The COVID-19 Pandemic continues to have a significant impact on many businesses around the World. In Australia, the unprecedented crisis is forcing employers to reconsider the benefits provided to staff and the resulting Fringe Benefits Tax (FBT) implications.
The FBT law was first introduced in Australia in 1986 to improve the taxation system's fairness. The law aims to resolve deficiencies in the income tax law, which previously allowed for benefits other than salary to be tax-free. A few brief examples of these benefits include car, food, travel, and meals, which historically could be claimed as legitimate business expenses without supporting documents.
The continuing nature of the pandemic, combined with strong technological advancements have significantly changed our working patterns, including more flexible working hours, alternative working locations and restrictions on travel. Consequentially, there have been correlating changes in employee benefits, including equipment distributed to staff, which were previously not available. As the pandemic continues, it is important to monitor FBT implications, as the different elements may cause an expensive FBT bill for employers.
Currently, an employer is responsible for the Fringe Benefits Tax, which is assessed on an annual basis from 1 April to 31 March. The current tax rate is a flat 47% which is equal to the top individual marginal tax rate plus Medicare levy in Australia. A new employer who wants to start a new business in Australia during this challenging time needs to understand how the basic FBT system works and find the most appropriate way to minimise the potential liabilities. They should also endeavour to understand how the pandemic will change the benefits to be provided to the employees since the pandemic started.
There are several common benefits which are provided as follows:
- Employees working from home (including using portable electronic items)
- Car Fringe Benefits
- Travel expenses
- Specific benefits & equipment provided to employees during the COVID-19 pandemic.
EMPLOYEES WORKING FROM HOME.
Employees working from home may be an indicator that the employees have been provided with additional equipment to assist them in completing their work duties remotely. Some items will be exempt from FBT if they are predominantly used for work which includes the following:
- Portable printers
- Portable electronic devices
The private portion of the usage will be classified as "Residual Fringe Benefits" and exempt under Section 58X in FBT Act 1986. Most importantly, employees must provide a declaration to their employers to declare the equipment's primary usage was for business or worked purpose.
CAR FRINGE BENEFITS
The ATO has been focusing on car fringe benefits for several years. However, ongoing events may reduce employers' attention to this area. Therefore, employers should consider a few issues that might affect or trigger FBT.
For example, if a car is garaged at the employee's house, it may be subject to private use, even if employers allow the employees to keep the company car at home only because they are working from home.
The car benefits will be exempt from FBT if the private use of a taxi, panel van or utility vehicle designed to carry more than one tonne is limited to:
- Travel between home and work
- Incidental travel in the course of performing employment-related travels, and
- Private use is minor, infrequent and irregular.
If the exemption does not apply, employers need to determine the taxable value of the car fringe benefit using one of the methods below from the ATO:
- Statutory formula method (based on the car's cost price), or
- Operating cost method (based on the costs of operating the car)
In most scenarios, the statutory formula method is easy to use with less information required to calculate the taxable value. However, it generally produces a higher taxable value. While the operating cost method can create a better result, more compliance requirements must be met, such as a valid log book and records of the car's operating costs during the FBT year.
If the company car has not been driven when while is garaged at employee's home, the ATO can accept that the employer does not hold the car when the operating cost method is used. Otherwise, it will trigger FBT under the statutory formula method of being available for private use.
The ATO released further guidance in August 2020 regarding the work cars' concession due to the COVID 19 pandemic. The guidance provides details of how COVID-19 will impact your new logbook and the existing logbook, if your driving patterns have been affected during the pandemic period.
TRAVEL, ACCOMMODATION, AND RELATED EXPENSES
During the COVID-19 pandemic, business travel has been significantly impacted, and restrictions are currently still in place for travelling domestically and internationally. These changes have forced employers to overhaul travel policies.
The ATO advises several conditions when no FBT is payable when employers help such as emergency accommodation, including travel and food to their employees if:
- the benefit is emergency assistance to provide immediate relief, and
- the employee is, or is at risk of being, adversely affected by COVID-19.
The examples below provide how FBT emergency assistance exemptions can be applied.
- expenses for relocating an employee, e.g. paying for flights home to Australia
- expenses for food and temporary accommodation if an employee cannot travel due to restrictions (domestic, interstate or intrastate)
- benefits provided that allow an employee to self-isolate or quarantine
- transporting or paying for an employee's transport expenses, including car hire and transport to temporary accommodation
The ATO has provided a comprehensive list of what can be classified as emergency assistance from employer to employee, and which are exempt from FBT. The scenarios include the followings:
- first aid or other emergency health care
- emergency provisions such as meals, food supplies, clothing, accommodation, transport.
- Temporary repairs
- any similar assistance.
SPECIFIC BENEFITS AND EQUIPMENT PROVIDED TO EMPLOYEES DURING THE COVID-19 PANDEMIC
Items & equipment
During the pandemic, employers may have provided protective equipment to their employees to protect them at work. The ATO's view is that the items such as gloves, masks and sanitisers may be exempt from FBT if they are under emergency assistance exemptions and the employees:
- have physical contact with – or are in close proximity to – customers or clients while carrying out their duties or
- are involved in cleaning premises
Example of this type of work include:
- medical (such as doctors, nurses, dentists and allied health workers)
- hairdressing and beauticians
- retail, café and restaurant.
If employees' specific employment duties are not of any of the above, the minor benefits exemption rule will apply. The minor benefit is exempt from FBT where it is both:
- less than $300 in notional taxable value (that is, the value if it was taxable), and
- unreasonable to be treated as a fringe benefit
During the COVID pandemic, if employers provide employees with flu vaccinations whilst and because of working at home, the benefits are usually exempt from FBT because they are work-related preventative health care. However, this is only if a voucher or reimbursement for providing the variance from a General Practitioner or Chemist is available to all employees.
Without a doubt, the ongoing uncertainties and continued changes which follow the pandemic will continue to challenge business owners, large and small. FBT is an already complex area, and made even more so due to the reactive nature of legislation during this time
If you are a business owner looking for support during this time, the Moore Australia Asia Desk has experts available who can help you navigate employer obligations, income tax, indirect tax and Fringe Benefit Tax in Australia.
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