FBT 2021: Tax & Employee Benefits
Fringe Benefits Tax (FBT) is one of Australia’s most disliked taxes because it’s cumbersome, expensive and generates a lot of paperwork. Unfortunately, the COVID-19 lockdowns we’ve endured have added another layer of complexity as many work patterns and behaviours have changed.
As we’ve previously discussed, a fringe benefit is a ‘payment’ to an employee or an associate (an associate is someone related to you such as a spouse, child or even a friend), but in a different form to salary or wages. A benefit might be as simple as hosting a work Christmas party, providing car parking, using a work vehicle, or providing the goods or services of the business at a reduced rate to what the public pay.
If your business is not already registered for FBT, it’s important to understand if fringe benefits have been provided. Generally, the Australian Taxation Office (ATO) will look closely at unregistered employers and where there are mismatches in data.
With the current FBT year ending on the 31st of March 2021, here is a look at some key issues and the ATO’s current focus.
What is exempt from FBT?
Certain benefits are excluded from the FBT rules if they are provided primarily for use in the employee’s employment. These include:
- portable electronic devices (e.g., laptop, iPad, printers, GPS, etc.,). Larger businesses are limited to the purchase or reimbursement of one portable electronic device for each employee per FBT year;
- a handbag, briefcase or satchel to carry items you are required to use and carry for work, such as laptops, tablets, work papers or diaries. Be warned that if you are using these bags for a mix of personal and work use, then the use needs to be apportioned and will not be fully exempt from FBT. The ATO is not going to pay for your handbag even if you do throw your iPad into it on occasion; and
- tools of trade.
Also, if the item or service provided to the employee is less than $300 and is a one-off, it’s generally classed as a minor benefit and exempt from Fringe Benefits Tax.
COVID-19 & FBT
The ATO has changed how it will approach FBT compliance this year because of the impact of COVID-19 on work patterns and conditions.
Emergency assistance such as flights andaccommodation
Emergency assistance to provide immediate relief to employees because the employee is at risk of being adversely affected by COVID-19 will generally not be subject to FBT. This might include:
- expenses incurred relocating an employee, including paying for flights home to Australia;
- expenses incurred 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; and/or
- transporting or paying for an employee’s transport expenses including car hire and transport to temporary accommodation.
For fly-in fly-out workers, this includes temporary accommodation and meals where they were unable to return home because of border or travel restrictions.
Providing flu vaccinations to employees is generally exempt from FBT because it is work-related preventative health care. However, health care treatment is only exempt from FBT if it is provided to your employees at your workplace or adjacent to your worksite. The cost of ongoing medical costs are generally not exempt.
A company car garaged at an employee’s home will generally attract FBT. However, this FBT year, many company carparks and places of business were closed. As a result, the ATO has stated that for employers using the operating cost method, if the “car has not been driven at all during the period it has been garaged at home, or has only been driven briefly for the purpose of maintaining the car, we will accept that you don’t hold the car for the purpose of providing fringe benefits to your employee.” But, you will need to maintain odometer readings that show the car has not been used.
If the car was used, FBT generally applies. However, if the car was used for business purposes then this use reduces the taxable value. If the car was only used for business, the taxable value may be reduced to zero.
COVID-19 is likely to have impacted on driving patterns and the ATO has made some concessions where the 12-week log book period was interrupted.
If you are already using the logbook method and have an existing logbook in place, you can still rely on this logbook. However, you must keep odometer records for the year to show how much the car has been driven during the year including during any lockdown period.
If this is the first year you have used a logbook, you still need to keep an accurate 12-week logbook. However, if COVID-19 impacted driving patterns during your 12 weeks, then the ATO will allow you to adjust the use indicated in the logbook to account for the change in driving patterns.
Not-for-profit salary packaging
Not-for-profit employers often provide salary-packaged meal entertainment to employees to take advantage of the exempt or rebatable cap. For this FBT year, the ATO has stated that they will not look into these arrangements where meals are provided by a supplier that was authorised as a meal entertainment provider as at 1 March 2020.
Non-refundable costs for cancelled events are exempt from FBT unless the employee paid for the event themselves and was reimbursed by you. That is, if the employer paid for the event then the cancellation fee is the employer’s obligation as no benefit was provided. If the employee paid for the event, the cancellation fee is the employee’s obligation that has been reimbursed.
ATO ‘red flags’
One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches in the information provided to the ATO. Common problem areas include:
Entertainment deductions with no corresponding fringe benefit
A simple way for the ATO to pick up on a problem is when an employer claims a deduction for expensive entertainment costs – for example, meals out, tickets to cricket matches, etc., – but there is not a corresponding recognition of the fringe benefit. Entertainment expenses are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT.
If your business uses the ‘actual’ method for FBT purposes and the value of the benefits provided is less than $300 then there might not be any FBT implications. This is because benefits provided to a client are not subject to FBT and minor benefits provided to employees (i.e., value of less than $300) on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either.
If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the company would be able to claim 50% of the GST credits.
Employee contributions reducing FBT but not recognised in ITR
Where employee contributions reduce the amount of Fringe Benefits Tax payable (for example, where an employee makes a contribution relating to a car fringe benefit), a corresponding amount needs to be recognised in the Income Tax Return (ITR) of the employer.
Why are some businesses returning JobKeeper?
Super Retail Group, the owner of the Supercheap Auto, Rebel, BCF and Macpac brands, has handed back $1.7 million in JobKeeper payments in January 2021 after releasing a trading update showing sales growth of 23% to December 2020. Domino’s Pizza has also handed back $792,000 of JobKeeper payments and Toyota has since announced that it will return $18 million in JobKeeper payments after it recorded a fantastic fourth quarter.
