FBT – fears, cheers and changes
The current FBT year is just wrapping up, and it has been a period of potential turmoil with the proposal to scrap the statutory formula method for calculating car benefits. However not long after this landed on the legislative table it was swept off it again by the current government. So the status quo remains in this area of FBT law. But it may have served as a distraction from some other important adjustments, one of which is that the FBT rate is increasing come April 1.
The increase to the FBT rate (and gross-up rates) comes about due to the Medicare levy increasing from 1.5% to 2% of taxable income from July 1, 2014. The boost to the levy is to be directed to the DisabilityCare Australia Fund. Consequently, the FBT rate will increase from its present 46.5% to 47%, but comes into force earlier (for the FBT year commencing April 1, 2014).
Type 1 and type 2 gross-up rates are also affected, and ultimately the grossed-up taxable value of fringe benefits provided. The rate for type 1 benefits increases from 2.0647 to 2.0802, and type 2 from 1.8692 to 1.8868, both from April 1. For employers, the additional FBT payable due to the increase (in percentage terms for each dollar of benefit provided) is 1.83% for type 1 benefits and 2.03% for type 2 benefits.
Note that the higher gross-up formula was introduced to avoid allowing employers the benefit of claiming GST input tax credits for items bought for the private use of employees. The higher gross-up effectively recovers the input tax credit that an employer can obtain in providing a fringe benefit.
Also the Tax Office recently changed the lodgement due date for 2014 FBT returns that are lodged electronically through this office. This deadline is now June 25, 2014. Payment of any outstanding FBT is still due by May 28.
The Tax Office also revealed in its compliance program for 2013-14 that it will be actively pursuing non-lodgement of FBT returns. It will be focusing on employers that may have FBT obligations but that are not in the FBT system, indicating that this will be achieved through the use of third-party information — for example, where motor vehicles are registered in the business name, but no FBT return has been lodged or employee contributions disclosed.
In July 2013, the Tax Office issued 10,000 letters to employers that may have an FBT obligation in respect of a motor vehicle registered in the business name. It will not be surprising to see such campaigns continue for 2013-14 given that car fringe benefits accounts for a significant slice of FBT revenue. This will be the case given that the statutory formula method remains as an option for valuing car fringe benefits, as mentioned above.
Tax and FBT issues in relation to the Living Away From Home Allowance (LAFHA) continue to test both employers and employees, with some of the central concerns emanating from amendments made to the LAHFA provisions that limit the FBT concession available when providing such benefits to certain employees.
Apart from fly-in fly-out or drive-in drive-out workers, the concessional treatment is limited to employees who:
- maintain a home in Australia (at which they usually reside) for their immediate use at all times while required to live away from that home for employment purposes
- will resume living at that home when no longer away from it for employment purposes
- incur expenses for accommodation, food and drink for a maximum of 12 months while at a particular work location, and
- have provided their employer with a declaration that they are living away from their home.
There are some further substantiation requirements, depending on employee circumstances. In working out an employer’s FBT liability, the taxable value of LAFHA fringe benefits provided to eligible employees can be reduced by:
- the amount of the employee’s actual substantiated accommodation expenditure while living away from home for employment
- the amounts incurred for food and drink costs, less a statutory amount if applicable (note that “reasonable amounts” for food and drink costs have been determined by the Tax Office — ask this office for these).
The tax treatment of expenditure incurred under LAHFA arrangements can be quite complex, and it is advisable to seek advice on this matter. The Tax Office says it will embark on an educational campaign over the 2013-14 FBT year relating to these and other LAFHA sticking points. It has also made available several forms and declarations that may be relevant, depending on the circumstances of an employee. The relevant forms and declarations are available from this office.