Pitfalls of the Fringe Benefits Tax

Fringe Benefits Tax

The fiscal period for the Fringe Benefits Tax (FBT) concludes on March 31st. We delve into the problematic areas that are expected to draw scrutiny from the ATO.

Electric Vehicles Generating Buzz

The Government rolled out a new concession towards the end of 2022, permitting employers to supply certain electric vehicles (EVs) to their employees without triggering the 47% FBT on private usage. This waiver is applicable to the utilization of electric cars, hydrogen fuel cell electric vehicles, or plug-in hybrid electric vehicles if:

  • The vehicle’s price is under the luxury car tax (LCT) threshold for fuel-efficient cars ($89,332 for the 2023-24 tax year) at its initial retail sale; and
  • The vehicle is acquired and employed on or subsequent to July 1, 2022.

Be informed that if your organization is considering obtaining an EV, starting from March 31, 2025, the FBT waiver will no longer be valid for plug-in hybrid electric vehicles, unless the conditions for the exemption were met prior to this cutoff and there exists a legally binding commitment to keep using the vehicle for private purposes post this date.

Areas of Concern

The exemption is limited to employees – For the FBT waiver to be effective, the employer must provide the vehicle to an employee (this includes arrangements like salary sacrifice). Partners in a partnership and sole proprietors aren’t considered employees and thus cannot personally benefit from this exemption.

If the LCT is applicable to the vehicle, it will never qualify for the FBT exemption. Take for instance an EV that did not meet the eligibility requirements in the 2022-23 period due to exceeding the luxury car limit of $84,916. Even if it is later resold for $50,000 in the 2023-24 period, this does not make it fit for the exemption upon resale. Similarly, if any individual (including a past owner) utilized the car prior to July 1, 2022, then it is likely never to be eligible for the FBT exemption.

Home charging equipment is excluded from the exemption. While the FBT waiver covers ancillary benefits like registration, insurance, and maintenance, it does not extend to a charging station at the residence of an employee. If an employer installs or finances a home charging station, that constitutes a distinct fringe benefit.

Even if FBT doesn’t apply, you must still complete the formalities as though it does. Although the EV FBT exemption is for employers, the value of the fringe benefit must be considered when calculating the reportable fringe benefits for the employee. This means the value of the benefit will appear on the employee’s income statement. While reportable fringe benefits aren’t taxed as income, they are factored into the calculation of adjusted taxable income for various purposes, like the Medicare levy surcharge, rebates for private health insurance, reductions in employee share schemes, and particular government benefits.

Cost of electricity considerations – The ATO’s simplified method can be used to determine reportable fringe benefit amounts, applying a rate of 4.20 cents per kilometer. If you opt not to use the simplified method, you’ll need an effective strategy to separately identify and compute the car’s electricity usage.

The exemption isn’t applicable when the employee independently purchases or leases the EV. In cases where an employee directly acquires or leases the EV and the employer compensates them through a salary sacrifice agreement, the FBT exemption is inapplicable since this doesn’t constitute a car fringe benefit. Nonetheless, the waiver can potentially be relevant to carefully structured novated lease agreements.

Not all electric vehicles are considered cars for the exemption. To be eligible for the waiver, an EV must be a car – electric bicycles, scooters, or vehicles designed to carry a load exceeding 1 tonne or to transport more than 9 passengers are excluded.

Other Fringe Benefits Tax Areas of Interest

Failing to register – If your business employs staff, it’s highly unusual to provide no fringe benefits whatsoever. Therefore, if your enterprise isn’t FBT-registered but has dispensed benefits like entertainment, salary sacrifices, debt forgiveness, reimbursements for private expenditures, or provided living accommodations or allowances for living away from home, it’s crucial to thoroughly examine your Fringe Benefits Tax (FBT) standing. The ATO has its sights set on businesses that overlook Fringe Benefits Tax (FBT) registration.

Employee travel – There’s a recent intensification of focus on determining if employee travel is work-related (deductible and exempt from FBT) versus commuting (not deductible and subject to FBT). The Federal Court’s ruling in the Bechtel Australia case serves as a pertinent illustration. It addressed the commute of fly-in-fly-out workers and determined that since the travel took place prior to the start of their shifts, the employer was responsible for FBT related to the provided transportation. This case underscores the imperative for employers to be keenly aware of the relationship between travel arrangements and their work context.

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Heaney Business Group

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