Tax

Fringe Benefits Tax – Tips and Traps for 2017

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With the 2016 Fringe Benefits Tax (FBT) year done and dusted, we thought it timely to provide an update on what’s new for the 2017 year, as well as some of the key changes relating to FBT rulings.

When the Federal Government handed down its May 2015 Budget they introduced a 2% Temporary Budget Deficit Levy, effective from 1 April 2016. This means that the FBT rate increases to 49%, up from 47%, and will remain in place for a two year period.

Changes to FBT Exemption for Electronic Devices

In the 2016 FBT year, the FBT exemption applied to only one portable electronic device. Where other devices provided substantially similar functions, the FBT exemption was only applicable to one eligible work related device per employee per FBT year. Any subsequent devices were subject to FBT unless the first device was lost, stolen or destroyed and a replacement was required.

For the 2017 FBT year, commencing 1 April 2016, small businesses will no longer be limited to providing only one portable electronic device per employee per FBT year. This means that employers will be able to provide their employees with multiple work related portable electronic devices and these additional devices will also be exempt from FBT, regardless of whether the devices have substantially similar functions.

It is important to note though that the “work related use test” will still apply in the 2017 FBT year.

ATO Audit Traps and Triggers

1. No FBT Payable

Where an employer lodges a return where no FBT is payable ie a nil return, the employer is granted a 3 year amendment period. This means that where an assessment has already taken place, an FBT liability can be increased within that 3 year amendment period if required.

However, if an employer lodges a “return not necessary form”, then the 3 year amendment period is not allowed and the employer may be subject to interest and penalties if an amendment is required.

2. Motor Vehicles Provided Under a Novated Lease

An increasing number of employers are allowing employees to salary package motor vehicle benefits with the finance of these arrangements being through a novated lease. This may trigger an ATO audit where the ATO believes that the novated lease does not constitute a genuine lease due to an upfront contribution by the employee. The ATO’s view is that this is not a genuine lease and a tax deduction may not be available for lease repayments, interest and depreciation expenses.

3. Third Party Information

Where information is provided by a third party, employer’s need to be critical and exercise judgement as to the accuracy of the information provided. Where information provided is inaccurate, you may be exposed to penalties and a shortfall of interest charged in relation to the underpayment of FBT as a result of these errors.

Changes to Meal Entertainment Rules

For the 2017 FBT year, commencing 1 April 2016, any salary packaged meal entertainment and entertainment facility leasing expenses will be subject to a separate single grossed up cap of $5,000. This means that FBT will be payable once the capping thresholds have been exceeded. All salary packaged entertainment is potentially reportable and so should be included on an employee’s payment summaries.

Also from 1 April 2016, the 50/50 method and 12 week register will no longer be available for salary packaged meal entertainment and entertainment facility leasing expenses.

Introduction of Handbags as a Tax Deduction

The ATO has confirmed that handbags may now be tax deductible as previously they were considered to be a private expense.

Whilst it is hard to prove a handbag is for work purposes, the ATO states that “fundamentally if you are carrying work items to and from work, be that a laptop, work papers and minor personal items, then you are in a position to claim a reasonable deduction for the cost of a handbag or man bag”.

The cost and size of a handbag, as well as a person’s profession, are likely to be issues that the ATO will take into consideration when reviewing a claim. If you make a claim for an ultra-expensive handbag, the ATO advises that more than likely you will be challenged. The ATO may view most of the cost as being of a private nature as carrying out work related functions does not require an expensive bag.

Large handbags, such as tote bags or bags with several compartments, are deemed more suitable for carrying work items compared to the smaller clutch-type varieties.

If you have any queries or concerns relating to any aspect of your FBT liabilities, then please contact us.