Should you lodge an FBT return?
What is a Fringe Benefits Tax?
Fringe benefits tax (FBT) is completely separate from income tax. It is paid on certain benefits provided to employees or their associates (generally family members), including directors or beneficiaries of a trust, working in the business.
Examples of fringe benefits include:
- allowing an employee to use a work car for private purposes
- giving an employee a discounted loan
- paying an employee’s gym membership
- providing entertainment by way of free tickets to concerts
- reimbursing an expense incurred by an employee, such as school fees
- giving benefits under a salary sacrifice arrangement with an employee.
Similarly to any other tax returns, you as a business owner are responsible for telling the ATO of your potential liability.
The FBT rate is 47%.
How can you reduce your FBT liability?
If any of the fringe benefits that you provide (such as car) are not solely used for work, your best option is the use of “employee contribution”.
This is something we calculate and action for majority of our clients, especially for family businesses that do not provide fringe benefits to unrelated employees.
Effectively, when done right we can reduce the FBT liability to NIL.
Why should you then lodge FBT return if FBT liability is NIL?
The ATO says that you are not required to lodge FBT return if you don’t have FBT liability (i.e. if the liability has been completely eliminated by the employee contribution). However…
Lodging your FBT return REDUCES RISK OF ATO AUDIT to just the past 3 years.
Under the current legislation, the ATO has 3 years from the original assessment (even if it is NIL) to make an amendment (or 6 years if they suspect tax avoidance). If you do not lodge FBT return though, you are opening yourself to the possibility of ATO auditing your FBT obligations indefinitely.
You should really weigh up the benefit of having some sort of certainty after the relevant time has passed against the additional relatively small cost of submitting an FBT return. (Do you still have logbooks on file from many years ago should ATO ask for them? Or your travel diary to prove that that a certain trip was business related?)
Also keep in mind, that even if you have done everything right, it is on you to prove so. Check that you have audit insurance either as part of your business insurance or through your accountant.
If you are unsure what your FBT obligations are or would like us to prepare FBT return for you, please do get in touch!