As we approach the end of the 2022 Fringe Benefits Tax Year , we want to remind all employers that a motor vehicle odometer reading needs to be taken on the 31st March 2022 ---- today, for the purposes of a Car Fringe Benefits Tax obligation.
This odometer reading is one of the annual requirements for the Operating Cost Method of FBT calculations for the FBT Year ending 31 March 2022. Your odometer readings need to highlight the start and end mileage of the past FBT Year for all vehicles. This will also assist in the following:
making a reasonable estimate of petrol costs incurred over the FBT year whilst fuel tax invoices/receipts are not appropriately maintained
demonstrating that the vehicle has not been driven, or has only been driven briefly for the purposes of maintaining the car, thus, to escape FBT liability due to the ongoing impact of the COVID-19 pandemic. (Please see details below)
What happens where a vehicle is stored at an employee home due to COVID-19?
The ATO has announced that an employer isn’t holding a car for the purposes of providing Fringe Benefits to an employee where a work-car has not been driven at all during the period it has been garaged at home, or has only been driven briefly for maintenance purposes due to the impacts of COVID-19.
Provided that the employer elects to use the Operating Cost Method and maintains odometer records, the employer will not have an FBT liability for the car during the lock down period.
Without electing to use the Operating Cost Method or not having odometer records, the Statutory Formula Method applies and an FBT liability will arise as the car garaged at the employee’s home is taken to be available for private use.
Employers can also take into account the impact of COVID-19 on the business use of a car if it is being driven during the period it is garaged at home. This will require you to maintain a logbook (or to have kept a logbook in any of the previous four years) which will enable you to calculate your FBT liability, and odometer records for the period in question.
What happens where COVID-19 has impacted the driving patterns of business vehicle use?
For any car Fringe Benefits calculated using the Operating Cost Method, you may adjust your business use estimates to reflect changes in your employees' driving patterns due to COVID-19.
If you are making a reasonable estimate of the business use, you can adjust the use indicated from the logbook to account for the change in driving patterns from COVID-19 impacts.
However, you must ensure that the logbook still records a period of at least 12 continuous weeks - if the logbook does not reflect a 12-consecutive-week period you cannot apply it to reduce the taxable value to take business use into account.
Important Changes to 'Workhorse Vehicles'
A workhorse vehicle is a panel van, ute or other commercial vehicle (that is, one not designed principally to carry passengers such as a dual cab ute with a carrying capacity of more than one tonne).
Workhorse vehicles are generally exempt from the car fringe benefit rules, provided the private use of that vehicle is restricted to only minor, infrequent and irregular use. For example, dropping off / picking up children to school on the way to / from work. Where the private use is more than minor, infrequent and irregular a residual fringe benefit has been provided and there is a different method to work how much FBT is payable.
An employee’s private use of an eligible vehicle will be regarded as ‘minor, infrequent and irregular if:
Any diversions for private travel between the employee’s home and their place of work and these journeys add no more than two kilometres to the ordinary length of that trip (e.g., dropping children off at school on the way to work);
No more than 1000 kilometres in total for each FBT year are taken for a wholly private purpose (i.e., multiple journeys); and
No single return journey undertaken by the employee that is wholly private purpose exceeds 200 kilometres.
What are other common forms of fringe benefits?
Some of the most common examples of fringe benefits include where an employer:
provides
below market interest rate loans to employees;
pays or reimburses an expense on behalf of any employee. The expenses can be business or private expenses or a combination of both, but they need to be incurred by the employee.
use of employer's property, for example, video camera or television
provides benefits under a salary sacrifice arrangement with an employee.
provides entertainment by way of food, drink or recreation, including meals and drinks, cocktail parties and staff social functions
What are some strategies to reduce an employer’s FBT liability?
Do not provide fringe benefits
Provide exempt benefits
Use ‘otherwise deductible rules’
Know your reductions
Use employee contributions
Have you been aware of Reporting Fringe Benefits on PAYG Payment Summaries?
Employers are required to record the total taxable fringe benefits (excluding some car parking and meal entertainment benefits) provided to employees in excess of $2,000 on the PAYG Payment Summary of the employee.
Why Should employers lodge an FBT return where no FBT is payable?
It is considered best practice for FBT-registered employers without an FBT liability for an FBT year, to still lodge an FBT Return (i.e. a ‘nil FBT return’)(although this is not mandatory).
If an employer does not lodge an FBT Return where no FBT is payable (e.g., due to employee contributions), no ‘assessment’ is raised by the Commissioner.
This effectively provides the Commissioner with an indefinite period within which to issue an employer with an FBT assessment for that particular FBT year.
However, when an employer lodges an FBT Return (including a nil return), then an assessment is deemed to have been issued under S.72, and the amendment period rules are triggered.
Under the amendment period rules, the Commissioner generally has three years* from the date of the original FBT assessment (including a ‘nil’ assessment) to make an amendment. (e.g. typically to increase an employer’s FBT liability)
*The amendment period is extended to six years if there is an avoidance of tax, and the employer has not made a ‘full and true disclosure’ when lodging its FBT return. Furthermore, the amendment period is indefinite if the Commissioners forms the opinion that the ‘avoidance of tax was due to fraud or evasion’.
To limit the risk of the ATO making an amended assessment, we highly recommend employers lodge a nil FBT Return so they are less likely to be considered a high-risk taxpayer from the perspective of the ATO selecting audit targets.
Should you have any concerns about your FBT exposure please do note hesitate in contacting one of the team members at DiSavia