Review your obligations and the valuation methods used for benefits they provide. Use this checklist to determine whether or not you have an FBI obligation. Does any of the following apply to you?
- Do you make cars or other vehicles, which are owned or leased by the business, available to employees for private use, including a car garaged at the employee’s home?
- Do you provide loans at reduced interest rates to employees?
- Have you released an employee from an owed debt?
- Have you paid for, or reimbursed, a non-business expense incurred by an employee?
- Do you provide a house or unit of accommodation to your employees?
- Do you provide employees with living-away-from-home allowances?
- Do you provide entertainment by way of food, drink or recreation to your employees?
- Have you provided property, either free or at a discount to employees?
- Do any of your employees have a salary pack and arrangement in place?
- Have you provided your employees with goods at a lower price than they are normally sold to the public?
COMMON FBT ERRORS
Below are several common errors in recognising and valuing fringe benefits.
Clients may not realise that cars garaged at the residence of employees may be a car fringe benefit. Logbooks must be kept when using the operating cost method. Clients may not be aware when using the operating cost method that the luxury car tax threshold does not apply when calculating the deemed interest and depreciation. Clients may adopt the incorrect practice of reducing company income tax deductions to the extent of their perceived private use of cars, instead of accounting for FBT or applying employee contributions to eliminate the FBT liability.
Clients may use employee contributions to reduce the taxable value of a fringe benefit to nil, but fail to return the contribution as assessable income for income tax purposes and/or recognise a taxable supply for GST purposes. Employee declarations may not have been received to substantiate employee paid costs for fuel and oil expenses. Where the payment of an employee’s contribution is by journal entry, it must be correctly documented and made at the appropriate time.
Clients may not be aware that if they are a director and run their business through a company, they may be regarded as an employee of that company. This may mean that fringe benefits provided to themselves as directors result in the company having FBT obligations.
Reportable fringe benefits
Clients may include reportable fringe benefits on their employees’ payment summaries, but fail to lodge FBT returns.
Categorising type 1 and type 2 benefits
Clients may assume that you can use the type 2 gross-up rate if you don’t claim a GST credit, or that entertainment expenses are automatically type 2 benefits. Clients may also incorrectly use the type 2 gross-up rate where vehicles are under hire purchase.
Otherwise deductible rule
Clients may not be aware that the otherwise deductible rule can be used only to reduce the taxable value of the benefit to nil when the expenditure would have been 100% deductible to the employee – otherwise the taxable value can be reduced only by the business percentage.