Employers: Beware “left-field” FBT liabilities
It is generally understood that for fringe benefits tax (FBT) to apply, the benefits paid are usually in respect of an employment relationship.
Where some businesses have tripped up in the past however is where this relationship is not clear cut — that is, where non-cash components of remuneration are sourced not directly from you as an employer, but from an associate, a related company or from a third-party provider. Certain family arrangements may also not necessarily trigger FBT.
The arranger provisions
The FBT law provides that an employer can be liable for FBT even if benefits are provided to staff by third parties or by an “associate” of your business. In other words, there could still be an FBT liability even if provided indirectly.
For example, arrangements to which these provisions might apply would normally include employees who receive goods directly from your suppliers.
For a liability to arise, it is generally accepted that you must have been party to the arrangement or had been knowingly facilitating the provision of the benefit. In some cases, allowing an employee to receive a benefit in these circumstances may be sufficient to result in it being considered an arrangement for FBT purposes.
Arranger provisions and meal entertainment
It is not necessarily the case that you would be held liable for FBT for meal entertainment where you merely allow an employee to, for example, go out to lunch with a client where the client provides the meal, or to attend a function provided by a third party.
Where you need to be careful however is where it could be inferred that you “entered into an arrangement” with a third party that includes providing such a benefit to your staff member, such that:
- the meal entertainment was provided under an agreement between you the employer and the third party, or
- you knowingly participated in the provision or receipt of such entertainment — for example putting in for drinks at a function organised by the third party, or making premises available, or
- your business promoted or participated in a scheme under which the meal entertainment was provided by the third party (such as by encouraging sales staff to participate in a product promotion organised by the third party).
If you are unsure of whether the arrangement is caught under the arranger provisions, please contact this office for further details.
Stephanie is employed by an accountancy practice that provides taxation advice to cricketers. The cricketers often arrange free tickets for Stephanie and her partner to attend matches and corporate functions that precede them on match days. The partners of the accounting practice encourage her to take up these offers as they provide an opportunity for business networking.
It is likely that a benefit has been provided, by a third party, which arises in respect of Stephanie’s employment. This would generally make the benefit subject to the FBT provisions, resulting in her employer having an FBT liability.
Specifically “outside” the FBT net
The ATO has ruled out a number of specific examples of benefits under family arrangements that it deems to be outside the scope of FBT law.
- a birthday present given to a child who works in a business run by the parents
- a wedding gift given by parents to an adult child who had some years earlier worked after school in the family business
- an interest-free or concessional loan given to such a child for the purpose of buying a matrimonial home
- the value of meals and accommodation provided to children of a primary producer in the family home where they work on the family farm
- the rental value of a farm homestead occupied by a family whose private company conducts the farming business in which they work and holds the title to the homestead
- the value of accommodation provided free in the family home to a child apprenticed to his/her parent as a motor mechanic, and
- the administration costs of an employer in providing fringe benefits.
Further “left field” FBT facts
Here are some other FBT fun facts that you may find useful.
- Shopping centre car parks that provide free parking for an initial period (the first two hours, for example), and thereafter charge a fee based on time (to discourage all-day parking), are not considered by the ATO to be “commercial parking stations” for the purpose of determining if there is a car parking fringe benefit.
- Where a mobile phone or similar item is treated as an exempt work-related item and the monthly call costs are exempt, the exemption will typically extend to internet data usage fees
- Where a loan is made in respect of employment to an employee who is also a shareholder of a private company, there is no loan fringe benefit if the loan amount (or residual un-paid balance) is deemed to be a dividend made to the borrower under tax law. Ask this office for more details.
NOTE: FBT changes for work related laptops, tablets, etc
For the current FBT year, an FBT exemption applies in respect of eligible work-related items (such as a portable electronic device, an item of computer software, and a tool of trade). However, in respect of a work-related portable electronic device (for example a laptop computer or a tablet), the exemption generally does not apply to multiple items provided by an employer to an employee in the one FBT year where those multiple items have “substantially identical functions”.
But in the upcoming FBT year (that is, from 1 April 2016), the law has been changed to allow an FBT exemption for small businesses with an aggregated annual turnover of less than $2 million that provide employees with more than one qualifying work related portable electronic device, even where the items have substantially similar functions.
According to the government, the proposed change will remove confusion where there is a function overlap between different products — such as between a tablet or laptop. Businesses which do not satisfy the meaning of small business are still governed by the old rules.