What’s new in FBT?
With the end of the FBT year in sight, the time has arrived to start preparing for completing your organisation’s annual FBT return.
The past 12 months have brought about significant reforms which has made for a very long ‘to do’ list when completing your FBT return. We would like to take this opportunity to update you on some of the recent changes, as well as provide you with some tips for ensuring your FBT return preparation process is as accurate and seamless as possible.
Major Changes to FBT in 2012-2013
Living Away From Home Allowances
Fundamental changes were made to the taxation treatment of Living Away From Home Allowances (LAFHAs) in 2013, with the changes taking effect from 1 October 2012.
Prior to this date, LAFHAs were tax free up to prescribed reasonable limits for accommodation and food. These limits were set annually by the Australian Taxation Office.
On and from this date, the concessional tax treatment of LAFHAs is now limited to employees who maintain a home in Australia which is immediately available for their use at all times while living away from home. This means that the employee’s home cannot be rented out whilst they are working and living away.
Further, the period of time for which a LAFHA can be paid is capped at 12 months for work in any one location. Employees who qualify must provide their employer with a declaration about living away from home.
Special rules apply to ‘fly in fly out’ or ‘drive in drive out’ employees. These employees do not have to maintain a home in Australia and are also not subject to the 12 month restriction, however certain conditions must be satisfied in order to obtain the benefit of the LAFHA tax concession.
Transitional rules apply to permanent residents who have employment arrangements for LAFHAs in place prior to 7.30pm AEST on 8 May 2012. These employees are not required to maintain a home in Australia for their immediate use for the concession to apply and the concession is not limited to a period of 12 months until the earlier of 1 July 2014 or the date of entry into a new employment (contract or material variation of their existing employment contract).
To comply with these changes, employers should:
- Keep adequate records of employee movements and contract variations and ensure signed declarations are received.
- Consider whether LAFHAs paid to certain fly in fly out or drive in drive out workers may retain concessional tax treatment.
- Determine whether staff can continue to access concessional LAFHA treatment on the basis that they have an existing agreement entered into prior to 8 May 2012 which has not been materially varied (noting that normal salary increases are not considered amaterial variation).
Car fringe benefits
New laws which alter the existing scale of percentages applicable to the value of a car fringe benefit were introduced in May 2011. This means that the benefit of salary packaging a vehicle which is used extensively, may be reduced going forward under the ‘Statutory Formula’ method.
The introduction of the new rates is being phased-in over four years through to the 2014-2015 FBT year. By the start of the 2014-2015 FBT year, a flat 20 per cent rate will apply to all car benefit values determined under the Statutory Formula Method.
The new scale of rates were deemed to apply to all car benefits after 10 May 2011, except where an employee and employer had committed to the acquisition of the car that was the subject of the benefit prior to 7:30pm AEST on 10 May 2011. It is important for employers to note that changes made after 10 May 2011 to commitments made prior to this date would, in all likelihood, represent new commitments. This would mean that the new statutory percentage rates would now apply to that car benefit.
It is the ATO’s view that the following scenarios would represent changes in the commitments and consequently mean that the new statutory percentages would apply from the start of the next FBT year:
- Refinancing of the car.
- Alterations to the existing lease contract, such as changing the duration of the lease or changing the residual value of the car under lease.
- Accessories are fitted to the car (tinting, DVD players, luggage racks, bull bars, etc.) after the lease has started, the lease is altered as a result and the lease payments are increased to reflect this change.
- The employer acquires the car, which is the subject of the benefit, at the end of the lease.
These changes should also be considered when determining which method of car fringe benefit calculation (Statutory Formula or Operating Cost Method) is the most cost effective in terms of the resulting FBT liability. We may need to collect more information from you going forward about the cost and usage of your motor vehicle to ensure the correct and most effective FBT treatment is applied.
In-house Fringe Benefits
The Government has recently announced the removal of concessional treatment for ‘in-house’ fringe benefits if they are accessed through a salary sacrifice arrangement. These changes are effective from 22 October 2012, however existing arrangements that are in place prior to 11am AEDT on 22 October 2012 will continue to be eligible for the concessional treatment until 1 April 2014.
Tips and reminders for the 2012-2013 FBT year
Key reminders in relation to the preparation of your FBT return are listed below. Of course, if we prepare your FBT return for you, we will be able to assist you with these items:
- Ensure adequate car records are kept, including:
- A copy of the tax invoice that indicates purchase price, vehicle transfer duty, luxury car tax and non-business accessories;
- Record the odometer reading when the car is acquired and sold;
- Keep a diary of days the car is unavailable for private use; and
- assess whether logbooks should be maintained for 12 weeks.
- Ensure you have obtained signed FBT declarations where required.
- In regard to meal entertainment, keep a record of whether meal entertainment was for employees or clients and ensure you compare and apply the meal entertainment valuation method which provides the lowest taxable value.
- Consider the ‘minor benefit exemption’ to reduce your FBT liability on benefits that are less than $300 in value and which are provided on an infrequent and irregular basis.
If you are interested in discussing a FBT review for your business, please do not hesitate to contact us.
Emma Barns – Senior Manager
Tel: 08 9367 8133
The information contained in this publication is provided for general guidance and should not be used as a substitute for consultation with your professional tax or other adviser. Before making a decision or taking action, you should consult with your NKH Knight professional. No warranty is given as to the correctness of this information and no liability is accepted by NKH Knight for any statement, error or omission made herein.