“It’s all good, I’ll claim it back on tax”.
How often have you found yourself saying these words without having any clear idea how you’re actually going to claim that long liquid lunch back at tax time? Did you even keep the receipt?
As a small business owner, you have many responsibilities, none more so than those relating to that dreaded three-letter word; T-A-X. Claiming, reporting and paying tax sounds simple in theory, but in reality, it’s confusing and often tossed in the ‘too hard basket’.
When most people think of tax they associate it with the ATO, GST, PAYG and possibly panic. One acronym that doesn’t get nearly as much air time as it should is FBT; Fringe Benefits Tax. In short, FBT relates to employers that offer benefits to their workers. FBT has a separate reporting cycle to normal income tax with the FBT year running from April 1 to March 31. It’s also important to point out that you must self-assess your own FBT liabilities as the Australian Tax Office (ATO) doesn’t usually notify business owners how much they are due to pay each year.
How do you know if you need to pay FBT?
If you’re unsure whether you’re providing tax-related perks to your employees, here are some key instances to consider:
- Does your business provide entertainment by way of food, drink or leisure activities to employees?
- Are vehicles either owned or leased by the business made available to employees for private use?
- Do any employees have a salary sacrifice arrangement in place?
- Has your business provided employees with goods at a reduced price than sold to the public?
- Does your business provide loans at reduced interest rates to employees?
- Has your business forgiven any debts owed by employees?
- Has your business paid for, or reimbursed, any private expenses incurred by employees?
- Does your business provide a house or unit as accommodation for employees?
- Does your business provide employees with living-away-from-home allowances?
A common area of confusion is the use of cars and vehicles
Where a vehicle is either owned or leased by the business and is used by an employee for private purposes (including travel between home and the office), then FBT is in play and needs to be managed. The ATO is targeting motor vehicles that are owned by businesses so it’s crucial to recognise any potential FBT issues before the ATO does.
Entertainment is another frequently misunderstood area of FBT. Entertainment can be just about anything from food, drink, gym memberships, movie tickets, and travel for leisure. More commonly, if you’ve provided entertainment in the form of an employee attending a business lunch, then FBT most certainly applies. Entertainment is an area of continued focus for the ATO as the treatment of FBT also interacts with income tax and goods and services tax (GST).
If you employ workers and provide any of the above listed benefits (or those of a similar nature), then you should already be across the mechanics of FBT, but if you’re not, a great place to start learning is Checkpoint – the ‘Answers Hub’. Checkpoint offers a range of incredibly valuable resources that break down the complexity of tax, accounting and finance. Get organised with a FREE 30-day trial of Checkpoint and learn how to make your business even more successful.
You’re offering fringe benefits, now what?
Once you’ve determined that FBT is applicable to you, it’s encouraged that you follow these steps:
- Register for FBT by submitting an application to the ATO
- Retain any records and receipts for FBT reporting
- Report the fringe benefits on the payment summaries of employees
- Lodge and pay FBT to the ATO
Fringe benefits are an important part of business and can be an effective way to attract quality workers. However, if you’re going to provide fringe benefits to your staff, you need to be aware of your taxation obligations. FBT is complex and should be approached with vigilance. The ATO is constantly refreshing compliance around fringe benefits, so it’s critical that you equip yourself with the right tools and resources to effectively manage the financial affairs of your business. By signing up for Thomson Reuters’ Checkpoint platform you will have access to a powerful suite of intelligence enabling you to report, pay and lodge with confidence.
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