Impact of COVID-19 on FBT liabilities
Working from home
There has been a significant increase in work-related items being provided as a greater number of employees worked from home during 2020–21.
Certain work-related items in the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are exempt. This specific list of items includes laptops, portable printers and other portable electronic devices. The item must be used primarily by the employee for work and cannot be a duplicate of something with substantially the same function, unless it is a replacement item.
In the context of small business entities there is an exemption that allows multiple portable electronic devices. From 1 April 2021, this includes businesses with aggregated annual turnovers of less $50 million.
Minor benefits exemption and the otherwise deductible rule.
Where an item is not specifically covered by the work-related items exemption it may still be covered by either the minor benefits exemption or the otherwise deductible rule.
The minor benefits exemption may apply for minor, infrequent and irregular benefits under $300. The ATO will generally accept, as irregular and infrequent, a “once-off” provision of office equipment (eg monitors, computer mouse and keyboards) to help the employee establish a work from home arrangement.
Where an item does not fit that description, the taxable value of the benefit may still be reduced by the amount that the employee could otherwise claim as a deduction in their income tax return had they incurred the expenditure themselves. Evidence to demonstrate the employee’s employment use of the item is required.
The ATO is looking to provide further detailed information on their website about a range of other exemptions that might apply.
Cars: garaging at business premises
A car fringe benefit is provided if a car is made available to an employee for their private use. There is no car fringe benefit where a car is not applied for an employee’s private use or taken to be available for an employee’s private use.
During a period of COVID-19 pandemic restrictions, the ATO accepts that a car provided to an employee is not taken to be available for an employee’s private use if all the following apply:
• the car is returned to the business premises
• the employee cannot gain access to the car, and
• the employee has relinquished an entitlement to use the car for private purposes.
Note that the ATO adopted this position in the context of COVID-19. The outcome may be different outside of pandemic conditions.
Cars: garaging work cars at an employee’s home
Generally, if a car is garaged at, or near the employee’s home it is taken to be available for private use, whether or not the employee has permission to use the car for private purposes. FBT liability will then depend on the type of car, how often it is driven and the calculation method that is used for the car.
There is an exemption for certain types of vehicles including taxis, panel vans or utility vehicles designed to carry less than one tonne, if the private use is limited to travel between home and work, incidental travel in the course of performing employment duties and non-work use that is minor, infrequent and irregular. If the exemption does not apply, the taxable value of the car fringe benefit must be calculated by using either the statutory formula method or the operating cost method.
Where a car has not been driven, or has been driven briefly, eg to keep the car battery alive, the ATO will accept that the car is not being held for the purposes of providing fringe benefits to an employee. In these situations, if the operating cost method has been elected, there will be a nil taxable value for the car and no FBT liability.
Elections to use the operating cost method must be made in writing before lodging the FBT return. Odometer records must also be maintained to show the car’s non-use, or intermittent use during the period the car has been garaged at the employee’s home.
Where the operating cost method is not elected or there are no odometer records, the statutory formula must be used. This will result in FBT liability because the car being garaged at the employee’s home is taken to be available for private use.
If the employee has been driving the car for business purposes and an election is made to use the operating cost method, the taxable value of the car fringe benefit may be reduced to take into account the business use. This may include reducing the taxable value to nil if the car has only been used for business travel. Logbook records and odometer records for the period in question are required.
A logbook is required to access the operating cost method. It may be a logbook year for a number of reasons, eg if an employer has not had one for at least the last 4 years or they may never have had one. If a logbook has not been previously maintained for the year, one must be kept for at least 12 continuous weeks within the FBT year or until the car stops being garaged at home, if this is less than 12 weeks.
Where the employee’s driving patterns have changed due to COVID-19, keeping a logbook would be helpful in working out the appropriate business-use percentage during the FBT year, particularly for vehicles with mixed private and work-related use.
The ATO has published a fact sheet, COVID-19 and car fringe benefits, with more detailed information.
COVID-19 and car parking
Car park closures
No car parking benefit is provided on a particular day if the work car park is closed on that day, or all commercial car parking stations within a one km radius are closed on that day.
Reduced rates at commercial parking stations — representative?
No car parking benefit is provided if on the “testing date” of 1 April 2020, the lowest fee charged for all-day parking by commercial parking stations within a one km radius was less than $9.15. This fee must not be substantially greater or less than the average of the lowest fee charged by a commercial parking station operator in the 4 weeks prior to 1 April 2020 or 4 weeks after 1 April 2020. Heavily reduced commercial car park fees flowing from COVID-19 restrictions and lockdowns are likely to have impacted the lowest representative fee which in turn may impact on whether a car fringe benefit has arisen.
Sound data collection around commercial car parking rates and usage of car park spaces by employees will help to ensure that the correct amount of FBT is paid for car parking benefits.
