Why getting your FBT exposure right is so critical

So why getting your FBT exposure right so critical?

Before we answer that question, I will answer the base question of what is a fringe benefit.  A fringe benefit is anything provided by an employer to an employee other than by wage/salary and super. 

As such it includes such things as:-

  • Passenger cars

  • Car parking
  • Entertainment

  • Selling firm’s goods at a discount

  • Providing accommodation

  • Paying any employee bill whether that be school fees, mortgage, health club membership and so on.

And this leads to the understanding of how to address your FBT exposure which can be summarised as:-

  1. Determine whether you the employer are exempt (charities, public hospitals) or subject to a reduced rate (private schools).

  2. Determine what fringe benefits you have provided to whom

  3. Assess whether an exemption or concession applies to that type of benefit.  There are some special rules which benefit small businesses.

  4. Calculate the taxable value

  5. Then, and this what most people get wrong, determine whether the employee is better off making a contribution to reduce the fringe benefit rather than pay FBT tax (which is equivalent to the highest marginal tax rate).

  6. Prepare and lodge the FBT Tax Return.

The reality is that all too many employers get this wrong as the ATO is successful in making an adjustment in 50% of FBT audits.  That’s every second audit!

And don’t think the ATO doesn’t think this is a big audit target.  One recent project was their recording the number plates of all utes parked at an AFL game at the MCG.  Those plate numbers registered to companies were then cross matched with lodged FBT and Income Tax Returns.  The ATO had a field day.

So what should you do?

Well for our clients we run through a checklist to make sure all benefit s provided are identified.  We will then work through (a) quantifying the benefit before (b) determining the most efficient manner of dealing with the benefit and then (c) lodge an FBT Return (we do this even if the taxable value has been reduced to nil as the ATO have therefore issued an assessment and then only have two years to audit.

And with that I return to the question of why is getting your FBT exposure right is so critical?  As you will now be able to appreciate there is more than answer to this question:-

  • It is a key ATO audit area.

  • If it is wrong in one year, the ATO will start auditing all years.

  • With the FBT tax rate being the equivalent of the highest marginal tax rate, the tax can be significant.

  • The ATO readily applies both interest and penalties.

  • The audit clock will start clicking once an FBT Tax Return sis lodged – after that the ATO can’ t go back further than 2 years.

Do you have any questions?  We would welcome the opportunity to discuss them with you.

At MRS, we will spend today planning for your success.