Super Retail Group, Domino’s and Toyota were not obliged to hand back JobKeeper. Under the rules at the time, the companies qualified to access the payment. However, Toyota CEO Matthew Callachor has said,
“Like most businesses, Toyota faced an extremely uncertain future when the COVID-19 health crisis developed into an economic crisis … We claimed JobKeeper payments to help support the job security of almost 1,400 Toyota employees around Australia …. In the end, we were very fortunate to weather the storm better than most, so our management and board decided that returning JobKeeper payments was the right thing to do as a responsible corporate citizen.”
Domino’s Group CEO and Managing Director, Don Meij said,
“We appreciate the availability and support of JobKeeper during a period of significant uncertainty. That period has passed, the assistance package has served its purpose, and we return it to Australian taxpayers with our thanks.”
Companies that received JobKeeper and subsequently paid dividends to shareholders and executive bonuses have come under particular scrutiny, not just by the regulators but by way of public opinion.
The first phase of JobKeeper did not require businesses to prove that they had actually suffered a downturn in revenue. Rather, they just had to have evidence that turnover was likely to drop in a particular month or quarter. For many businesses, early trends indicated that the pandemic would have a devastating impact on revenue. Many also took proactive action by enacting plans to protect their workforce and revenue. The fact that business improved does not impact on initial JobKeeper eligibility. In the first phase of JobKeeper, employers were not obliged to stop JobKeeper payments if trends improved.
Speaking at the Senate Select Committee on COVID-19, ATO Deputy Commissioner Jeremy Hirschhorn stated that the ATO rejected some $180 million in JobKeeper claims pre-issuance. Approximately $340 million in over-payments have since been identified, of which, $50 million were honest mistakes and will not be clawed back where the payment had been passed on to the employee.
Where the ATO determines that JobKeeper over-payments need to be repaid, they will contact you and let you know the amount and how the repayment should be made. Administrative penalties generally will not apply unless there is evidence of a deliberate attempt to manipulate the circumstances to gain the payment.
Please note that you can object to the ATO’s JobKeeper over-payment assessment. If you are contacted by the ATO, please contact us immediately for assistance and we will work directly with the Tax Office on your behalf.
COVID-19 Vaccinations and the Workplace
The first COVID-19 vaccinations in Australia rolled out on the 21st of February 2021, preceded by a wave of protests. With the rollout, comes thorny questions for employers concerning individual rights, workplace health and safety, and vaccination enforcement.
The rollout, managed in phases, is expected to be completed by the end of 2021 (you can check your eligibility here). While the Australian Government’s COVID-19 vaccination policy states that vaccination “is not mandatory and individuals may choose not to vaccinate,” this does not mean those who choose not to be vaccinated won’t experience negative consequences. Individuals may be required to show proof of vaccination prior to moving across borders or travelling internationally. Australia already has a precedent, for example, with its “No Jab, No Play” policies in place with respect to accessing child care payments. (The ability to object to vaccination on non-medical grounds was removed from 1 January 2016.)
There are currently no laws or public health orders in Australia that specifically enable employers to require their employees to be vaccinated against coronavirus. However, it is likely that in some circumstances an employer may require an employee to be vaccinated and the employee will have to decide whether or not they will comply.
Can an employer require an employee to be vaccinated?
In most situations, probably not. The Fair Work Ombudsman, however, states that there are “limited circumstances where an employer may require their employees to be vaccinated.” These include if/when:
- the State or Territory Government enacts a public health order requiring the vaccination of workers (for example, in identified high-risk workplaces or industries);
- an agreement or contract requires it – some employment agreements already require employees to be fully vaccinated and where these clauses exist, they will need to be reviewed to determine if they also apply to the COVID-19 vaccine; and/or
- a lawful and reasonable direction – employers are able to issue a direction for employees to be vaccinated but whether that direction is lawful and reasonable will be assessed on a case-by-case basis. It’s more likely a direction will be “reasonable” where, for example, there is an elevated risk such as border control and quarantine facilities, or where employees have contact with vulnerable people such as those working in health care or aged care.
If an employee refuses to be vaccinated on non-medical grounds in a workplace that requires it, standard protocols apply. That is, the employer will need to follow through with disciplinary action. At date of writing, there are no special provisions that enable suspensions or stand downs for employees who refuse to be vaccinated against COVID-19.
Can an employer require evidence of vaccination?
In general, an employer can only require evidence of vaccination if they have a lawful and reasonable reason to do so. Requesting access to medical records and storing data of an individual’s medical information will also have privacy implications (see the Office of the Information Commissioner for more information).
Your immunisation history is accessible through your myGov account when it is linked to Medicare. The Express Plus Medicare app enables you to access this information on your phone.
More details are expected shortly on Australia’s ‘vaccine passport’ that will enable the quick identification of an individual’s vaccination status. Israel’s Green Pass, for example, uses a simple QR code but there are already concerns that it is easily forged.
Can we require customers to be vaccinated?
Some high risk industries are likely to require customers to be vaccinated or, where they cannot be vaccinated, subject to heightened measures such as quarantine and/or testing. Qantas CEO Alan Joyce recently told A Current Affair, “We are looking at changing our terms and conditions to say, for international travellers, that we will ask people to have a vaccination before they can get on the aircraft.” Qantas is expected to release its position middle-to-end 2021 on domestic and international travel.
For employers in high risk industries, it’s important to maintain a conversation with employees and consult an industrial relations specialist if your workplace intends to require vaccinations for employees and/or customers.