Fringe Benefits Tax (FBT) sucks. No business likes it, the government doesn’t want to adjust it, and I don’t believe the Australian Taxation Office (ATO) even likes enforcing it.
This month, we’ll outline FBT, how it affects you, identify recent changes to FBT policies, and best practices for managing FBT risk.
Before we start, we recommend all businesses keep odometer records for all vehicles at 31 March & 30 June each year. If you’re an employer, we also recommend completing the FBT questionnaire we’ll be sending out this month.
Understanding Fringe Benefits Tax (FBT)
The FBT year runs from 1 April to 31 March, with returns lodged and debts paid by 21 June each year, so that amounts can be reported in your end of year payroll reports.
Why is it not a bigger deal?
FBT is a catch-all tax to pick up any non-salary remuneration to employees. If you want to provide your employee with a house, meals, or a car as part of their package instead of a wage, FBT is how the ATO assesses this value.
90% of businesses don’t provide the above but most (including us) provide some form of non-salary benefit to their team – a Christmas party, hampers, tenure gifts etc.
Thankfully, ‘minor and infrequent’ on ‘on-premises’ exemptions mean that most benefits tend to be exempt, and this covers most Christmas parties.
The minor and infrequent rule is for amounts less than $300 per head, per event and ‘not regular’, which we advise around 5-10 times a year, depending on size and type.
The on-premises rule exempts food and drink provided to staff on your business premises during a working day.
What does affect your business?
The below issues are the ones we (& the ATO) see frequently:
Car Fringe Benefits are the most prevailing issue we see, and these are in the spotlight post-COVID as more meetings occur online.
These are all pitfalls I’ve seen people fall into.
- No, or incomplete, logbook.
- Where the kms travelled don’t represent normal travel, i.e. done while the car wasn’t used privately, then started using it privately afterwards. The closing odometer records clearly showed a lot more travel across the year than the logbook indicated would occur.
- ‘Backdating’ the logbook, where it was recreated based on meeting / standard patterns after we notified the client of an audit. Passport records showed the client was overseas while their logbook indicated they were driving around Australia, and it didn’t end well.
- Treating travel to and from work as exempt for a car (this is exempt for utes, vans and commercial vehicles only)
- 1tn Utes, Dual Cab Utes, Commercial vehicles (van, limos)
- These being declared as ‘logbook exempt’ and therefore 100% business use. This isn’t necessarily the case and personal travel needs limited, with misuse monitored by effective and enforceable company policies.
- We send declarations for these vehicles each year to our clients to ensure they are correctly recorded.
Entertainment costs and gifts are the next biggest issue.
- Frequent business lunches will breach the ‘minor and infrequent’ rule due to the regularity.
- One-off gifts for staff instead of bonuses that exceed $300, including gifts for long-tenured staff
- Misunderstanding that if you can’t claim a deduction for entertainment, then there’s no FBT.
- Conversely, just because there is no FBT doesn’t mean that there’s a tax deduction. Entertainment on your business premises might be exempt from FBT, but if it’s entertainment, it’s still not deductible.
Not lodging a FBT return is the next major concern.
- If you’ve got private use of a vehicle, phone or other asset, the correct accounting treatment is to raise a repayment to offset the cost or to pay the FBT. We often set a repayment up out of normal weekly wages for clients.
- If you have raised a repayment, this is reported on your tax return. If a corresponding FBT return is not lodged, this raises a flag with the ATO.
- When a return is lodged, it sets an audit review date of 4-years. This limitation doesn’t exist if a return isn’t lodged.
If you have a vehicle in your company (even if exempt), we recommend lodging a FBT return. This is particularly relevant for vehicles with private use but relates to all vehicles. 7 years from now, how do you prove your dual cab was only used for business?
Recent changes to FBT policies
These are the recent changes for 2025:
- Plug-in Hybrid Electric Vehicles (PHEVs) exemption:
- The FBT exemption for PHEVs ends on 31 March 2025, existing arrangements can continue but new PHEVs purchased will no longer fall under the exemption.
- Electric Vehicle (EV) exemptions:
- The FBT exemption for full electric vehicles (EVs) continues, allowing employees to access tax concessions for salary sacrificing an EV.
- Alternative record-keeping:
- Travel diaries and certain declarations can be forgone for alternative record-keeping.
Alternative does not mean ‘less’. While a travel diary alternative is welcome, the motor vehicle declaration alternatives are worse.
Action items for compliance
To ensure you remain compliant with current FBT regulations, consider:
- Complete our questionnaire – if you aren’t sure, click ‘unsure’. We’ll reach out to discuss it further with you.
- Lodge an FBT return. If logbooks are provided and there is little FBT risk, these are much less expensive than a tax return.
- Review Vehicle Benefits:
- Ensure logbooks are up to date
- Ensure odometer records are kept at 31 March
- Ensure declarations are done each year for logbook exempt vehicles
- Review your policies on private use. Are you checking odometer records regularly? Do your staff know the rules? Are there dob-in rules?
- Monitor Entertainment Expenses:
- Keep records of entertainment and business lunches and who attends – how many clients? How many staff? Which staff are having these regularly?
- Employee Contributions:
- Review whether it’s worth adjusting payroll to make after-tax deductions towards potential FBT liabilities.
If you have any questions or need assistance with your FBT management, our team is here to help.
