We are now in April and that means that another Fringe Benefits Tax (FBT) year has come to a close. The ATO have stated that they are going to increase audit activity for FBT this year so it is important to be prepared. The two main areas our clients have exposure to FBT is with business owned motor vehicles and meal entertainment.
For motor vehicle usage you have 2 methods which you can use to work out the private use of the vehicle. These methods are:
Statutory Method – this is used when no log book is held and you work out the private use based on a statutory formula which multiplies the original cost price of the vehicle by a statutory 20% rate. This gives the private use of the vehicle no matter how much the actual motor vehicle operating costs are. This method works well for lower value vehicles (ie up to around $60,000) which do no business use.
Actual Operating Cost Method – this method is used where a 12 week log book has been kept monitoring business and private use. This logbook can last up to 5 FBT years assuming that the nature of the car usage has not changed during that period. If there is a change in the nature of how that car is used then another logbook will need to be prepared. Previously logbooks were completed in a manual book that would be quite time consuming. There has been an introduction of multiple new electronic tools that clients can use to monitor the usage of the cars now. The private use % derived from the log book is then multiplied by the total running costs of the vehicle (including depreciation and interest on any finance) to determine the private use in dollar value terms. FBT is then levied on the private use of the vehicle.
Meal entertainment is the other area that a number of our clients are exposed to for FBT. FBT may apply to meal entertainment where employees are provided with food and/or drink, and or related accommodation or travel. When determining if a meal is subject to FBT the ATO set out a number of questions that should be asked. These include:
- Why is the food or drink being provided: refreshment or sustenance versus social situations for enjoyment
- What type of food or drink is being provided – light meals and refreshments onsite versus a meal out at a nice restaurant
- When is the food or drink being provided – during work hours versus after work
- Where is the food or drink being provided – on business premises versus off site in a function room or restaurant
If you find that in the majority of cases the second scenario exists within your business then meal entertainment is most likely being provided. There is however an exemption that can apply to meal entertainment. The exemption is called the minor and infrequent exemption. The minor and infrequent exemption from FBT applies if the cost of providing the meal entertainment is below $300 per head and is infrequent in nature. The ATO provide no clear definition for infrequent and it is measured on a case by case basis.
FBT is always a minefield so we encourage employers to make contact with their client manager should they be unsure on the nature of any motor vehicle expenses or meal related entertainment incurred.