And with recent discussion of the ATO pursuing a $1 billion FBT tax gap, it’s a challenge that needs solving.
FBT is not always straightforward, and there are many common misconceptions and mistakes made by businesses.
“These include misunderstanding what qualifies as entertainment subject to FBT, assuming some cars are exempt when they are not, and not properly coding entertainment items or highlighting other benefits provided to staff,” says Clinton Gibson, Accounting Partner at Carbon.
“It’s also important to note that clients without an internal bookkeeping team may struggle with coding FBT-related expenses correctly with GST.”
We spoke with an ATO spokesperson who concurred.
“The biggest concern are situations where benefits are provided to employees, however the employer doesn’t register, report, lodge and pay where they should or doesn’t hold the records to show their FBT position.
“We use third party information and data matching to undertake targeted risk-based compliance engagements to address non-compliance. From these engagements, we have found some areas of concern for FBT which are detailed at What attracts our attention.”
Common mistakes
The ATO outlines the most common errors it sees:
- Situations where employers provide motor vehicles to employees for their private use, and either:
- Treat cars as 100% business use, even though they are used for private purposes.
- Don’t have a valid logbook.
- Treat all eligible commercial vehicles as FBT exempt without considering if the private use was limited.
- Situations where employers:
- Report employee contributions in their FBT return, but don’t report the corresponding amount in their income tax return.
- Incorrectly apply employee contributions to reduce their FBT liability to nil, and don’t lodge an FBT return.
- Situations in respect of Reportable fringe benefit amount/s (RFBA), including when employers:
- Include an RFBA on an employee’s annual income statement but don’t lodge an FBT return.
- Lodge an FBT return with amounts that would otherwise be included as an RFBA but don’t include amounts on employee income statements.
- Incorrectly report an employee salary sacrificed superannuation contribution, made under an effective salary sacrifice arrangement paid to a complying super fund, as an RFBA.
How accountants can help
Accountants should educate their clients about FBT to prevent these mistakes, and aim to identify the clients with potential issues.
“This could include ensuring clients are registered for FBT and providing information packs with common FBT-eligible items and questions to the client to determine if they are subject to FBT,” Gibson says.
“If the client is found to be subject to FBT, the accountant should work closely with them to understand any issues and ensure compliance.”
The ATO says it encourages tax professionals to help employers by passing on the quick reference list, determining the correct taxable value of the benefits provided, ensuring the FBT return is lodged by the due date, and checking that records are kept to show their FBT position, even if there is ultimately no liability.
“One way that accountants can simplify the explanation of FBT to their clients is by providing a comprehensive document via email that outlines the main types and items that are eligible for FBT based on ATO regulations,” Gibson says.
“The accountant can then ask the client if they provide any of those benefits to their employees and if so, proceed to assess the situation with the client. Additionally, providing a clear checklist or flowchart can help clients understand the criteria for FBT eligibility.”
Rewarding employees
Accounting professionals are well placed to help clients offer FBT-exempt benefits to their staff. Examples include:
- Private use of an electric car that was both held and used on or after 1 July 2022 and wasn’t subject to luxury car tax (among other conditions).
- Portable electronic devices that are mainly used for work purposes, such as laptops and mobile phones.
- A cash bonus to cover a benefit such as a gym membership (adjusted to cover the income tax payable by the employee).
- A one-off benefit worth less than $300, such as a dinner or night away to celebrate their birthday (check minor benefits exemption rules).
Hear directly from the Federal Government and Opposition, followed by a robust panel discussion and audience Q&A. Register now to join virtually or face-to-face.