Date posted: 20/12/2017 3 min read

ATO’s tips for small businesses on fringe benefit tax issues

In an interview with Chartered Accountants ANZ Australian Taxation Office Assistant Commissioner Anna Longley outlines fringe benefits tax issues and their impact on employers

In brief

  • ATO assistant commissioner outlines key FBT issues and their impact on small businesses, employers and employees
  • Key concerns include the new rules about employee travel expenses, FBT treatment of Uber and taxis, small business car parking exemption and the new safe harbour rules for businesses
  • FBT rates are at 47%, which is 2% lower than the last two years

Anna Longley, Assistant Commissioner, ATO

Anna Longley, Assistant Commissioner, ATO

In an interview with Chartered Accountants ANZ Australian Taxation Office Assistant Commissioner Anna Longley explains the ATO’s position on fringe benefits tax (FBT) and advises what employers need to know as they approach the end of the FBT year. 

Benefits and challenges of FBT for small businesses 

To put concerns around changes to FBT into perspective Longley advised Chartered Acocuntants ANZ that “small businesses employ around 5.6 million people in Australia so there are definitely opportunities to reward staff for a job well done.” Longley stressed, however, that employers do need to be aware of their FBT obligations.

Longley told Chartered Accountants ANZ that FBT rates are at 47% for 2018, which is 2% lower than the last two years, and there are still plently of concessions available. Longley commented that the ATO are always looking for ways to support small businesses and help them to succeed, by simplifying processes and reducing compliance costs whilst ensuring they operate within the law. Steps the ATO have taken to provide support are:

  1. Electronic lodgement
    Lodging FBT returns electronically is a big step forwards. Employers can lodge returns through standard business reporting enabled software. 
  2. Support tools for small businesses to build confidence and reduce compliance costs
    Longley told Charted Accountants that the ATO are “here to help businesses get it right and will always engage with employers and continuously look for opportunities to help them understand their obligations.” Support tools to build confidence and reduce compliance costs include:
  • Fringe benefits tax – a guide for employers
  • A series of ATO webinars on a range of topics, including what attracts the ATO’s attention and entertainment fringe benefits
  • The ATO’s Building confidence document is a great source of information for small businesses about what we expect from them and links to information on FBT for small business. There is also a page outlining what FBT matters attract the ATO’s attention. 

Small businesses car parking exemption

One of the challenges for businesses is understanding whether they fall into the category of “small business” to take advantage of the small business car parking exemption. Longley commented that small businesses need to be aware of whether they satisfy the definition for the current FBT year or whether it will only apply to them for future FBT years. 

Impact of new rules for employee travel expenses 

Longley explained that although the law hasn’t changed, Draft Taxation Ruling TR2017/D6, clarifies the ATO’s position and has “brought them up to date with what currently happens in the employment environment.” As a consequence of TR 2017/D6 being issued, the ATO has withdrawn Miscellaneous MT 2030 which contained the “21 day rule.”

Employers should consider if the view in TR 2017/D6 and the withdrawal of MT 2030 impacts how travel and living away from home allowances (LAFHA) have historically been treated for FBT purposes to ascertain if an ameded return is necessary. Longley stated that “generally they won’t be penalised for having made a mistake.”

FBT for taxi expenses and Uber

The sharing economy has thrown into question the interpretation of the definition of  “taxi” and whether that should include ride sharing and other commercial vehicles. The issue was raised after the Federal Court Decision Uber B.V v FC of T [2017] FCA 110 ruled that Uber drivers must pay GST because they are providing a modern equivalent of a taxi service. The ATO are currently considering whether an FBT exemption should apply to ride sharing vehicles, and given the approach of the end of the FBT year, are treating this as a priority.

Implications of new safe harbour guidelines for businesses

Employers need to be aware of Practical Compliance Guideline PCG 2016/10 Fleet cars: simplified approach for calculating car fringe benefits, which the ATO has recently developed through collaboration with industry representatives. The new approach reduces the recordkeeping burden for businesses and allows them to use an ‘average business use percentage’ when using the operating cost method. Businesses can access the safe harbour if they have:

  • a fleet of 20 or more ‘tool of trade’ cars, which are not part of salary packaging arrangements and cost less than the luxury car tax limit in the year acquired.
  • a mandatory logbook policy and hold valid logbooks for at least 75 per cent of the cars in the logbook year.

Longley stressed that the difficulty with FBT law is that some record keeping obligations are written into the legislation, so while the ATO are conscious of trying to reduce compliance costs, they need to ensure businesses are still operating within the law. 

Further, the ATO have published Draft Practical Compliance Guideline PCG 2017/D14 Exempt car and residual benefits: compliance approach to determining private use of vehicles. This draft Practical Compliance Guideline considers employees’ private use of certain vehicles for the purposes of accessing the car-related FBT exemptions that may be available to a particular employer under the fringe benefits tax law.

The draft PCG was developed in response to feedback received from business and industry that the application of the exemptions required an overly detailed understanding of the vehicle’s use and was a compliance burden for employers. The draft PCG provides increased certainty and transparency for employers as to the circumstances in which the Commissioner will not apply compliance resources to determine if private use of the vehicle meets the car-related FBT exemptions.

The community has been invited to provide comments on PCG 2017/D14 by 9 February 2018.

Opportunities for salary packaging arrangement  

Longley told Chartered Accountants ANZ that there are still opportunities for employers to reward their staff and benefit from salary packaging. 

“The FBT law hasn’t been significantly amended since it was introduced in 1986 and there are multiple concessions available to employers, such as the concessional treatment of car benefits which lend themselves to salary packaging and provide tax savings. There are also capped exemptions available to private benevolent institutions, health promotion charities, public hospitals and ambulance services.” 

FBT and ATO’s 2018 agenda

Longley told Chartered Accountants ANZ that the ATO are “hoping to assist small businesses to create a level playing field for all businesses by ensuring that everyone pays the right amount of tax.” 

Longley added that particular areas of concern will be targeted in order to achieve this, as outlined by Commissioner Chris Jordan in an interview with Acuity, which revealed the ATO’s focus for 2018 will be on smaller tax avoiders such as small businesses and individuals. 

However, Longley said they “will work with the employer to resolve any issues” whether in relation to income tax, FBT or PAYG.

Longley confirmed that in relation to FBT the ATO are developing:

  • Plans to update the expense payment fringe benefit declaration form, adding a line that requires individual employees to declare they understand they cannot claim income tax deductions for business expenses reimbursed by their employer. 
  • An update to Taxation Ruling TR 1996/26 that deals with car parking fringe benefits is being made to reflect the decision in Commissioner of Taxation v. Qantas Airways Ltd  [2014] FCAFC 168 and  more contemporary examples to assist employers.

For more information on on FBT for small businesses, see the ATO website