businesses with an aggregated turnover of less than $50 million, where the parking provided to the employee is not provided at a commercial parking station, the car parking exemption could apply in most circumstances.
The ATO has also updated its Advice under development – FBT issues (QC 50318) to confirm it is in the process of finalising the update to Chapter 16 of its ‘Fringe benefits tax – a guide for employers’, to provide practical guidance on the meaning of ‘commercial parking station’ to complement TR 2021/2. The expected completion date of this update is April 2023.
COVID-19 Concessions – Exemptions still available for 2023
Working-from-home arrangements have continued to remain popular among employers since the start of the COVID-19 pandemic.
Employers who provide the temporary use of office equipment expected to be returned to the employer after use (such as chairs, monitors, etc) will have no FBT liability using the residual benefit exemption, minor benefit exemption or otherwise deductible rule.
However, employers who provide office equipment to employees on a permanent basis will be a property fringe benefit, unless the minor benefit exemption applies.
It should be noted that there is also an FBT exemption available to employers who provide laptops or other portable electronic devices that is primarily used for work. This exemption applies regardless of whether the business has been affected by COVID-19.
Government introduces new record-keeping concessions for ALL employers
The Government recently introduced the Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 (the ‘Bill’) into Parliament. The Bill amends the FBT Act to enact a new position. S. 123AA which will give the Commissioner the power to modify existing FBT record-keeping obligations (by legislative instrument) to allow employers to rely on alternative records where it is appropriate to do so. The aim of this is to reduce compliance costs for employers.
The proposed changes will allow employers to accept ‘adequate alternative records’ as an alternative to the existing travel diary requirements. Adequate alternative records may include an employer’s own records and is not limited to one form of a record. It must only satisfy the minimum information requirements prescribed in the proposed Bill. These alternative records could include (but are not limited to):
Employment contracts and payroll records
Employee correspondence
Logbooks
Policies enforced by the employer
Financial records
An employee’s work calendar
It is important to note that as the Bill has not been enacted into law existing FBT record-keeping obligations apply for the 2023 FBT year.
CHECKLIST OF COMMON BENEFITS PROVIDED
Following is a checklist of the more common benefits provided together with some useful tips:
(i) Motor vehicles
Cars are the most common type of fringe benefit provided to employees and therefore planning for FBT can save money. This includes:
Motor vehicles (other than electric vehicles)
For each motor vehicle acquired before 10 May 2011, obtain the odometer reading as at 31 March 2023.
For new motor vehicles, retain the purchase invoice of the car including a breakdown of all non-business accessories (e.g. window tinting or a CD player).
The cost of the car for FBT purposes includes:
GST
Non-business accessories
Dealer & delivery charges
Luxury car tax
The cost of the car for FBT purposes excludes:
Stamp duty on transfer
Registration or insurance
Electric vehicles (EVs)
For the EV to be exempt from FBT, employers need to ensure that the EV falls under the definition of ‘zero or low emissions vehicle’, as follows:
A battery electric vehicle; or
A hydrogen fuel cell electric vehicle; or
A plug-in hybrid vehicle (only until 1 April 2025).
For new electric vehicles acquired after 1 July 2022, employers will need to obtain the odometer reading as at 31 March 2023 and retain the purchase invoice of the car including a breakdown of all non-business accessories.
The cost of the car for FBT purposes includes:
GST
Non-business accessories
Dealer & delivery charges
Luxury car tax
The cost of the car for FBT purposes excludes:
Stamp duty on transfer
Registration or insurance
A second-hand electric vehicle (including demo cars and second-hand imported cars) will also be FBT exempt if the relevant conditions are satisfied:
the first time the car must be both held and used, is on or after 1 July 2022;
The car is used by a current employee or their associates (e.g. a family member); and
Luxury Car Tax (LCT) has never been payable on the importation or sale of the car. The current LCT threshold is $84,916 in 2022-23.
Noting that LCT value does not include:
The LCT itself
Other Australian taxes, fees or charges such as state base stamp duty, transfer fees and registration
Compulsory third-party insurance (CTPI)
Extended warranties
Costs associated with financing the purchase of the car
Service plans
Review entitlements to any FBT reductions. For example, if the car has been owned for more than four full ‘FBT years’, the cost or ‘base value’ is reduced by one-third under the statutory formula method.
Choose whether to use the ‘statutory formula’ or the ‘operating cost’ method to calculate the FBT payable. Generally speaking, the statutory formula method is more advantageous when the car is used primarily for personal use while the operating cost method is usually best when the car is used mainly for business purposes. Note that the statutory rates changed for cars purchased from 10 May 2011, moving to a single statutory rate of 20% regardless of the distance travelled.
Statutory formula method
If using the statutory formula method and the car was acquired before 11 May 2011 and was sold during the year ending 31 March 2023, the kilometres travelled will need to be annualised.
The Old Statutory % rates only apply to vehicles with a pre-existing commitment before budget night of 11 May 2011.
Where there is a change to a pre-existing commitment (e.g. car refinanced) for a motor vehicle acquired before 11 May 2011, the 20% statutory rate will apply.
The following statutory rates apply for cars acquired from 7.30pm on 10 May 2011 under the transitional provisions and also for cars that continue to apply the old rules:
Note that cars provided under pre-existing commitments (i.e. owned prior to 11 May 2011) will continue to use the old statutory fractions, unless there is a change to that pre-existing commitment. A change in pre-existing commitment could extend to having the vehicle re-financed after 10 May 2011.
