Fringe Benefit Tax Updates: Recent Developments and Compliance Issues

1. Welcome FBT 2006 20 years on TAX-EXEMPT BODIES

2. Recent developments • Dual cabs – update of exempt vehicles – full list • Apportioning entertainment between employees and non-employees – clarification • Car benefits – effect of contribution by employee to purchase price • Retention of electronic records – what satisfies the ATO? • Meal Entertainment Fringe Benefit: 50/50 split method - reimbursement of employer’s expenditure by a third party • Laptops - expense payment made earlier in the FBT year

3. Recent Developments • Remote area housing - non-arm’s length arrangements • Remote area housing and water – how much is taxable? • Employee contributions -can excess contributions be used in a later FBT year? • New interest and penalties to be applied • Employees in foreign service now subject to FBT • ATO’s view on what constitutes a LAFHA – update

4. Recent Developments • Personal credit card payments – exempt or not? • When to use 365 days or 366 days in formulae – surprising ATO change • Extended application of relocation concessions • ANAO audit report on the administration of FBT • Cancellation fees – FBT treatment • The provision of food and drink in dining facilities – when exempt • Employer contributions to social clubs and benefits provided by social clubs to members

5. Recent Developments • Payments on dwelling after employee terminates employment • Work related counselling – what can you provide as exempt benefit? • Charitable institutions and charitable funds – FBT differences • Laptop and loans – one benefit or two? • Long service awards – exemption increased • Exemption for work-related tools – more laptop accessories included

6. Recent Developments • Remote area housing – more employers entitled to provide exemption • FBT rebate eligibility - Commonwealth, State and Territory institutions – latest • Entertainment – employees attending a function as a an employment duty • Relocation exemption – does it include transporting a car? • Employee discounts from third parties – sometimes taxable, sometimes not

7. WHAT IS A FRINGE BENEFIT • A ‘payment’ to an employee, but in a different form to salary or wages. • Employer, associate, third party • Employee, associate • in respect of employment. • right, privilege, service or facility. • former or future employee. • by another person on behalf of the employer. • to another person on behalf of the employee

8. Steps in calculating FBT liability • Step 1Work out the individual fringe benefits amount for type 1 benefits for each employee • Step 2 Sum of all the individual fringe benefits amounts worked out in step one. • Step 3 Identify the type 1excluded fringe benefits • Step 4Add the totals from step 2 and step 3. This is known as the type 1 aggregate fringe benefits amount • Step 5 Work out the individual fringe benefits amount for each employee not included above • Step 6 Sum the individual fringe benefits amounts from 5 • Step 7Add up the taxable value of those excluded fringe benefits not in 3 above • Step 8 Add up the totals from step 6 and step 7. This is known as the type 2 aggregate fringe benefits amount • Step 9 Gross up the type 1 aggregate fringe benefits and the type 2 aggregate fringe benefits and add them together. • Step 10 Calculate the amount of tax payable as a percentage of the fringe benefits taxable amount

9. Rebatable employers • Certain non-government, non-profit organisations that are eligible for a rebate of 48 per cent of the amount of FBT that would otherwise be payable. 0.48 x (gross tax - aggregate non-rebatable amount) x rebatable days in year   /   total days in year

10. Compliance issues • Rate of tax 48.5%. • Registration As soon as you begin providing fringe benefits.. • Annual return 21 May • Fringe benefits tax assessments • Payment of FBT Instalments if previous year’s FBT liability exceeded $3 000. • Record-keeping requirements

11. Reportable fringe benefits • Grossed-up taxable value on payment summary benefits total taxable value exceeding $1 000. • 'Reportable Fringe Benefits Amount • RFBAs used in income tests for the following: • superannuation surcharge • termination payments surcharge • Medicare levy surcharge • deduction for non-employer sponsored superannuation contributions • tax offset for personal superannuation contributions • tax offset for contributions to spouse’s superannuation • HECS repayments • child-support obligations • entitlement to Family Tax Benefits, Child Care Benefit and Youth Allowance administered by Centrelink and the Family Assistance Office.

12. Car fringe benefits

13. Definition • motor cars, station wagons, panel vans and utilities • all other goods-carrying vehicles with a designed carrying capacity of less than one tonne, and • all other passenger-carrying vehicles with a designed carrying capacity of fewer than nine occupants.

14. Requirements for car benefit • Car held by an employer • Made available for the private use of an employee • Taken to be made available for private use by an employee on any day that: • it is actually used for private purposes by the employee, or • the car is not at the employer's premises, and the employee is allowed to use it for private purposes. • Garaged at an employee's home is available for the private use • Private use of a motor vehicle that is not a car may give rise to a residual fringe benefit.

