Do you want to save paying Fringe Benefits Tax of 49%

Fringe Benefits Tax (FBT) applies to any business (including sole traders) who provide non-cash benefits to employees, business owners, some contractors and their associates (including family members). The FBT year runs from 1 April to 31 March and the FBT rate for the 2016 year (ending 31 March 2016) is 49%. We have recently contacted business clients that we think may be subject to FBT in order to review their circumstances and reduce the amount payable. If you are concerned that you may be subject to FBT, please contact our office to discuss.

There are many types of fringe benefits, however the 2 most common benefits provided are motor vehicles and entertainment and these are discussed below.

Motor Vehicle Benefits

Motor vehicle benefits are provided where a business owns a vehicle (e.g. a car, ute, truck or motorcycle) and it allows an employee to have access to that vehicle for private use. The FBT law applies when the vehicle is “available” for the private use of the employee, even if it is not actually used for private purposes. E.g. if a business vehicle is garaged at the employee’s home overnight (rather than at the business premises), then it is deemed to be available for private use and will therefore be subject to FBT. There is no exemption where the business premises and the employee’s home are the same address.

The best way to reduce the amount of FBT payable on motor vehicle benefits is to ensure that a log book has been kept for the vehicle for a minimum of 12 weeks. It is not sufficient for the employment agreement to simply state that the vehicle cannot be used for private purposes. In the event of an ATO audit, the business will need to prove what the actual business usage of the vehicle was via a log book.

Whilst there are some exemptions available for certain types of vehicles (mostly utes and trucks), they are dependent on the only private use of the vehicle being for the employee to travel directly from home to work, with no other private usage. Unfortunately, if an employee drops their children off at school each day in the vehicle, or they do the shopping on the way home from work, then the vehicle would not be exempt from FBT. Again, the only way to ensure that the vehicle will satisfy the exemption is to ensure that a log book has been kept.

The FBT on a motor vehicle benefit can be quite extensive. E.g. A business purchases a car for $22,000 and allows an employee (or business owner) to drive the car home everyday. No log book is kept for the vehicle. The FBT payable on this benefit for the year would be $4,627.07.

Entertainment Benefits

Entertainment benefits arise when an employer provide food, drink, gifts and/or recreational activities to employees, associates, contractors, clients and suppliers. Some common types of entertainment benefits are as follows:

Staff Christmas party held at a restaurant or function centre
Restaurant meal at a business lunch
Tickets to a sporting or theatrical event
Staff conferences and weekend retreat

There are various ways that these benefits can be valued for FBT purposes and there are also some exemptions available. It is important to record the following in regards to each of these benefits provided during the year:

Number of people provided with the benefit (including how many were employees and how many were clients);
Location of the event (e.g. on business premises or at another venue)
Total cost of the function, including a break up of the costs for each where possible (e.g. if the event includes a meal and a game of golf, the cost of each should be listed separately).

If you have any questions regarding this matter please do not hesitate to contact our office.

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