With the Fringe Benefits Tax (FBT) year just ending on March 31, the ATO has shed light on frequent mistakes that are catching their attention. Jennifer Madigan, director of FBT risk and governance for the ATO, recently shared insights into the Tax Office's compliance approach for this year.
Vehicle-Related Errors: A Major Concern
One of the most prevalent issues revolves around motor vehicles, a common employee incentive. Employers often stumble when it comes to correctly classifying vehicles, which can lead to FBT calculation errors.
Vehicle Categories:
Cars designed for fewer than nine passengers (including the driver) – most passenger vehicles
Vehicles not designed for passengers, but with a carrying capacity under one tonne - e.g. most dual cab utes
Other vehicles with a carrying capacity over one tonne - not classified as cars, but still subject to fringe benefits
It's crucial to note that the vehicle type affects the FBT calculation method and potential exemptions.
Private vs. Business Use: A Fine Line
A frequent mistake is the misclassification of an employee's private vehicle use as business use.
Madigan offers a simple test: "If the employee had paid for the cost of using the car, could they have claimed an income tax deduction themselves?"
Examples of Private Use:
Commuting between home and work
Lunch trips
School pick-ups
Holiday trips
Weekend travel
While some exemptions exist, these trips are generally considered private and subject to FBT.
Log Book Pitfalls
The ATO continues to observe numerous errors in log book maintenance. A compliant log book should include:
Journey start and end dates
Odometer readings
Kilometres travelled
Detailed purpose of the journey
Common log book issues include:
Insufficient journey purpose details (simply stating "business" is inadequate)
Discrepancies between log entries and other records
Impractical or unexplainable entries
Unrepresentative usage records
Combining business and private travel in single entries
Consequences of Non - Compliance
Mistakes in log bookkeeping can lead to serious consequences:
The ATO may deem the log book invalid
Business use percentage might be reduced to zero
Default statutory formula method may be applied
Higher FBT liability for the employer
ATO's Four - Step Compliance Guide
To avoid these pitfalls, follow the ATO's four key steps:
Identify Benefits: Recognize the types of benefits provided and understand their specific valuation methods and record-keeping requirements.
Determine Taxable Value: Calculate the taxable value for each benefit using the appropriate method.
Lodge and Pay: Submit your FBT return, report fringe benefits on employee payment summaries or through single touch payroll, and pay any FBT owed by the due date.
Keep Records: Maintain and retain all necessary records as per ATO guidelines.
By adhering to these steps and avoiding common errors, employers can ensure FBT compliance and minimise the risk of unexpected tax liabilities. As the March 31 deadline is now here, it's time to review your FBT practices and make any necessary adjustments.
If you have any questions please contact your Client Manager for more information.
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