Australia
24 March 2021 | Minutes to read: 4

Has your FBT exposure been impacted by COVID-19?

By Todd Want

Dealing with Fringe Benefits Tax (FBT) issues can be complicated at the best of times, however the pandemic has created a range of additional FBT considerations for businesses this year. With the end of the FBT year (31 March) fast approaching, it’s important to understand what might’ve changed and how to deal with it. Some of the key areas are set out below.

Use of cars and utes

The pandemic may’ve impacted how your business cars, utes and other work vehicles have been used this year. This in turn could have a major impact on the FBT outcomes.

Do you rely on the operating cost (logbook) method to calculate FBT on car benefits? If usage patterns have materially changed this year, your existing logbook may no longer be valid.  This may mean you’re unable to use this method to calculate FBT on that vehicle for 2021. Check your logbook percentages and confirm they’re still consistent with how the vehicle was used during 2021. In particular, look out for increased private use of the vehicle, or significant changes in the kilometres travelled this year (compared to the previous year). Both these aspects could indicate an issue with the logbook and in turn a greater FBT exposure than normal.

If you use the statutory method to calculate FBT on your vehicle, don’t assume FBT will be the same this year as it was last year. Have there been changes to where the vehicle is garaged at night during some, or all, of the FBT year?  Was the vehicle garaged at your employee’s home during the year, when it would historically have been garaged at your business premises? If so, this may result in a greater FBT exposure. On the flip side, if the vehicle was parked at home during a lockdown but not used by the employee for any private purposes, you may not be subject to FBT on that vehicle during that period. Detailed records will be important to minimise FBT exposure in these instances.

And remember, for many utes, vans and similar vehicles to be exempt from FBT, the private use component needs to be minor, infrequent and irregular. Did the vehicle get used for a greater amount of private trips during the year? This could cause problems in satisfying the minor, infrequent and irregular use aspect.

Car parking benefits

Similar to the use of work-related vehicles, did the use of car parks or car parking benefits change this year? Were employees working from home, so they didn’t use the office car spot they normally would? This could have a positive impact on your FBT outcomes, by reducing the taxable value of the benefit.

Conversely, if you’re providing more parking to your employees, does this come with an FBT exposure?

While small businesses (under $10M turnover) may have certain exemptions from FBT on carparking, this generally relates to parking provided onsite. If this exemption might apply to you, ensure you thoroughly understand how it works.

In a positive move, the threshold to be eligible for the small business carparking exemption will be lifted from $10M aggregated turnover to $50M aggregated turnover from 1 April 2021. While this is a win for mid-sized businesses, it only applies from next FBT year, so don’t forget to deal with the carparking benefits for 2021. Find out more here.

Entertainment & meal Benefits

It’s likely that your business may’ve experienced a marked reduction in meal and entertainment expenditure during the current FBT year. If this is the case, it may naturally lead to a decrease in your FBT bill for the year. However, you may be able to push the amount of FBT payable down even further by changing the way you calculate your meal and entertainment benefits.

Have you historically used the 50:50 method to calculate meal entertainment benefits because you didn’t have sufficient records, or other methods were too time consuming to use? Perhaps this year with a reduced volume of transactions and more detailed records, you could use a 12 week register or actual method to reduce your FBT bill. You may even be able to apply the minor benefit exemption because there has been such a small amount of entertainment benefits provided this year. Good records on who attended the respective events and careful analysis will assist in considering this.

Key actions

  • Consider if there have been any material changes in the amount of private use of business cars, utes and other vehicles this FBT year, or the total kilometres travelled by that vehicle compared to a standard year. If so, your FBT exposure may’ve changed.
  • If you provide car parking for employees, or for business vehicles, has this arrangement changed during the year? For example, were there periods when the parking spots weren’t used because of employees working from home? Do you provide more parking to staff than you previously did? These could all be indicators of a different FBT exposure for carparking benefits this year.
  • Has the amount of meals and entertainment you provided to employees reduced this year? This might automatically bring down your FBT exposure, but you may also be able to use a different method to calculate the fringe benefit amount, which might further reduce your FBT exposure. Ensure you hold detailed records of who attended each event during the year, as this will be key to getting the best FBT outcomes.

Please read our article on upcoming Car Parking FBT changes that take effect from 1 April 2021. 

 

Has your FBT exposure been impacted by COVID-19?

Todd Want

Todd is a Director in our Tax Services division and National Councillor and Director at The Tax Institute. Todd’s expertise lies in small-to-medium sized enterprise taxation matters. He advises clients on a broad range of tax issues such as capital gains tax, advice relating to structuring and restructuring, the tax consequences of acquisitions and divestments, small business CGT concessions, Division 7A, taxation of trusts, international tax issues and tax risk management.

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