Operating cost method
If using the operating cost method, ensure that the employee has maintained a log book for a 12 consecutive week period within the FBT year or a previous FBT year. A log book is valid for a period up to 5 years. Make sure to maintain adequate records of:
Repairs
Maintenance
Fuel
Registration and insurance
Lease payments or deemed interest/depreciation
Other vehicle expenses
It is important to check whether the employee has made any contributions to the business for the provision of the car as this can significantly reduce the FBT liability. These contributions can even take the form of any non-reimbursed expenses the employee has paid for such as fuel or repairs. It’s important to account for the contributions as income in the profit and loss and disclose the GST on your next BAS.
(ii) Meal entertainment
Most businesses provide Meal Entertainment to staff and clients during the course of the year. Unlike many other business expenses, meal entertainment is not tax deductible. Generally, you are only allowed a tax deduction when FBT has been paid on the particular expense.
Again, a bit of planning and good record keeping can assist in limiting unnecessary tax when it comes to meal entertainment. There are three methods which can be used to calculate FBT for meal entertainment and businesses should choose the one which is most beneficial in their particular circumstances. It is best practice to calculate meal entertainment using all the methods available, and simply applying the most tax effective method in your FBT return.
You can speak to your tax advisor for further guidance on the following methods:
50/50 method
The total meal entertainment benefits inclusive of GST amount provided is divided by 2, and FBT is paid on 50% of the total meal entertainment. This method is most beneficial when meal entertainment is provided mainly to employees. The use of this method however will deny the employer the ability to apply the $300 ‘minor and infrequent’ and in-house property benefit exemptions that may otherwise have been available.
Actual method
FBT is calculated only on meal entertainment benefits (inclusive of GST amount) provided to employees. This method is most beneficial when providing meal entertainment mainly to non-employees or when most meal entertainment provided is provided infrequently and costs less than $300 (inclusive of GST) per person. When using this method, the $300 ‘minor and infrequent’ and in-house property benefit exemptions can be used to reduce each fringe benefit provided.
12 week register
This method is not commonly used but works by keeping a logbook of meal entertainment for 12 consecutive weeks and determining what percentage of meal entertainment relates to employees. That percentage is then applied to the total meal entertainment (inclusive of GST amount) at the end of the FBT year. This is the least popular method due to the record keeping requirements
Issues to consider
It is useful to note the following considerations when calculating any meal entertainment FBT:
Was meal entertainment (by way of food or drink) provided to employees on or off the business premises? This can include Christmas parties, Friday night drinks, etc.
Did the business reimburse an employee’s restaurant bill, for instance when entertaining clients?
Was a “recreation” benefit provided to an employee? This could include a ticket to watch the football or a concert. If so, ensure that this type of entertainment is recorded separately to meal entertainment.
You should maintain a register of employees, associates and non-employees who attended functions where meal entertainment and non-meal entertainment was provided.
Have you considered the GST implications? The GST treatment of meal entertainment related expenditure will depend on the meal entertainment method used:
If using the 50/50 method, only 50 percent of the GST can be claimed. The other half is added back to the profit and loss account and is not available as a tax deduction.
If using the actual method, only claim the GST on that portion of entertainment that is subject to FBT. Otherwise, GST is treated as a profit and loss expense and is not available as a tax deduction
(iii) FBT exemptions
There are some employee benefits which are exempt from FBT and could be considered as part of a salary package arrangement for employees. Generally speaking, these benefits must be primarily used for work purposes, or to enable staff to do their job more efficiently.
These exempt benefits include:
Mobile phones
iPads
Laptop computers
Briefcases
Membership expenses, items such as a subscription to a trade, professional body or even an airport lounge membership
Other work related items or tools of trade (e.g. power drill)
The employer can generally only provide each item ‘once’ to an employee per FBT year to take advantage of the FBT exemption. For example, the employee can receive both a laptop computer and mobile phone in the one FBT year.
These benefits do not need to be recorded on the FBT return as they are ‘exempt’ benefits and are also not reported fringe benefits included on the employee’s PAYG Payment Summary. They are also not counted as wages for payroll tax and work cover purposes.
Further, the ATO also provided additional guidance relating to employers providing employees with equipment to allow them to work from home due to COVID-19. The ATO has stated that some items would usually be exempt from FBT if the equipment’s use is primarily for your employee’s work. This could include items such as:
Laptops
Portable Printers
Other Electronic Devices
The ATO also advises that the Minor Benefits Exemption or otherwise deductible rule may apply for other items that may be provided to employees to work from home, such as:
Monitor, mouse, keyboard or other equipment they otherwise use in the workplace
Stationary, computer consumables and potentially a portion of the telephone and
internet costs where a logbook of usage can be supplied by the employee.
Otherwise deductible rule
The Otherwise Deductible Rule applies to reduce the amount of FBT payable by an employer where a benefit provided to an employee would ordinarily be deductible in their name.
That is where an employee is provided with a fringe benefit (such as paying their professional membership fees), and the benefit provided to the employee would be an item or expense that would be tax deductible by the employee if they were to claim a deduction in their personal tax return (such as membership fees required for their employment), the otherwise deductible rule would apply. For an employer, this means that the FBT taxable value would be reduced by the portion of the expense that is otherwise deductible by the employee.
As an employer you would want to seek a signed employee declaration to confirm that your treatment is correct before lodgment or the due date of your FBT return. The Fringe Benefit would still need to be reported in the company’s FBT return, however the deductible portion would be used to reduce the FBT taxable value in the FBT return.
Disclaimer
This information is provided solely for general information purposes and is not intended as professional advice. Readers should not act on the information contained therein without proper advice from a suitably qualified professional.
We expressly disclaim all liability for any loss or damage to any person or organisation for the consequences of anything done or omitted to be done by any such person relying on the contents of this information.
This article is tailored to FBT taxable employers and does not provide guidance for employers who are wholly or partially exempt from income tax. Your specific circumstances should be reviewed by a fringe benefit tax specialist.
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