FBT: ATO focus areas for 2024

FBT: ATO focus areas for 2024

The Fringe Benefits Tax (FBT) year ends on 31 March. We explore the problem areas likely to attract the ATO’s attention.

 

Motor vehicles

The ATO has identified a significant level of non-compliance in situations where an employer provides a motor vehicle to an employee who uses it for private travel or has it available to use privately. See this article for more information on car fringe benefits.

Both the actual private use of a motor vehicle and its availability for private travel are fringe benefits. This means that the employer may have a fringe benefits tax liability.

The ATO is on the lookout for situations when employers:

• treat cars as 100% business use, even though they are used or available for private purposes
• don’t have a valid log book, or the log book is not a representative sample of actual travel
• treat all eligible commercial vehicles as FBT exempt, without considering if the private use of the vehicle was limited.

 

Electric vehicles

In late 2022, the Government introduced a concession that enables employers to provide some electric vehicles to employees without incurring the 47% fringe benefits tax (FBT) on private use.

The exemption applies to the use of electric cars, hydrogen fuel cell electric cars or plug-in hybrid electric cars if:

• The value of the car is below the luxury car tax (LCT) threshold for fuel efficient vehicles ($89,332 for 2023-24 financial year) at the time it is first sold in a retail sale; and
• The car is both first held and used on or after 1 July 2022.

If your business is planning on acquiring an electric vehicle, be aware that from 31 March 2025, the FBT exemption will no longer apply to plug-in hybrid electric vehicles unless the vehicle met the conditions for the exemption before this date and there is already a binding agreement to continue to use the vehicle privately after this date.

Electric vehicle problem areas:

1.  The exemption only applies to employees

For the FBT exemption to apply, the vehicle needs to be supplied by the employer to an employee (including under a salary sacrifice agreement). Partners of a partnership and sole traders are not employees and cannot access the exemption personally.

2.  If LCT applies to the car it will never qualify for the FBT exemption

For example, if the EV failed the eligibility criteria in 2022-23 when it was first purchased because it was above the luxury car limit of $84,916, the fact that it resold in 2023-24 for $50,000 does not make it eligible for the exemption on resale. Likewise, if the car was used by anyone (including a previous owner) before 1 July 2022 then it will probably never qualify for the FBT exemption.

3.  Home charging stations are not included in the exemption

The FBT exemption includes associated benefits such as registration, insurance, repairs or maintenance, but it does not include a charging station at the employee’s home. If the employer installs a home charging station at the employee’s home or pays for the cost, then this is a separate fringe benefit.

4.  FBT might not apply but you do the paperwork as if it did

While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee’s income statement. While you don’t pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments.

5. What about the cost of electricity?

The ATO’s short-cut method can potentially be applied to calculate reportable fringe benefit amounts and applies a rate of 4.20 cents per kilometre. If you are not using the short-cut method, you need to have a viable method of isolating and calculating the electricity consumption of the car.

6.  The exemption does not apply if the employee directly purchases or leases the EV

If an employee purchases or leases the EV directly, and the employer reimburses them under a salary sacrifice arrangement, the FBT exemption does not apply because this is not a car fringe benefit. However, the exemption can potentially apply to novated lease arrangements if they are structured carefully.

7.  Not all electric vehicles are cars

To qualify for the exemption, the EV needs to be a car – electric bikes and scooters do not count, nor do vehicles designed to carry a load of 1 tonne or more or that carry 9 passengers or more.

 

Employee contributions

The general effect of an employee contribution to benefits is that it:

• reduces the amount of fringe benefits tax payable
• is included in the employer’s income.

The ATO is looking out for mismatches between the amount reported as an employee contribution on the fringe benefits tax return and the income amounts on the employer’s tax return.

 

Entertainment

If you provide your employees or their associates with food and drink, gifts or leisure activities (such as Christmas parties and business lunches) you may have a fringe benefits tax liability.

The ATO is looking out for situations where employers are providing entertainment activities to their employees and the expenses are:

• claimed as deductions in their tax return without correctly reporting and paying fringe benefits tax
• classified as sponsorship or advertising where there is an entertainment aspect to the activity.

See our articles on Meal Entertainment and Minor & Infrequent Benefits Exemption for further information.

 

Other FBT problem areas:

 

Not registering

If you have employees, it is unusual not to provide at least some fringe benefits. If your business is not registered for FBT but you have provided entertainment, salary sacrifice arrangements, forgiven debts, paid for or reimbursed private expenses, or have provided accommodation or living away from home allowances, it’s important that the FBT position is reviewed carefully. The ATO targets businesses that aren’t registered for FBT.

Employee travel

There has been a renewed focus recently on whether employees are travelling in the course of performing their work (deductible and not subject to FBT) or travelling from home to their place of work (not deductible and subject to FBT). The Federal Court decision in the Bechtel Australia case is a good example. The case dealt with the travel of fly-in-fly-out workers between home and their worksite – involving flights, ferry and bus travel. The Court found that the employees were travelling before they commenced their shift and that the employer was liable for FBT in connection with the transport that was provided. The case highlights the need for employers to ensure that they are fully aware of the connection between work and travel.

 

We’re here to help

This article is general information only and doesn’t constitute specific advice for your business. For more information and guidance on meeting your FBT obligations, please contact us. With our expert help, you’ll have peace of mind that you are ticking all the right boxes and avoiding any risk of non-compliance.

You can find out more about working with Marsh & Partners here. As your Absolute.Account.Ability partner we’re on a mission to make your business life better. We’ll help you set goals for your business, devise an Action Plan to make them happen and meet with you regularly to ensure you stay on track.