What is FBT?
The Fringe Benefits Tax was formally instituted in legislation in 1986. Prior to its enactment, businesses were able to provide perks such as vehicles, corporate hospitality, and meals to employees, their families, and executives without incurring tax obligations or ensuring that the benefits were directly related to their employment.
The primary objective of the Fringe Benefits Tax legislation is to enable the government, specifically the Australian Taxation Office (ATO), to collect the tax that would have been paid if the employee had funded the benefit from their own salary, thereby reducing their take-home pay. It is worth noting that the Fringe Benefits Tax is calculated based on the highest tax bracket, irrespective of the employee’s individual tax bracket.
Period of FBT:
The FBT year is the 12 months beginning 1 April and ending 31 March.
The ATO usually requests that businesses lodge their FBT returns by the 21st of May. This can be done electronically or by post.
Calculation of FBT:
The basic calculation is as follows:
FBT Payable = Taxable value of benefit x Gross up factor x FBT rate
The taxable value of a benefit is calculated according to the valuation rules.
Exemption from Fringe Benefits Tax for Electric Vehicles:
As of 1 July 2022, electric cars have been granted an exemption from Fringe Benefits Tax (FBT). Employers are not obligated to pay FBT if they provide private use of an electric vehicle that meets the following specified conditions:
- The vehicle in question is classified as a zero or low emissions vehicle, which includes battery electric vehicles, hydrogen fuel cell electric vehicles, or plug-in hybrid electric vehicles.
- The vehicle is first acquired and utilized on or after the 1st of July 2022.
- The vehicle is utilized by a current employee or their immediate family members.
- The Luxury Car Tax (LCT) has never been incurred upon the importation or sale of the vehicle.
It is important to note that this exemption solely pertains to vehicles that are considered cars for FBT purposes, meaning they are designed to carry a load of less than one tonne and accommodate fewer than 9 passengers, including the driver.
Other categories of electric vehicles, such as electric motorcycles and scooters, do not fall within the scope of this exemption.
Associated vehicle expenditures:
Expenditures related to an eligible electric vehicle are exempt from Fringe Benefits Tax (FBT) when provided in conjunction with a car fringe benefit. Such expenses for electric vehicles encompass:
- registration and road user charges
- insurance
- repairs or maintenance
- fuel (inclusive of electricity used to charge and operate electric vehicles).
Second hand electric vehicles:
The issue that is currently arising pertains to the eligibility of second hand or pre-owned electric vehicles for tax exemption. There may be inquiries regarding the verification of the initial possession and usage of such vehicles, as well as whether Luxury Car Tax (LCT) was applicable.
It is advised that diligent efforts are made to acquire pertinent documentation to substantiate the eligibility for exemption. In cases where relevant records are unavailable, registration particulars could serve as a reasonable basis for estimating the timeframe in which the vehicle was acquired and used. Additionally, it is recommended to utilize publicly accessible data to determine the value of the vehicle at the time of its initial purchase, to ascertain the potential applicability of LCT.
Electric vehicles Fringe Benefits Tax (FBT) exemption – essential guidelines for employers:
Despite the fact that the personal usage of a qualifying electric vehicle is not subject to FBT, the monetary value of the benefit must be factored in when determining if an employee has a reportable Fringe Benefits amount. Employers are required to:
- Determine the theoretical taxable value of the benefit for the purpose of reportable fringe benefits.
- Disclose the amount on the employee’s income statement or payment summary if the taxable value of the employee’s combined reportable fringe benefits exceeds $2,000 in an FBT year.
Frequent Errors:
The Australian Taxation Office commonly observes errors in the realm of motor vehicles.
These errors include the inaccurate classification of vehicles as cars, the failure to maintain correct records such as valid logbooks and providing employees with motor vehicles for personal use while incorrectly designating them as solely for business purposes.
Credits
Dhanya Ramesh
Services Management Team
