As April arrives, signaling the end of another Fringe Benefits Tax (FBT) year, businesses in Sydney must be well-prepared. The Australian Taxation Office (ATO) has recently announced its intention to enhance its audit activity for FBT. Therefore, it becomes imperative for companies to seek the assistance of skilled accountants in Sydney. Our clients, in particular, face potential FBT implications in two key areas: business-owned motor vehicles and meal entertainment.
For motor vehicle usage, you have 2 methods which you can use to work out the private use of the vehicle. These methods are:
Statutory Method – This is used when no logbook is held, and you work out the private use based on a statutory formula which multiplies the original cost price of the vehicle by a statutory 20% rate. This gives the private use of the vehicle no matter how much the actual motor vehicle operating costs are. This method works well for lower-value vehicles (i.e. up to around $60,000) with no business use.
Actual Operating Cost Method – this method is used where a 12-week log book has been kept monitoring business and private use. This logbook can last up to 5 FBT years, assuming that the nature of the car usage has not changed during that period. If there is a change like how that car is used, another logbook must be prepared. Previously logbooks were completed in a manual book which would be pretty time-consuming. There has been an introduction of multiple new electronic tools that clients can use to monitor the usage of cars now. The private use % derived from the log book is then multiplied by the total running costs of the vehicle (including depreciation and interest on any finance) to determine the private use in dollar value terms. FBT is then levied on the private use of the vehicle.
Meal entertainment is the other area that many of our clients are exposed to for FBT. FBT may apply to meal entertainment, where employees are provided with food, and/or drink, and/or related accommodation or travel. When determining if a meal is subject to FBT, the ATO set out several questions that should be asked. These include:
- Why is the food or drink being provided: refreshment or sustenance versus social situations for enjoyment
- What type of food or drink is being provided – light meals and refreshments onsite versus a meal out at a nice restaurant
- When is the food or drink being provided – during work hours versus after work
- Where is the food or drink being provided – on business premises versus off-site in a function room or restaurant
If you find that, in most cases, the second scenario exists within your business, and then meal entertainment is most likely being provided. There is, however, an exemption that can apply to meal entertainment. The exemption is called the minor and infrequent exemption. The minor and infrequent exemption from FBT applies if the cost of providing the meal entertainment is below $300 per head and is infrequent in nature. The ATO provide no clear definition for infrequent, and it is measured on a case-by-case basis.
FBT is always a minefield, so we encourage employers to contact their client manager should they be unsure of the nature of any motor vehicle expenses or meal-related entertainment incurred.
Kreston Stanley Williamson
*Correct as of April 2019
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
