With some significant tightening having been made to the FBT system for 2016/17, particularly in the area of salary packaging by concessionally taxed employers, it is useful to recap issues which employers will generally face when preparing the 2017 and future FBT returns.
Meal entertainment benefits
The “unlimited” concessional FBT treatment available for salary packaged meal entertainment and entertainment leasing expenses (referred to as “meal entertainment benefits”) enjoyed by concessionally taxed employers such as public benevolent institutions (PBI), public hospitals and FBT rebateable employers, was curtailed with the introduction of a new $5,000 (grossed-up) cap for salary packaged meal entertainment benefits.
The changes took effect on 1 April 2016. As noted, the change is particularly relevant for employers that enjoyed concessional FBT treatment for salary packaged meal entertainment benefits. The new $5,000 cap is in addition to the existing exemption caps of $31,177 or $17,667 and rebate cap of $31,177 determined by the employer’s tax status.
Employers 2016/17 FBT compliance practices will need to ensure the new cap is properly implemented. This includes identifying salary packaged benefits that are the subject of the new rules (restaurant, holiday travel etc.), distinguishing between salary packaged and non-salary packaged meal entertainment benefits, determining FBT payable where the cap is exceeded and ensuring consequential changes (such as salary packaged meal entertainment benefits becoming Reportable Fringe Benefits). It is also important to note that the 50/50 or 12 week register valuation methods are not available to be used for salary packaged meal entertainment benefits, further highlighting the importance of distinguishing between salary packaged and non-salary packaged meal entertainment benefits.
Non-salary packaged meal entertainment benefits continue to be treated as per the historical FBT rules (including not being Reportable Fringe Benefits). This includes access to the 50/50 method or 12-week register valuation methods.
Further detail on the changes in this area can be viewed at the ATO website.
Concessions introduced late in the 2016/17 FBT year will provide some relief for employers that use the operating cost method and have a fleet of 20 or more non-salary packaged “tool of trade” cars. The concessions reflect the difficulty in ensuring log books are completed and retained for all vehicles and allow, subject to the conditions of the concession being satisfied, a “fleet average” to be applied for fleet vehicles including vehicles where no compliant log book is held (noting compliant log books must be held for 75 per cent of cars in the fleet). The terms of the concession are set out in PCG 2016/10 and care should be taken to ensure all conditions are satisfied before the concessions are applied.
A new safe harbour for workhorse vehicles?
Looking to 2017/18 there is some hope that the ATO will announce more helpful guidelines and possibly a ‘safe harbour’ to determine which type and extent of private use will not jeopardise exemption for ‘workhorse’ vehicles. Presently, ATO guidance as to when private use (other than home to work travel) is minor, infrequent and irregular is limited. The prospects of a safe harbour where, for example, private use (other than home to work travel) of less than 10% of total use or private use below, say, 2,000 kilometres will not jeopardise exemption would be welcomed by employers.
Problems with FBT and entertainment persist.
As we like to say light-heartedly, just because you didn’t enjoy the lunch doesn’t mean it wasn’t entertainment.
Key issues faced by employers include:
- Not assuming the minor benefit exemption can be applied where the employer is a tax exempt body.
- Determining practical issues such as whether an on-premises monthly staff morning tea or an off-site weekly work-related coffee meeting is entertainment continue to trouble employers. Even where such expenditures are not entertainment, determining the correct FBT treatment and more importantly whether an exemption applies still challenges employers.
- Determining whether the 50/50 rule is advantageous and, where it is used, ensuring all meal entertainment is included notwithstanding certain of that meal entertainment would be exempt from FBT where the 50/50 rule is not applied (i.e. an employee attendee of a conference dinner may be exempt under the otherwise deductible rule but for the 50/50 meal entertainment rule being applied).
- In 2016/17, isolating salary sacrificed meal entertainment applicable to new capping measures vis-a-vis other meal entertainment is a new process to be included when preparing FBT data and employee Payment Summaries.
To ensure you are across everything you need to know when preparing your organisation’s FBT return, TaxEd are offering FBT training relevant to the not-for-profit and government sectors.
Click here to see what online sessions are available.
If you require any FBT training specific for your organisation, please contact TaxEd on 1300 607 478
This article was prepared by Michael Doran and Rob Power. If you have any questions, or wish to seek advice on matters referred to in this article, we can be contacted on (03) 8662 3200 or firstname.lastname@example.org