15. Home to work travel • Generally private Exceptions : • where the home constitutes a place of employment and travel is between two places of employment or business; • where the taxpayer's employment can be construed as having commenced before or at the time of leaving home • where the taxpayer transports bulky equipment necessary for employment; • where the taxpayer's employment is inherently of an itinerant nature; and • where the taxpayer is required to break his or her normal journey to perform employment duties

16. Itinerant Travel • inherently itinerant; • fundamental part of the employee's work; • impractical to perform the duties without the use of a car; • employee performs duties at more than one place of employment; • the nature of the job makes travel in the performance of duties essential; and • travelling in the performance of the employment duties from the time of leaving home.

17. Statutory formula method Taxable value = (A x B x C/D) -E A = the base value of the car B = the statutory percentage  C= the number of days in the FBT year when the car was used or available for private use of employees  D= the number of days in the FBT year  E = the employee contribution

18. Annualised kilometres   A x C / B A = the number of kilometres travelled in the period during the year when the car was owned or leased by the employer    B = the number of days in that period    C= the number of days in the FBT year

19. Operating cost method Taxable value = (A × B) - C A = the total operating costs B = the percentage of private use C= the employee contribution

20. Operating costs • Actual costs and some deemed costs • GST inclusive as appropriate. • Deemed depreciation • Apportioned • Year acquired - cost of the car • Subsequent year - depreciated value • Depreciation cost limit • Car purchased before 1 July 2002:22.5% • Car purchased on or after 1 July 2002:18.75% • Deemed interest • Actual operating costs • repairs • maintenance • fuel • registration and insurance), and • leasing costs.

21. Percentage of private use • Difference between 100 and the percentage of business use. • Keeping of log book records and odometer records

22. Exempt car fringe benefits • taxi, panel van, utility, other commercial vehicle • private use of such a vehicle is limited to: • travel between home and work • travel which is incidental to travel in the course of duties of employment, and • non-work-related use that is minor, infrequent and irregular

23. Emergency vehicles • ambulance, police or firefighting service • exterior markings • fitted with a flashing warning light and horn, bell or alarm

24. Record keeping • Log book year • Not a logbook year • Replacement cars

25. EntertainmentIntroduction • Entertainment • Meal entertainment • Categories of benefits • Tax exempt body entertainment FB • Income tax deductibility • GST credits

26. EntertainmentIntroduction • Exemptions • Reduction in taxable value • 50/50 split method • 12 week register method • Entertainment leasing facility expense • Taxation ruling TR 97/17

27. EntertainmentCategories of Benefits • Property FB • Expense payment FB • Residual FB • Meal entertainment FB • Tax exempt body entertainment FB • Board FB • Airline transport FB

28. EntertainmentMeaning • Entertainment by way of • Food • Drink • Recreation • Accommodation and travel iro above • Recreation includes • Amusement • Sport • Similar leisure time pursuits

29. EntertainmentMeaning • Entertainment (32 -10 ITAA 97) • The provision of property • Entertainment at time of provision? • Direct connection with entertainment? • Example • Bottled spirits, TV sets etc. • Example • Glasses of champagne, hot meals, holiday accommodation etc.

30. EntertainmentMeal entertainment • Distinction between “entertainment” and “meal entertainment” important • Can elect to be a distinct category • 50/50 method of valuation • 12 week register method of valuation • If no election actual value of benefit • Meal entertainment is excluded benefit

31. EntertainmentMeal entertainment • Definition of “meal entertainment” Entertainment bwo food or drink • Accommodation or travel iro above • Payment or reimbursement • Irrespective of: • Business discussions/ transactions • Working overtime or performance of duties • Promotion or advertising • At or connection with seminar

32. EntertainmentMeal entertainment • Provision of food or drink not always entertainment - must ‘entertain’ - two interpretations • If not element of entertainment • Category of benefit? • No denial of income tax deduction • Not tax exempt body entertainment FB • Reportable FB? • Ordinary meaning of ‘entertainment’ • Agreeable occupation of mind • Affording diversion or amusement • Hospitable provision for wants of guest • Narrow category of cases food or drink is not entertainment

33. EntertainmentMeal entertainment • When does provision of food and drink not entertain? TR 97/17 • Distinction between entertainment and refreshment or sustenance - 4 x W test • Why • Example 3 - Social reasons or daily work reasons? • What • Example 4 - Light lunches, morning teas or full meal? • When • Example 5 - During work, overtime, business travel or after hours? • Where • Example 6 - At the office / usual place of work or elsewhere?

