The 2012 Fringe Benefits Tax (FBT) year-end has come and gone, so once again, employers will be looking at what has changed over the last twelve months and how that will affect the employer's liability for FBT.
In preparing their FBT returns, employers should be aware of recent changes that have been made to the FBT law, as well as a number of changes that have been flagged which will affect the 2012-2013 FBT liability.
Motor Vehicle Fringe Benefits
The most significant change to the FBT for the 2012 year was the announcement in the May 2011 Federal Budget of the abolition of the tiered system of "statutory percentages" used in calculating the taxable value of a motor vehicle fringe benefit under the statutory formula method. Under the old system, four different statutory percentages ranging from 26% to 7% applied, depending on the annualised kilometres travelled by the relevant vehicle. Now, for motor vehicles purchased or otherwise made available for the first time on or after 10 May 2011, a flat rate statutory percentage of 20% will apply. That new rate will however be phased in over a 4-year period, as explained in the table below.
The existing 4-rate system will continue to apply to motor vehicles that were held on 10 May 2011. Thus, employees travelling less than 15,000km p.a. will not benefit from the reduction in the statutory rate until they change their car.
The changes were introduced because of the perception that the existing thresholds encouraged employees to drive to a target distance to fall into a lower tax rate, and thus, the new measures were seen to have an environmental purpose, as well as the potential budget saving of $954 million over the forward estimates period. Employers acquiring new vehicles for employees with high business use may need to consider other means of calculating the manner in which FBT is to be re-charged to the employee's salary sacrificed arrangements, such as using the operating cost method. Your Moore Stephens tax adviser can assist with this calculation.
The Australian Taxation Office (ATO) has released the amounts that apply as various statutory thresholds and applicable rates for the 2011-2012 FBT year, as detailed below:
Other areas to note
- During the year the ATO released a ruling which clarified the "base value" of a car. Where an employee contributes to the purchase price of a car, either by cash or by making their own vehicle available as a trade-in, the base value of the car benefit will be the amount paid by the employer/lessor, (i.e. an amount net of the employee's contribution).
- Where a mobile phone or similar item is treated as an exempt work-related item, and the monthly call costs are exempt, the exemption will extend to internet data usage fees.
- The ATO does not consider shopping centre car parks that provide free parking for a period (e.g. 3 hours) and thereafter charge penal rates to discourage all day parking to be "commercial parking stations" for the purposes of determining if there is a car parking fringe benefit.
- Where a loan is made to an employee who is also a shareholder of a private company, there will be no loan fringe benefit if the loan would result in a deemed dividend being made to the borrower (even if the private company had no distributable surplus and the amount of the deemed dividend was therefore "nil").
Fly-in Fly-out ("FIFO") Arrangements
Legislative amendments have extended the FBT exemption for FIFO arrangements to situation where Australian residents travel to work in a remote location overseas. This will put those employees on the same footing as employees who have a FIFO arrangement for remote locations within Australia. The amendments apply retrospectively to benefits provided since 1 July 2009 and employers that believe they may be affected should consult their Moore Stephens tax adviser to determine whether an amended return can be lodged and refund sought.
Living Away From Home Allowances ("LAFHAs")
Changes to the rules by which LAFHAs are taxed have been announced and will, if enacted, apply to all LAFHAs with effect from 1 July 2012. The changes are being introduced because of the increasing use of LAFHAs to recharacterise income into tax-advantaged payments, thereby putting local employees (and the Revenue) at a disadvantage. The changes proposed will mean that:
- Access to the LAFHA tax exemption for temporary residents will be limited to those who maintain a residence for their own use in Australia, which they are living away from for work purposes, such as "fly-in fly-out" (FIFO) workers.
- Individuals will be required to substantiate their actual expenditure on accommodation and food beyond a statutory amount.
- Permanent residents will not be affected by these changes, unless they are receiving a LAFHA in excess of their actual expenses. The Government says the changes will not prevent temporary residents who are FIFO workers in Australia from accessing the tax concession, and will not affect employees who receive allowances for having to travel from their usual place of work for short periods.
LAFHAs paid by an employer to an employee as compensation for being required to live away from home will no longer be treated as fringe benefits and the amounts will be included in the employees assessable income (as they were prior to the introduction of the FBT in 1986).
Permanent residents will be able to claim an income tax deduction for accommodation expenses they can substantiate and for food expenses beyond a statutory amount. Temporary residents who maintain a home in Australia for their own use and who are required to live away from that home to perform the duties of their employment will be able to claim an income tax deduction for their actual expenses. Allowances for other temporary residents will be taxed like other forms of income under the income tax system.
Employers who provide other LAFHA benefits will continue to be exempt from FBT on those benefits provided to permanent residents and to temporary residents maintaining a home in Australia, from which they are living away for their work.
Employers who provide direct LAFHA benefits to other temporary residents will be liable for FBT on those benefits.
Moore Stephens has made a submission to Treasury on the impact of the proposed changes. Employers paying LAFHAs are encouraged to consult with their Moore Stephens tax adviser regarding the impact of these changes on employment and FBT arrangements.
In addition, the ATO have reiterated their comments from the previous year regarding their compliance crackdown regarding employers' FBT obligations. In particular, the ATO have written to more than 2,000 businesses which had purchased exempt vehicles and had not registered for FBT, reminding them that the exemption relates to personal usage as well as body type. Further details of the ATO FBT compliance program can be found in the Moore Tax News article of 15 April 2011 (click here to access the article).
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