With the end of the Fringe Benefits Tax year looming on 31 March, we urge our Business Clients with employees to review their 2025 Fringe Benefits Tax (FBT) position.
FBT liabilities can trap unwary businesses. Some don’t recognise that there can be a tax consequence from providing benefits to staff – such as entertainment or even loans.
It is important to understand there can be tax implications from seemingly straight-forward business activities, not just FBT, but also income tax and GST.
For some businesses, it can come as a surprise that normal business related activities can fall within the FBT system.
There are some exemptions, however, businesses need a clear understanding that many employee benefits can come under the scrutiny of the ATO.
Entertainment
For example, a small business owner might think it appropriate to take a good customer or supplier to lunch. It might also seem natural to take along a staff member to that lunch.
But this event could result in an FBT liability, depending on the value of the food and drink on a per head basis and how frequently staff members receive similar benefits.
Excellent record-keeping is fundamental. It is crucial at lunches for example to note who was there because the portion relating to staff members might be subject to FBT while the portion relating to clients would not generally trigger FBT.
We note that the ATO has become more lenient in the area of “Coffee meetings”. While there is no black letter law, the ATO seems to allow the cost of coffee/light refreshments for clients/supplies/employees as “Meeting expenses”. We suggest that the costs should be kept under $20/head (and no alcohol).
Motor Vehicles
Motor vehicles are another key FBT issue. Many businesses provide cars to staff to use for private purposes. Unfortunately, this usually triggers an FBT liability. You cannot avoid the FBT system by simply not claiming a deduction for expenses relating to a vehicle.
There are some exemptions that can apply to these benefits and it may be possible to reduce or eliminate the FBT liability but it is important to understand that the ATO updates these exemptions regularly so businesses need to be careful that they understand the current rules; and detailed record-keeping is crucial. For example, a car that is used solely for business purposes could still potentially trigger a significant FBT liability if the necessary records are not kept. And, even though EV’s can be exempt from FBT, their Reportable Value still needs to be calculated to include on Employee Payment Summaries.
Car fringe benefits are applicable for cars that meet the below:
- Carry a load less than 1 tonne, and
- Fewer than 9 passengers.
These benefits are calculated using the operating cost method or statutory formula method.
Vehicles that are not “cars” are designed to carry a load of more than 1 tonne, carry more than 8 passengers or are a motorcycle. This is a Residual Fringe Benefit (not Car Fringe Benefit) and calculated using the operating cost method or cents per kilometre method.
If using the Statutory Formula method, make sure you keep your odometer reading on 31 March each year (take a photo!). If you have a reasonable percentage of business vs private trips, you may be able to minimise your FBT Taxable Value by keeping a valid logbook and using the Operating Cost method (keep all your car expenses receipts too).
Please note that a new log book needs to be kept every five years. So, if the existing logbook was kept before 31 March 2020, this would have expired in the 2024 FBT year Clients will need to keep a new 12-week logbook that commences before 31 March 2025. Please also note that the 12 weeks need to be a “representative” 12 weeks. If your business use increases over the years by more than say 10% then it would obviously be in your best interest to complete a new log book. If your business use drops by more than 10% then the ATO requires you to complete a new log book.
Why lodge a NIL FBT Return?
The ATO can generally only amend an FBT return in the three years following its lodgement (although they have six years when tax has been avoided; and unlimited time in cases of fraud & evasion). This means that if you don’t lodge an FBT return (eg because the taxable value of the Fringe Benefits provided is nil or no benefits were provided) then the ATO has an unlimited review period to potentially issue an FBT assessment liability. For this reason, we strongly recommend that businesses with employees lodge an FBT Tax return every year even if just a NIL return.
ATO’s top FBT target problem areas for 2025
- Motor vehicle fringe benefits : failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming reductions for these benefits
- FBT and income tax mismatch: mismatches between the amount reported as an employee contribution on the FBT return compared to the amount declared on the employer’s tax return
- Entertainment claimed as a deduction but not recognised as FBT: claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as marketing or advertising
- Car parking fringe benefits: incorrectly calculating car parking fringe benefits due to:
– significantly discounting market valuations
– using non-commercial parking rates
– not being supported by adequate evidence - Business Assets you use personally: not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates
- Not lodging FBT returns: not lodging FBT returns (or lodging them late) to delay or avoid payment of tax.
Contact our team if you’d like some help! We can ensure you are fully compliant.
