Employers pay Fringe Benefits Tax (FBT) on certain benefits that are provided to their employees, employee’s families and associates. For FBT to apply the person must be considered as a current, future or past employee, a beneficiary or the director of a company. FBT is created for the employee’s benefits and is levied by the employer. We’re going to explore why fringe benefits tax matters – even if there’s no reimbursement.
Unfortunately in most circumstances, the employer has no grounds for reimbursement on the tax unless arranged in the employment agreement.
This leads to the question of whether an employer should lodge an FBT claim if none of the tax is payable.
There is one simple reason.
Once the FBT is lodged it triggers the Australian Taxation Office (ATO) to turn on a three-year deadline to begin audit activities. Without the lodgement, the ATO is able to audit back through the years until your very first employee and without the paperwork to prove (signed declarations, logbooks, meal entertainment records, etc.) the ATO can hold your business accountable even for the employees who no longer work in your establishment, therefore making it impossible for the business to recoup anything.
A common issue that arises with FBT is when an employer provides an employee with a car and the private use is worked out using the operating cost (also known as the logbook method) using the business financial statements. This can leave your business open to liability, ultimately leading to further inquiry into the whole period of time the car was used within the business. However, if the business lodges its FBT it limits the ATO and they can only audit the past three years.
Another typical mistake businesses make is forgetting to keep a record of meal and entertainment benefits for their employees. There are various categories for these benefits and they aren’t all considered the same.
An example of this is the employment of two people. The first employee has the job of impressing potential clients and going to social gatherings where food and drink are consumed.
The second employee works in the office on the client’s projects. At the end of the year gathering, the second employee’s food and drink consumed will be exempt, however, the first employee will not qualify for the exempt meal entertainment. If there are no specific records of which employee receives which meal entertainment and no lodged FBT return it is entirely up to the ATO’s discretion to audit your company and seek any liabilities within your records.
We hope this helps outline why fringe benefits tax matters to all businesses with employees.
Have a chat with us to find out more information.