COVID-19 and entertainment fringe benefits
The ATO expects to see a reduction in the provision of entertainment fringe benefits due to the closure of restaurants and clubs during COVID-19 lockdowns — particularly in Victoria. This may mean that employers will choose a different method to calculate the value of fringe benefits provided for any entertainment that was actually provided. This may be influenced by ability to access, for example, the minor benefits exemption, which cannot be used if the 50-50 method is being used.
The other exemption that may be impacted is the property benefits exemption where food and drinks are consumed on business premises. Note that, people working from “home” does not fit the definition of “business premises”. Also, with less people in the office, the ATO expects to see less of those benefits being provided.
The ATO has not provided a specific number with respect to how many times an employer can provide a benefit and still have it treated as minor and exempt. However, a conservative approach may be to ensure that the benefit is provided irregularly, no more than 12 times in an FBT year, and the total value of the benefits is less than $1,000 in that year.
Not-for-profit salary packaging — COVID-19 restaurant shutdowns
For not-for-profit employers who can salary package meal entertainment, the ATO will not apply compliance resources to check the substantiation for meal entertainment benefits. This applies from the time that restaurants shutdown in the 2020 FBT year, until effectively the end of this FBT year — provided that for this FBT year the providers of the benefits were already providing those types of fringe benefits when the shutdown started.
Note that if employees have used meal entertainment type expenditure incurred through home delivery or takeaway meals, that could qualify as entertainment, ie a replacement of restaurant-style entertainment with entertainment at home.
Emergency assistance exemption
The emergency assistance exemption can apply to benefits provided that give immediate relief to employees who are at risk of being affected by COVID-19. This includes food and accommodation that employers may have provided, where employees have been stranded in a location or required to self-isolate or quarantine, transport costs to get employees home, or temporary accommodation. There is a limited arm of that FBT exemption where an employer provides emergency health care to an employee affected by COVID-19 (see the Emergency healthcare topic in the ATO’s COVID-19 and fringe benefits tax guidance). Items provided to protect workers from COVID-19, eg gloves, masks and hand sanitisers are exempt where the employee is in close proximity to clients while carrying on their duties, or they are involved in cleaning premises. An exemption may also apply for work-related medical exams, screening, preventative health care, and counselling. This would cover COVID-19 vaccines.
Definition of “taxi”
The law extending the definition of taxi travel was passed in June 2020. This effectively brings into scope ride sharing.
Car parking benefits ruling (Draft TR 2019/D5)
After receiving a number of submissions and conducting targeted consultation, particularly around the definition of commercial car parking station and how employers work out whether a car park is considered commercial, the ATO is now progressing a final ruling which should be published soon. No exact date for publishing the final ruling is available yet. Note when finalised, the ATO view will apply from 1 April 2021.
Note also the car parking exemption for eligible businesses with an aggregated turnover of less than $50 million where employees’ cars are parked on their employer’s business premises.
New ATO products on travel and transport expenses
Updated ATO products on travel and transport expenses have been recently published. TR 2017/D6 was split into the following 3 different products:
TR 2021/1 — Income tax: when are deductions allowed for employee’s transport expenses?
Draft TR 2021/D1 — Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, and living-away-from-home allowances, and
Draft PCG 2021/D1 — Determining if allowances or benefits provided to an employee relate to work or living at a location — ATO compliance approach.
2020–21 Budget measures
From 1 April 2021, businesses with aggregated annual turnover of less than $50 million can access existing small business concessions for car parking (FBTAA s 58GA) and the provision of multiple work related portable electronic devices (FBTAA s 58X).
Announced but not yet law
The following measures were announced in the 2020–21 Budget but are not yet law:
• Reduced FBT record keeping requirements — employers will be allowed to use existing corporate records, rather than prescribed records, to comply with their FBT obligations. The measure will have effect from the start of the first FBT year (starting on 1 April) after the date of assent of the enabling legislation.
• FBT exemption for retraining — employer-provided retraining and reskilling for redundant, or soon to be redundant employees, will be exempt from FBT. When enacted, the exemption will apply from 2 October 2020.
ATO compliance focus
The ATO released the Fringe benefits tax gap in October 2020. It shows that the estimated net revenue FBT gap in 2017–18 as $1 billion or 21% (employers paid more than 79% of the total tax payable in 2017–18).
ATO estimates show that the primary driver of the gap estimate is employers not participating in the FBT system where they are providing benefits to employees. Other drivers include lack of awareness by either employers or tax agents and issues with understanding FBT law and rules.
ATO action to reduce the gap
The ATO’s focus to reduce the FBT gap going forward will be around education and building understanding of FBT law and employers’ engagement with the system. This will involve ensuring that the ATO’s public advice and guidance assists employers to comply with their FBT obligations.
The ATO is aware that employers have experienced a difficult time during the COVID-19 pandemic with businesses being focused on day-to-day operations rather than tax. With that in mind, the ATO will make compliance easier, where it can.
Due dates for lodgment
The ATO has confirmed that there will be no changes this year to FBT return lodgment due dates.
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