Since the introduction of the 2% temporary budget repair levy, the FBT rate has increased from 47% to 49% from 1 April 2015 and will continue through to the 2017 FBT year. Moving forward from 1 April 2017, the FBT rate will return to 47%.
Other rates to be aware of when grossing-up taxable values of fringe benefit:
Type 1 benefit 2.1463
Type 2 benefit 1.9608
What’s new for FBT in 2017?
Salary Packaged Meal Entertainment
The most substantial development for the 2017 FBT year relates to changes associated with the meal entertainment rules. The changes affect all FBT employers in the way they calculate their FBT liability and reportable fringe benefits reported on an employee’s payment summary.
From 1 April 2016, FBT taxable employers will be unable to make an election to apply the 50/50 split method or the 12 week register method in respect of any salary packaged meal entertainment and salary packaged entertainment facility leasing expense (EFLE) (i.e. cost of hiring or leasing a corporate box, boats, planes or other premises or facilities for the purposes of providing entertainment).
Based on the statutory guidance provided under the new rules, a ‘salary packaging arrangement‘ arises where:
- the benefit is provided to an employee in return for the employee agreeing to a reduction in their salary and wages; or
- the arrangement is part of the employee’s remuneration package and the benefits is given in circumstances where it is reasonable to conclude that the employee’s salary or wages would have been greater if the benefit was not provided.
As such, FBT taxable employers will be required to value all salary packaged meal entertainment and EFLE benefits under the actual method.
It is also important to note that the minor benefits exemption is generally not available for benefits provided to employees under a salary sacrifice arrangement. This effectively means that employers will be subject to FBT on all salary packaged meal entertainment and ELFEs provided to employee after 1 April 2016.
In addition, the reportable fringe benefits rules have also been amended such that salary packaged meal entertainment and ELFE became reportable from 1 April 2016. In other words, employers will need to include packaged entertainment and EFLE when assessing whether an employee has received reportable fringe benefits in excess of the $2,000 reportable fringe benefits threshold.
$5,000 cap for salary packaged meal entertainment and EFLEs
The Government announced that from 1 April 2016, a single grossed up cap of $5,000 will be applied on salary sacrificed meal entertainment and ELFEs provided by FBT-rebatable employers and FBT exempt employers.
The new $5,000 cap for packaged meal entertainment and EFLE applies in addition to the existing cap for employees of FBT-rebatable and FBT exempt employers.
FBT concession to fleet cars
The Practical Compliance Guideline (PCG) 2016/10 issued by the ATO recently explains the new FBT concession for employers who maintain a fleet of cars that are valued under the operating cost method. The concession applies from the 2017 FBT year.
In broad terms, where certain requirements are met, the employer is able to calculate the average business use percentage (BUP) using valid log books and apply that BUP to the fleet (i.e. including cars which have no valid logbook) for the current FBT year and the next four FBT year.
The key requirements to apply the FBT concession are as follows:
- The employer has fleet of 20 or more cars that are ‘tools of trade’ (i.e. extensive business use) cars;
- Employees are mandated to maintain logbook;
- Employers must hold valid logbooks for at least 75% of the cars;
- The fleet cars must be chosen by employer not employee;
- Each fleet car must have GST-inclusive value less than the luxury car limit;
- The fleet cars are not provided under salary sacrificed arrangement.
The PCG 2016/10 also allows employers to apply the concession in working out an employee’s reportable fringe benefits amount. However it is important to consider the implications of adopting the concession as some cars may have higher taxable value due to the averaging method which may result in higher reportable fringe benefits for the employee.
Car expense payment benefits and the otherwise deductible rule
To ensure the consistency between income tax and FBT, the FBT otherwise deductible rule has been amended to remove the one-third method for valuing car expense payment fringe benefits.
From 1 April 2016, employers can only apply the otherwise deductible rule to reduce the taxable value of car payment fringe benefits under the following methods:
- Logbook method: Employee must keep a log book to substantiate the business use percentage of up to 100%
- Declaration method: Employee is not required to maintain valid log book but the maximum business use percentage that can be claimed is 331/3%. In addition, the employee must provide their employer with a declaration in approved form by the FBT return due date (i.e. 31 May).
FBT exemption for portable electronic device
From 1 April 2016, the FBT exemption extends to small businesses (broadly business with less than $2 million turnover) that provide employees with more than one work-related portable electronic device in an FBT year even If they have substantially identical functions. In other words, more than 1 device can be provided to an employee as an exempt benefit so long as the item is primarily used for the employee’s employment.
Does S.58Z exemption applies on Uber travel provided by employer?
Generally employer is entitled to claim FBT exemption with respect to taxi travel provided by an employer under S.58Z if the travel is a single taxi trip beginning or ending at the employee’s place of work.
However the ATO has confirmed that Uber travel provided by employer to an employee is ineligible for the FBT exemption on the basis that Uber does not strictly represent the provision of a motor vehicle that is ‘licensed to operate as a taxi’ under S.58Z. Hence employers providing Uber travel to employee (where the journey begins or ends at the employee’s place of work) may be subject to FBT.
Living away from home allowance (LAFHA) benefits
The provision of LAFHA attracts concessional FBT treatment provided certain conditions are satisfied. The ATO confirmed that many employers continue to make mistakes in applying LAFHA conditions and reviews will be carried out to ensure that the following conditions are applied appropriately:
- Employee maintaining an Australian home requirement
- The first 12 months requirement
- The declaration requirement
Employee benefits received under customer loyalty programs
It is becoming increasingly popular where an employee makes an arrangement with their employer to pay for business expenses using the employee’s credit card in order to accumulate reward points, which are then redeemed for substantial personal benefit.
The ATO has indicated that these types of arrangements, particularly where the business expenditure involved is significant and the arrangement cannot be explained by way of legitimate reasons, may be subject to review for FBT compliance. As such, it is important for employers to be aware that the arrangement may be subject to ATO review even though the points are less than 250,000 per individual per annum.
Tax planning opportunities
Advanced salary packaging opportunities for high-income earners
As previously mentioned, the FBT rate will decrease to 47% with effect from 1 April 2017 due to the removal of the temporary budget repair levy. However the removal of the repair levy only applies to individual taxpayers after 1 July 2017.
During the period 1 April 2017 to 30 June 2017, the changes mean that the FBT rate will be 47% as compared with the highest marginal tax rate of 49%. As such this provides a 2% savings in relation to salary packaging fully taxable fringe benefits for high income earners.
FBT returns lodgement and payment due dates
The 2017 FBT returns are due for lodgement and payment by 21 May 2017. However, a lodgement extension until 25 June 2017 is available for FBT returns lodged electronically via Blaze Acumen with the FBT liability due on 28 May 2017.