34. EntertainmentTax exempt body entertainment FB (TEBEFB) • TEBEFB • Provider incurs non deductible exempt entertainment expenditure • Non-deductible entertainment expenditure not incurred for assessable income • As result of Div 32 of ITAA • TEBEFB or other benefit

35. EntertainmentTax exempt body entertainment FB (TEBEFB) • Implications of TEBFBE • No exempt property benefits (s 41) • Limitation on minor exempt benefit (s 58P) • Taxable value – extent of expenditure • No reduction in value under otherwise deductible rule – (property FB, expense payment FB, residual FB, loan FB, airline transport FB) • Still have choice of 50/50 or 12 week register for any meal entertainment

36. EntertainmentTax exempt body entertainment FB (TEBEFB) • Income tax deductibility • s 8 ITAA general deduction • s 32 - 5 ITAA no deduction for entertainment • Exceptions to s32 - 5 other than s 32 -20 • Relevant income tax exceptions • Food & drink to employees @ in-house dining facility ( no party, reception or like) • In-house dining facility • On employer property • Mainly for food & drink to employees • Not open to public

37. EntertainmentTax exempt body entertainment FB (TEBEFB) • Relevant income tax exceptions ctd. • Food or drink to non-employees @ in-house dining facility ( no party, reception or like) • Food or drink to employees working in dining facility (no party etc.) • Dining facility • Canteen, dining room or like • Café, restaurant or like • On employer property

38. EntertainmentTax exempt body entertainment FB (TEBEFB) • Relevant income tax exceptions ctd. • Food or drink to employee under industrial instrument iro overtime • Industrial instrument • Award or industrial agreement under Australian law • Recreation facility mainly for employee • Not for accommodation • Not for dining or drinking unless • Vending machine • Assessable allowance to employee

39. EntertainmentTax exempt body entertainment FB (TEBEFB) • Relevant income tax exceptions ctd. • Food, drink, accommodation reasonably incidental to 4 hour or longer seminar, unless • Business meeting, other than • Training • General policy and management issues • Main purpose to promote the business • Main purpose to provide entertainment • 4 hour seminar • Conference, convention, lecture, speech • Q & A, training, education • Ignore lunch and refreshment time, even if seminar continues through lunch

40. EntertainmentTax exempt body entertainment FB (TEBEFB) • Relevant income tax exceptions ctd. • Entertainment business • Entertainment part of advertising business to general public • Food or drink for overtime under industrial instrument • Free entertainment to public who are sick, disabled, poor or otherwise disadvantaged

41. EntertainmentTax exempt body entertainment FB (TEBEFB) • Exempt property benefit • To current employee iro employment • Consumed on working day • At business premises of employer • Would include provision of any food and drink • other than for TEBEFB (eg food to employee at in-house dining facility which is tax deductible)

42. EntertainmentTax exempt body entertainment FB (TEBEFB) • Exempt minor benefit (not TEBEFB) • Less than $100 taxable value before gross-up • Unreasonable to treat as fringe benefit • Infrequency and irregularity • Taxable value of other minor benefits • Difficulty in determining taxable value • Stationary for private use, Christmas gifts (MT 2042) , could include food and drinks to non employees or entertainment other than food (ie not covered by property exemption)

43. EntertainmentTax exempt body entertainment FB (TEBEFB) • Exempt minor benefit (TABEFB) • Provision of entertainment to employee or ass • Incidental to provision of ent. to outsiders; and • Not a meal to employee or ass • To recognise special achievement of employee • Otherwise deductible rule does not apply • Why?

44. EntertainmentTax exempt body entertainment FB (TEBEFB) • Example • Food and drinks to employees, spouses and others at social function • Example • Hot lunch to employees at canteen on premises • Same to spouses

45. EntertainmentTax exempt body entertainment FB (TEBEFB) • Example • Employee reimbursed for meal and wine on business trip • Also reimbursed for meal of spouse • Example • Employee sent to day seminar at which hot food and wine is provided • The seminar is only 2 hours long • 2 hour seminar and only snacks provided

46. EntertainmentMeal entertainment election • Can elect to treat provision of all meal entertainment … • under 50/50 or • 12 week register methods • Applies to all meal entertainment • Provided by employee • Not associate • Not by third party under arrangement • Must be entertainment • To exclusion of other categories • No exemptions or reduction in taxable value

47. Entertainment50/50 • Taxable value = 50% of all meal entertainment expense • Provided to employees • Associates • Others • Example 11 • Planning hint • Does more than 50% of meal ent relate to staff? • Does more than 50% of meal ent relate to others?

48. Entertainment50/50 • Entertainment facility leasing expense • Leasing or hiring costs of • Corporate boxes • Boats • Planes • Other facilities for purpose of providing entertainment • Not attributable to food and drink • Not attributable to advertising that is deductible • Can elect to use 50/50 valuation • Example 12

49. Entertainment12 week register • Must elect the 12 week register method • Must retain a valid register • Taxable value • Total meal entertainment expenditure x register percentage • Register percentage • Total value meal entertainment FBs in 12 weeks Total value of meal entertainment in 12 weeks

50. Entertainment12 week register • Requirements of a valid register • Kept for 12 weeks • Valid for year 12 weeks end plus another 4 • Register starts 1 year ends next, valid for next plus 4 • If meal entertainment expense in year > 20% of first year, valid only for that year • Two registers in 1 year, first invalid • 12 week period must be representative of first FBT year