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What is Fringe Benefits Tax?

Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits they provide to their employees. The cost of these benefits is generally included in the employee’s taxable income.

When do I need to pay Fringe Benefits Tax?

You need to pay Fringe Benefits Tax on benefits you provide to your employees:

– On or before the last day of the month following the end of the quarter in which the benefit was provided

– If you’re a large employer, you can choose to pay Fringe Benefits Tax quarterly

The 2021/2022 fringe benefits tax year will conclude on March 31st 2021 when the current tax year ends. Employers and their advisors should now turn their attention to situations where non-cash perks have been given to employees and where private costs have been incurred on their behalf.

Although it is typically the responsibility of your accountant to complete the FBT return, it may not always be clear to them from your software file or other documents where you have given employees and their associates (such as a spouse) a possible fringe benefit. To assist you in bringing these potential fringe benefits to the attention of your accountant, please find them below. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Cars

Did you give or offer a car owned or leased by your company (or an associate) to an employee or their associate for personal use?

Exemptions are available for specific commercial vehicles in which an employee uses them only for minor, infrequent, or irregular non-work purposes.

Did you reimburse the expenses of an employee who owned or leased a vehicle for company use?

Exemptions exist when the employer pays the employee on a per-kilometre basis for anticipated travelling and when the automobile has not been used privately. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Loans

Did your firm provide a loan to an employee or someone connected to them?

Exemptions include cases where the loan is exclusively used to pay for employment-related costs (which must be incurred within the sixth month).

Loans from private companies to employees who are also shareholders are also exempt. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Debt waiver 

Have you ever had to let someone go because they could not pay a past-due bill?

An exemption is available if the debt was genuinely written off as a bad debt (instead of waived for employment or personal reasons).

Housing 

Did your company or a connected party offer an employee or their associate the right to use accommodation by lease or licence?

The exemption might apply in the case of a remote location.

Living away from home allowance (LAFHA)

Did you give an allowance to a staff member to compensate them for non-deductible expenses incurred while they are required to live away from their normal residence due to work?

Strict exemption criteria may be specified, which your accountant can explain in detail. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Expense payments 

Did you reimburse a worker or pay for a third-party expense on their behalf?

Exemptions include costs that would have been deductible to the employee because they were work-related.

Car parking 

Did you reimburse employee vehicle parking or provide them with a parking lot during the year?

Several exceptions apply, including those that benefit disabled persons or are given by small firms or certain non-profit organisations.

Entertainment 

Did your firm provide a recipient or associate (or, in some cases, third parties who received entertainment through food, drink, or an accommodation due to this arrangement)?

To provide entertainment, did your firm provide a corporate box, a boat or plane for an employee or their representative, or other facilities for an employee or their representative? Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Record keeping 

Keeping good business records is critical for a variety of reasons. It helps you to:

  • You must maintain accurate accounts and comply with all tax and superannuation obligations.
  • You’ll be better equipped to assess your company’s financial health and make more informed decisions by taking this course.
  • To do so, we’ll need to understand how your business generates cash.
  • Examine your income records to ensure that they are correct, and provide an accurate image of your company’s financial position.

ATO requirements

Broadly, the ATO requires that:

  • If you keep most records for five years after obtaining them or finishing the activities or acts they pertain to – whichever comes later, you must notify DBS as soon as possible.
  • If the ATO requests your paperwork, you’ll be able to demonstrate them to them.
  • Your records must be in English or able to be readily converted to English.

Digital records

The ATO reminds business owners that you may keep their records (paper/hard copies) digitally. The ATO accepts images of business paper records saved on a digital storage medium if the digital copies are genuine and clear representations of the original paper records and satisfy the required record keeping standards.

Once you’ve saved an image of your original paper records, you may no longer keep the papers unless a certain law or regulation requires it.

However, suppose you input information (for example, supplier information, date, amount, and GST) from digital or paper records into your accounting software. In that case, you must maintain a copy of the actual document digitally or on paper. Some accounting programs may perform both your accounting and recordkeeping tasks. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Storage options

Cloud

Ensure that your accounting software or a separate service provider, such as Google Drive, Microsoft Onedrive, or Dropbox, uses cloud storage.

  • The record storage meets the requirements for recordkeeping.
  • You may lose access to your data if you take a complete copy of any records stored in the cloud before changing the software provider. 

E-invoicing

Whether you’re using an E-Invoicing software or a system, your firm is ultimately in charge of selecting the best storage solution for company transaction data.

You should:

  • To maintain your records, you need to ensure that the procedure complies with the recordkeeping demands.
  • Discuss your alternatives with the software provider.
  • Talk to your business adviser, if necessary.

