Employee fringe benefits can range from company cars for private use to the provision of equipment so staff can work from home during COVID-19 restrictions and entertainment by way of food, drink or recreation.
Businesses that are not lodging FBT returns should be aware that this is a key risk and ongoing area of focus for the ATO.
Not all employers are required to lodge FBT returns, however, the ATO may require them to justify their decision not to lodge.
“FBT is one of those annoying taxes which most people only look at once a year. This usually means refreshing your memory about how FBT works, and whether there have been any changes to the rules”, says BDO Tax Partner, Tim Sandow.
“The rules are particularly complicated compared to the amount of tax that is actually collected, so hopefully a future government may try to simplify it as part of broader tax reform.
“In the meantime, employers need to think about the benefits they have provided to employees over the past 12 months and whether they need to lodge an FBT return.”
To assist employers in navigating FBT requirements, BDO has outlined some key points and provided a checklist.
When is a return necessary?
Whenever a benefit is provided to employees, the requirement to lodge an FBT return may be triggered. This requirement may be satisfied quite easily for a number of reasons:
- The definition of ‘benefit’ is quite broad. The ATO has provided a list of questions to help employers identify when a benefit is being provided and the below checklist is a good reference
- The benefit does not have to be provided directly to the employee. A benefit provided to an associate of the employee may also trigger FBT
- The benefit does not have to be provided by the employer, or even with the employer’s knowledge.
What about benefits with nil value?
Employers providing benefits that have nil taxable value for FBT purposes are not strictly required to lodge an FBT return.
However, it may well be advisable to do so. Without lodgement of an FBT return there is no time limit on the ATO’s power to revisit prior years. In contrast, where returns are lodged the ATO review powers are generally limited to between three and six years prior.
This is particularly important when benefits have a nil value due to employee contributions.
If an error is detected in how benefits have been calculated, the employee contribution could be insufficient to eliminate the amount of FBT payable. In this situation, there is no time limit on the ATO’s power to raise additional assessments of FBT for prior years.
The impact of specific types of benefits
Vehicle fringe benefits are very common and employers are provided choice as to the method they use to calculate the taxable value of car fringe benefits. However, the election which must be made in order to use one of these methods – the ‘operating cost method’ - can only be completed when lodging an FBT return. Employers that use the operating cost method, even where the taxable value of the benefit is reduced to nil via employee contributions, are effectively required to lodge FBT returns.
This article was first published by BDO on March 16. Read the original article here.