FBT

What is FBT or Fringe Benefit Tax

FBT (fringe benefit tax) is a tax paid on certain benefits you provide to your employees and their associates. In a family company where no employees except Mum and Dad as the principals, an employer/employee relationship will exist even though there may be no salary taken.

There are nine categories of fringe benefits but the two that are most common are :

• Car benefits
• Expense payment fringe benefits. The most common types( not exhaustive ) are home telephone, mortgage payment, rates &taxes , school fees, medical expenses, groceries, private visa payment.

 Here are some tax tips on how to reduce your FBT liability to a minimum.

Reducing FBT to the minimum

 FBT can be reduced by:

• The amount of employee contribution paid within the FBT year
• And under the “otherwise deductible rule”

 Employee contribution – conditions to be met

• An employee contribution may only be made from an employee after tax-income
• The employee contribution must be paid or otherwise identified as being incurred by the employee not later than 31st march
• Excess employee contribution in respect of a particular fringe benefit may not be applied to reduce the taxable value of any other fringe benefits

“Otherwise deductible rule” – conditions to be met

• The  recipient of FBT must be an employee of the employer, not an associate
• The expense must be an outright deduction in that income year
• One must satisfies the income tax substantiation rules which applies to employees i.e. receipts, invoices, kept time and usage diary for at least one month of each FBT year where part business/private claim is made for private phone, home computers, kept travel diary for travel over 5 or more continuous night and there is a private portion in the travel

 No private use declaration – conditions to be met

• The employer will reimburse or pay only employment related expense which would result in the otherwise deductible rule reducing the taxable value to nil
• Employers must consistently enforced a policy of no private use to evidence a genuine prohibition of private use

Traps and pitfalls

FBT offset arrangement involving journal entry

 Many small business “cash out” of their  FBT liability by raising journal entry against the employee loan account . While MT 2050 states it is acceptable to raise journal entry at the time of preparing the current income tax return, there are conditions to be met

All the four strict requirement of MT 2050 must be rigorously followed; otherwise the commissioner will not consider that an employee contribution has been paid

• employee has an obligation to make a contribution to the employer
• The employer has an obligation to make a payment to the employee ( i.e. repay a loan )
• They both mutually agree to “ set off” their obligation
• Journal entry made no later when the current year’s accounts are prepared.

The offset arrangement must be documented

The offset arrangement must relate to the taxable fringe benefits provided in relation to the FBT year, not the income tax year.

Non lodgement of FBT return -the traps – what about supporting documentation?

Trading companies and trust who do not lodge an FBT return because they do not have an FBT liability, (i.e., the employer fringe benefits taxable amount is NIL ) should complete a notice of non- lodgement form and lodge it with the ATO.

The form will advise the ATO of the reasons as to why an FBT return is not being lodged.

• employee contributions have reduced the taxable value of benefits to nil
• The taxable value of benefits have been reduced to nil under the otherwise deductible rule
• exempt benefits provided to employees under section 41 and section 58 of the FBT Act
• Each employee is within the $500 reduction in value for in house benefits provided to them
• exempt car benefits provided to employees and the company has consistently enforced its policy of no private use to evidence a genuine prohibition of private use
• that supporting documentation are available including various FBT declaration