Digital advantages 

The tax authorities have numerous benefits to keeping your records digitally. If, for example, you utilise a commercially available software package, it may assist you in the following ways:

  • Keep track of company revenue, expenses, and assets while calculating depreciation.
  • To save time and money, streamline your accounting methods and free up resources so you can focus on growing your business.
  • Calculate employee pay, tax, and other amounts automatically, including overtime hours.
  • For example, you may generate summaries and reports for the Goods and Services Tax (GST), income tax, fringe benefits tax (FBT) and taxable payments reporting system.
  • If you run your own small business, be prepared to submit your tax and super filings and your tax return and other documents if you are a company that is required to.
  • For example, if you want to report income earned in Australia, you can send the ATO some information (if the package satisfies ATO criteria), such as your activity statement.
  • To meet your legal STP reporting obligations, you’ll need a Single Touch Payroll filing.
  • To protect your records from flood, fire, or theft, you may back them up to the cloud using cloud storage. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

ATO’s New Crackdown on Discretionary Trusts 

The ATO has just published new guidance on trusts distributed to adult children, corporate beneficiaries, and entities suffering losses. Depending on the structure of these arrangements, there is a chance the ATO may see them as fraudulent. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Background

Many business owners establish a trust structure for various reasons, including tax minimisation and asset protection. While trusts are generally legal, the ATO has grown increasingly doubtful about the purposes behind their use in many cases because they believe them to be driven primarily by tax reduction. In February 2022, the ATO issued new guidance that addressed how trusts distribute money and to whom! As a result, any previously acceptable policies may not be, and this might result in greater taxes for family groups in the future and possibly retroactively. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Target

The ATO primarily targets transfers under section 100A of the Tax Act, especially those in which a low-rate tax recipient receives trust distributions, but the actual benefit of the distribution is given or paid to another beneficiary, usually with a higher tax rate. In this regard, the ATO’s new Taxpayer Alert (TA 2022/1) demonstrates.

The ATO’s new draft ruling, which was announced simultaneously, states that for the new guidelines to apply, at least one of the parties to the agreement must have done so intending to obtain a tax benefit (not necessarily a single dominant purpose). This sets the bar rather low and may encompass various agreements. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Assessing the Risk

The ATO also released an associated guideline that provides individuals with a risk assessment framework to use with their accountants to evaluate the level of risk present in current and past distribution methods. The following are some examples of high-risk agreements that are common, given by the ATO in the guidance:

  1. The tax benefits of an arrangement in which the presently entitled recipient lends or gives some or all of their entitlement to another party are often considered.
  2. When trust income is combined with taxable income, the corporate beneficiary returns it to the trust in taxed money, resulting in tax savings.
  3. A beneficiary is given units by the trustee (or related trust) in an arrangement where the outstanding amount owed for the units is offset against their right.
  4. In certain circumstances, the share of net income included in a beneficiary’s taxable income may be considerably greater than the beneficiary’s right.
  5. When the current beneficiary has losses.

When the ATO determines that an arrangement fits into the high-risk category, it will conduct further study on the facts and circumstances of the arrangement as a matter of urgency. If further analysis confirms your arrangement’s elements are high risk, they may proceed to audit if necessary. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

So what should you do next?

The new rules and guidelines from the ATO are still in draft form, and they are expected to be completed soon. They will apply both prospectively and retroactively once finalised. The ATO has, however, committed to maintaining any administrative position stated in its prior website guidance before the new material was published for entitlements granted before July 1st 2022

If you have any issues with your trust payments or are concerned about the risk that Section 100A poses to you, you should consult your financial advisor for a discussion based on your specific circumstances. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Ridesharing – The Driver

Uber and other ride-hailing services have gained a lot of traction in recent years. From the perspective of a driver, several tax concerns may be relevant. For the tax consequences from a passenger’s standpoint, see this article. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Income

According to the Canada Revenue Agency, any money earned from driving for a ride-sourcing firm must be declared in a driver’s tax return. In other words, regardless of how much they make or whether they have another job, income from driving for a ride-sourcing company must be reported. The whole fare (including or “grossed Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Expenses

The costs of operating ride-sourcing activities are deductible (less GST), including expenses incurred by drivers while performing these jobs. However, not all charges will be deductible, and they may need to be reduced or apportioned to take account of any private usage of the vehicle. The following typical expenditures are not deductible – fines

In cases where a vehicle is being reported in the Driver’s tax return, the expenditures will be recorded using one of the following two methods:

Cents per Kilometre

You might opt for a tax calculation method where you pay a certain amount of cents per kilometre (nowadays, 72 cents). The advantage of this approach is that there is little paperwork to keep, and you only have to explain how you came up with your figure — no receipts, logbooks, or other documentation are required. Even if you travel more than 5,000 kilometres, you may still choose to utilise this approach (and bypass the recordkeeping obligations that come with the logbook system) by limiting your claim to 5,000 kilometres. In conclusion, this technique may be useful for:

  • Have travelled less than 5,000 business kilometres with an older vehicle (therefore, depreciation and interest costs are low)
  • Have not kept, or do not wish to keep, records of kilometres travelled. This method incorporates all car expenses, including petrol, servicing, depreciation, etc. You can make no further car expense claim.

