Staff Benefits vs the Fringe Benefits TaxFebruary 14, 2012
Our guest columnist Anthony Raykos from Grant Thonton informs us of how the Fringe Benefits Tax applies to employee benefits.
Higher rental costs, weak retail sales growth, wage pressures and tighter lending can make non-cash remuneration options more attractive than traditional cash bonuses – but beware of the fringe benefits tax (FBT) implications.
FBT has the potential to apply where an employee is provided with a non-cash benefit and that benefit was provided because of the employment relationship. “What about the staff lunch we had the other day?” you ask. Well, the answer is…it depends….
We know you’ve got enough to worry about so we’ve included some things to look out for in your business practices and some tips to help you get your information sorted, so you can focus on what you do best and let your accountant deal with the technical side.
FBT can apply where a car is used partly or wholly for private purposes and the employer owns or leases the car (or pays the operating costs).
There are two methods of calculating FBT on cars; the “operating cost method,” broadly based on the running costs, and “statutory method,” which is based on kilometres travelled. One may produce a lower FBT liability so choose wisely. Consider the following:
- Log books, especially if your work use far exceeds private use. Log books are readily available from most stationery outlets, (there are also logbook applications on Smartphones which can be handy). They only need to be maintained for a 12 week period and, provided your pattern of use doesn’t change significantly, can be valid for up to 5 years. This will also support your income tax deduction. Just make sure your logbook hasn’t expired by 31 March 2012.
- Odometer readings at 31 March 2012 – you will need these no matter what method you choose.
- Previously, the applicable private use percentage under the statutory method reduced progressively as the kilometres you travelled increased. For all car fringe benefits provided from 10 May 2011 (unless there is a pre-existing commitment in place to provide a car), a flat rate of 20% will be applied no matter how many kilometres you travel.
- Entertainment incorporates food, drinks, recreation and related travel. This might include the taxi fare to take your employees to the pub, or the lunch you had with your clients and staff even though you discussed business issues in between sips of Moet. Entertainment benefits can take many forms so make sure you keep records on where functions are held, the purpose of the function and the number of staff, associates of staff and clients that attend. Your accountant will thank you and it should help reduce your FBT liability.
Living Away From Home Allowance (LAFHA) – Major changes proposed!
- The government is currently consulting on some major changes that will affect how the LAFHA will operate from the 1 July 2012.
- If implemented, 457 visa holders and many New Zealanders will be ineligible to claim LAHFA unless they have a home base in Australia and are living away from this base for work purposes. This could add a large tax burden to the cost of employing such individuals who are currently under a LAFHA arrangement.
- Another potential change will require individuals to be able to demonstrate/substantiate their actual expenditure on accommodation and food beyond a statutory amount, rather than solely relying on the current “reasonable” amounts.
Other tips and traps
FBT exempt benefits – there are many! Some of the more common ones include:
- Tools of trade and portable electronic devices such as phones and laptops used predominantly for work purposes
- Light refreshments provided on work premises during a work day
- In-house property benefits (things your business makes or sells) less than $1,000.
- Commercial vehicles greater than 1Tonne. Be careful. Private use of these vehicles may still be caught as “residual benefits.”
- Take advantage of concessional payment and lodgement dates available to tax agents.
- Minor and infrequent benefits less than $300 may be exempt from FBT
- Review your salary sacrifice arrangements. Is the FBT cost being covered properly under the current structure? Declarations and elections need to be documented and signed off – ask your accountant for more details.
So in the upcoming months, review what benefits you have provided to your employees from 1 April 2011 to 31 March 2012. Have you got the appropriate records and declarations in place? If you are unsure if something is a fringe benefit, see your accountant. Taking advantage of the exemptions, concessions and choices available can help keep your employees happy and save on tax bills.
For more information visit www.grantthonton.com.auThis entry was posted in Uncategorized. Bookmark the permalink. ← A New Way Of Communicating From a Franchising Prospective – Too Easy! →