The 2023 Fringe Benefits Tax (FBT) year ends on 31 March 2023. As an employer, if you provide particular benefits to your employees you may be liable to pay FBT and required to lodge a FBT return. An internal review considering FBT implications is always good at this time of year and you should include the following:

• Have you reviewed your accounts to pick up all employee benefits provided?
• Are you providing fringe benefits to independent contractors? If so, they may now be subject to FBT
• Are you providing car parking fringe benefits to employees? Commencing from the 2023 FBT year, the scope of what constitutes car parking fringe benefit has been widened
• Are you correctly applying the rules for car benefits? Are you aware of the FBT exemption for electric vehicles?
• What benefits are you including on your employee’s payment summaries?

ATO hot spots

The ATO has highlighted areas of FBT non-compliance which it will target this year:

• Employers who have provided fringe benefits to employees but have not lodged an FBT return.
  The ATO can obtain information on fringe benefits from income tax returns, and use data matching exercises with external bodies (such as insurance companies and motor vehicle registries) to identify potential FBT obligations.
  
• Failure to keep appropriate documentation and declarations to substantiate the FBT treatment of employee benefits.
  Where evidence cannot be provided to substantiate the treatment of fringe benefits during an ATO audit, additional FBT payable may arise for the employer.
  
• Incorrect completion and reliance on car logbooks.
  The car logbook should provide evidence for each business journey covering the date, opening and closing odometer readings, kilometres travelled and purpose of the trip. Furthermore, where the business use of the car no longer reflects the percentage indicated by the current logbook, a new logbook must be completed, even where it falls within the five year period.
  
• Business related travel.
  The removal of many COVID-19 travel restrictions has resulted in a surge of business related travel. There will be a renewed focus from the ATO in investigating whether the travel is being treated appropriately for FBT purposes. Of particular focus is reimbursements paid to employees for the cost of meals and accommodation whilst away on business trips. It is therefore important that travel diaries are completed for overnight business trips to substantiate the expenses being claimed.

What’s new for FBT in 2023?

A number of changes have been introduced for the 2023 FBT return that will affect the majority of employers. These changes relate to some of the most frequent provided fringe benefits offered to employees. The most important changes to note are:

Fringe benefits provided to independent contractors:
A recent High Court decision has rejected the common law approach of who constitutes an employee (based on a multi-factor approach) and replaced it with the legal rights and obligations specified within the written contract. As a result, the ATO has released Tax Ruling 2022/D3 that provides guidance on who is an employee for PAYG and superannuation purposes. This interpretation of an employee also extends to Fringe Benefits Tax obligations, therefore important to review contracts currently in place to determine whether independent contractors fall under the definition of an employee.

Changes to car parking fringe benefits
In June 2021, the ATO released Tax Ruling 2021/2 widening the definition of what constitutes a commercial car parking station. Previously, ‘special purpose parking facilities’ (such as those whose fee structure is to encourage short term parking only) were not considered to be a commercial parking station for the purposes of the car parking fringe benefit. However, under Tax Ruling 2021/2, the ATO now views a special purpose car parking facility as a commercial parking station. Commencing from 1 April 2022, employers who provide car parking fringe benefits to employees that is located within a 1 km radius of a commercial parking station (including special purpose parking facilities) will be exposed to an FBT liability.

Exemption for electric vehicles
Introduction of an FBT exemption for electric vehicles purchased on or after 1 July 2022, where the purchase price of the vehicle falls below the luxury car tax threshold for fuel efficient cars, which is currently $84,916. The vehicles that will be eligible are battery electric vehicle, hydrogen fuel cell electric vehicles and plug in hybrid electric vehicles.

AFS and our team of specialists can make your job easier by helping you prepare and lodge your FBT return. Please call us on 03 5443 0344