Logbook 

Under this approach, your claim is determined by the percentage of each vehicle cost incurred for business purposes over a logbook that must have been kept for 12 weeks.

Every five years, or whenever the business use percentage changes by more than 10 per cent, this logbook must be updated. Check out one of the many logbook apps on the market; they’re available in the App Store and Google Play, as appropriate.

This technique allows you to take all expenditures connected with the car’s operation during business use, as determined from your logbook. This approach generally provides the best outcomes where the vehicle has significant business usage. Using the ATO’s Work-related car expenses calculator on its website, drivers may calculate their claim and choose which method gives them the best option. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

ABN

Uber drivers will almost always be “carrying on an enterprise” and should therefore register for an ABN. This is conceivable only if the facilitator employs the Driver, and it’s somewhat unusual, but it happens.

GST

Under GST rules, you are only required to register if you operate an enterprise and your annual turnover is $75,000 or more. Regardless of your turnover level, you must register for GST if your business offers “taxi travel.” The ATO uses a flexible approach to define ‘taxi’ as “any motor vehicle used for the transport of people in return for payment, including cars made available for public hire.” The court’s decision has been upheld. As a result, drivers must register and charge GST as soon as they start driving. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Ride-Sharing – The Rider 

This article about ride-hailing examines the tax consequences from a rider’s perspective. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Deduction

For example, if you’re going the same distance in a taxi as me, and your destination is two blocks away, my rate may be more than yours. If you have to go farther than I do because of traffic or circumstance beyond your control, such as construction work on the side of the road blocking access to one street for both modes of transportation, my rate may be less than yours. It all depends on the individual circumstances.

  • far from your usual workplace
  • You may work non-standard hours, for example, shift work or overtime if you don’t mind working outside regular business hours.
  • completing minor work-related activities, such as picking up the mail on your way to work or home
  • You don’t want to use your vehicle every time you need to go between your home and your regular workplace.
  • You may be on call when you’re not working – for example, while you’re on stand-by duty and your employer calls you at home to report for work.
  • Have no public transport near where you work
  • work from home.

To verify the deduction, you’ll need evidence. The good news is that Uber and other facilitators will supply you with enough evidence to substantiate your deduction. This may be accomplished by logging back into their app after completing the trip. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

GST

The trip must be business-related (see above), and the Rider must have a valid Tax Invoice to claim GST on a service. However, for many fares, a Tax Invoice will not be required since the total fare may be less than $82.50 (including GST). Any Tax Invoice, docket, invoice,

After that, the question is: what documentation does Uber or the Driver give you at the end of the trip? In most cases, the Driver will not give you any paperwork (e.g. invoice etc.). If a driver is registered for GST and you use Uber’s “app,” they will offer you a tax invoice that can be emailed to you on behalf of the Driver.

If the Driver is not registered for GST, they will give you a receipt. Tax Invoices are provided by Uber even where the fare is below $82.50. We can confirm that the standard User-provided Tax Invoices fully comply with the ATO’s requirements.

You will need to check the documentation of other facilitators for compliance.  Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

ABN Withholding 

Another important tax topic for Riders is ABN Withholding. If a supplier of a good or service does not provide an ABN and the purchase price for that good or service is more than $75, excluding GST, the recipient is required by law to withhold the top rate of tax (currently 45%) from the payment and remit it to the ATO.

Suppose the recipient of a supply fails to pay. In that case, they must submit a PAYG payment summary —withholding where ABN is not given and delivering it to the supplier simultaneously with or as soon as feasible after receiving the net amount. However, there are certain circumstances when it is not the case.

If none of these exceptions applies, the question becomes whether the Rider would be penalised for failing to withhold taxes.

The fact is that, under a typical ride-sourcing model (and certainly with Uber), the Rider does not have the option of withholding the 45% penalty since their payment for the transportation is made through direct debit on the Rider’s credit card. As a result, it would be quite hard to fathom the ATO punishing Riders for not withholding when, in a practical sense, they cannot do so. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Salary sacrificing to super 

Are you an employee considering putting part of your pre-tax income into superannuation to increase your retirement funds? Salary sacrifice is a term used to describe this, and the good news is that it may benefit both you and your employer. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

What is salary sacrifice?

You, as an employee, can enter into a salary sacrifice agreement (SSA) with your employer to receive benefits of comparable value in exchange for deferring some of your future entitlement to salary or wages.

Contribution amounts paid via an SSA are made with pre-tax money and are not included in your taxable income.

If you receive salary sacrifice contributions from your employer, they will be tax-free and count toward your concessional (CC) caps at 15% when contributed to your superannuation fund.

