Understanding the fringe benefits tax part 2

Employee contributions

If you use employee contributions to reduce the taxable value of a fringe benefit to nil, you must also:

• Return the contribution as assessable income for income tax purposes and recognise a taxable supply for GST purposes.
• You may need to substantiate employee-paid costs for fuel and oil expenses with employee declarations.
• Where you pay an employee’s contribution by journal entry, it must be correctly documented and made at the appropriate time.

Directors’ benefits

If you are a director and run your business through a company, you may be regarded as an employee of that company. So, the fringe benefits you provide to yourselves as directors may mean the company has FBT obligations.

Otherwise deductible rule

The otherwise deductible rule can be used only to reduce the taxable value of the benefit to nil when the expenditure would have been 100% deductible to the employee – otherwise, you can only reduce the taxable value by the business percentage.

The ATO is cracking down on FBT Non-Compliance

FBT car benefits obligations can slip through the cracks – but not complying can be costly for you. The Australian Taxation Office is paying close attention to FBT-related compliance, and they have greatly increased their FBT compliance activities when compared to earlier years. They have refreshed the external data they use for data matching and have refined their computer programs to process the new and expanded information.

Through data matching and compliance verification, the ATO has found that seven out of every ten taxpayers they investigate are non-compliant. If you have made FBT mistakes, we recommend you make voluntary disclosures to minimise penalties and the general interest charge.

The most common areas of non-compliance are:

• Not recognising that home garaging is being available for private use.
• Not keeping log books and odometer readings.
• Not identifying directors’ cars as a taxable benefit.
• Not returning employee contributions as income in their tax returns.

The above information is a small snapshot of the Fringe Benefits Assessment Act (FBAA) to help you understand if you fall into the category of providing a fringe benefit to your employees.

We recommend you contact our office prior to 31 March 2011 if you need clarification on any of the above issues, or for FBT advice, please contact Craig Ball from Bentley Partners.