The CC cap is the maximum amount you can contribute to your superannuation. When combined, your employer’s superannuation guarantee (SG) and salary sacrificed contributions must not total more than $27,500 per financial year. Note that a few more uncommon types of contributions contribute to your CC cap as well.

The 15% contributions tax is often lower than the MTR for individuals. You save money by paying less tax and increasing your retirement savings.

The employee benefits because salary sacrifice payments are deductible, and there is no limit to the amount of their contribution/deduction.

On the other hand, employees will not benefit from a lower income tax rate. Excess salary sacrifice payments above your CC cap will be included in your taxable income and taxed at your MTR rate. You will, however, receive a 15 per cent non-refundable tax credit to reimburse you for the superannuation fund’s tax on those contributions. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

Warning – Division 293 tax on higher-income earners

If your income is more than $250,000 per year, you will be taxed an additional 15% on your CCs.

However, CCs are still beneficial for many individuals since even though they pay 30% tax on CCs, this is less than the top MTR of 47 percent (including Medicare levy) that applies to high-income earners who must pay Division 293 income tax.

The ATO administers the additional Division 293 tax, which it calculates based on information in your tax return and data from your superannuation fund(s)

. Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

The benefits of salary sacrifice

  • Disciplined approach to saving

Salaried employees who find it difficult to save might benefit from salary sacrificing since pre-tax earnings are subtracted immediately. This automated approach can assist you in saving for retirement by providing you with a steady stream of contributions.

  • Tax saving is immediate.

The personal tax benefit is earned ‘up front’ because contributions are paid from pre-tax income. This implies the savings go straight to your superannuation fund, and you can benefit from compounding returns on the taxed saving amount (assuming the return is positive) throughout the year.

  • Dollar-cost averaging 

The purpose of salary sacrifice is to help you invest in the market regularly, lowering the danger of market timing.

  • Easy to administer once established

Unlike personal deductible contributions, you do not have to claim a deduction in your tax return or submit a notice of intent form with your superannuation fund when your salary is sacrificed.

  • Employer matching arrangements

If your employer has a generous matching program, such as an additional 1% employer contribution for every 1% of salary sacrificed, making a dollar-for-dollar personal investment might be appealing.

Tip – consider the forward carry rules 

You may be able to earn large CCs in a year without running over your CC cap under the carry-forward CC rules. Individuals who are eligible for the carry-forward provisions may make more concessional tax credits than the general limit by utilising any unused concessional cap amounts from the previous five financial years (starting July 2018).

Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

To be eligible to carry forward CCs in a year, you must:

  • In the first half of the previous financial year, all superannuation providers in Australia reported a TSB of less than $500,000.
  • An account’s unused CC cap amounts for one or more of the previous five financial years when extra CCs are created.

The key issues to consider 

  • SSA may be ineffective

The following is the general situation: You have decided to make a salary sacrifice and will be able to do so only after you’ve earned your entitlement. This implies that only earnings from future employment and entitlements can be salary sacrificed into superannuation. An “effective” SSA implies that the organisation’s revenues exceed its costs by a certain degree.

The arrangement must be made before a decision to pay the bonus is made, regardless of whether or not the bonus will be paid at a later date. This holds true even if the bonus isn’t paid for some time.

  • No control over when a salary sacrifice contribution will be made

You must keep track of all SSA transactions so that you can provide proof for the IRS and your own tax preparation if needed. It is essential to maintain copies of any documents you create, including payments received from other employers or reimbursements through payroll deductions. It should also include information on how much money will be salary sacrificed and when payments will be made.

  • An employer may not offer salary sacrifices to employees.

Salary sacrifice allows you to spread a portion of your monthly income over the entire year, resulting in less take-home pay but an extended payment schedule. While most businesses will provide SSA to their personnel, it is not required. Furthermore, due to the paperwork and pay system adjustments that would be necessary, some employers may limit their employees to one salary sacrifice per year.

  • Potential for excess CCs

If you are making a salary sacrifice, make sure it’s not a “set and forget” approach. Your pay may rise/fall, or the CC cap might change due to your choices. As a result, it is critical to track contributions frequently if you want to optimise and stay within the CC cap.

This information is general in nature. It has been prepared without considering your objectives, personal or business circumstances, financial situation or needs. Because of this, you should, before acting on this information, consider in consultation with your adviser its appropriateness, having regard to your objectives, personal or business circumstances, financial situation and needs.

Contact Imgrams Accounting to discuss how to make the most of your fringe benefits tax for 2022.

This information is general and has been prepared without considering your objectives, personal or business circumstances, financial situation, or needs. Because of this, you should, before acting on this information, consider in consultation with your adviser its appropriateness, having regard to your objectives, personal or business circumstances, financial situation and needs.

Chris Sheppard

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