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4 March 2014

FBT- what you need to know before 31 March

Fringe Benefits Tax is payable by employers when certain benefits, other than salary or wages, are provided to employees.  FBT was introduced to prevent employers reducing the tax liability of employees by providing benefits to them that were not recognised as income.  Most employers who provide fringe benefits to employees during the course of the year need to register and pay FBT.

Are you liable for FBT?

If you are not sure if you are providing a benefit to your employees and, as a result, liable for FBT here are some key questions you should ask yourself:

  • Do you make vehicles owned by the business available to employees for private use?
  • Do you provide loans at reduced interest rates to employees?
  • Have you released an employee from an owed debt?
  • Have you paid for, or reimbursed, an expense incurred by an employee?
  • Do you provide a house or unit of accommodation to your employees?
  • Do you provide employees with living-away-from-home allowances?
  • Do you provide entertainment by the way of food, drink or recreation to your employees?
  • Do any of your employees have a salary package arrangement in place?
  • Have you provided your employees with goods at a lower price than they are normally sold to the public?

What's exempt from FBT?

The following work related items are already exempt from FBT:

  • Mobile or car phones predominately used for the employee's job
  • Protective clothing required for the employee's job
  • A briefcase
  • A calculator
  • A tool of trade
  • An electronic diary or similar item, or
  • A notebook computer, a laptop computer or a similar portable computer (limited to the purchase or reimbursement of one computer for each employee a year) – used primarily for work purposes
  • Personal Diary Assistant (PDA) - hand held devices used as a personal organiser
  • Portable printers specifically used with a portable computer

We will be in contact after 31 March to discuss FBT issues, however please contact us with any queries in the meantime.

 
TAX TIPS - SAVING FBT COST

Vehicles using the statutory formula method

We also draw your attention to a factor that influences the taxable value of your car fringe benefits.

Under the statutory formula method, as the total number of kilometres (not just business kilometres) travelled in the year increases, the statutory fraction used (per the statutory fraction table below) decreases, resulting in a lower taxable value and lower fringe benefits tax payable.

For example, for a car purchased prior to 10 May 2011:

  • if you travelled 24,900 kms in the year, the taxable value of the benefit is calculated as the value of the car, say $35,000, by .20 (the appropriate statutory fraction) = $7000
  • if you travelled 25,100 kms in the year, the taxable value of the benefit is the value of the car by .11 ($35,000 x .11) = $3850

i.e the taxable value has been reduced substantially by travelling extra kilometres and moving into the next statutory bracket.

We suggest that it could be worthwhile to check your odometer readings and calculate the likely kilometres travelled in the period 1 April 201
3 to 31 March 2014.  If the number of kilometres for the year is close to a threshold change, it would be advantageous to plan and time your travel arrangements to maximise the kilometres travelled in the 2014 FBT year.

Car fringe benefits statutory formula rates for the 201
4 FBT Year:

Annualised number of kilometres

Statutory fraction

Statutory fraction for new cars purchased after 10May 2011

less than 15,000

.26

.20

15,000 to 24,999

.20

.20

25,000 to 40,000

.11

.20

more than 40,000

.07

.17


Please contact us if you wish to discuss your specific situation.

PURCHASE OF MOTOR VEHICLES

If you are contemplating the purchase of a motor vehicle within the next few months, then the timing of this purchase may have more tax consequences than you anticipated.

If the following facts apply to you then you, should consider purchasing your new vehicle prior to 31 March 201
4:

  • The vehicle will be purchased by the family trust or company which employs you
  • The business will possibly be paying fringe benefits tax on the vehicle using the statutory method (as opposed to the "% of business use" or "log book" method)
  • You expect to retain the vehicle for four years or more.

When using the statutory method, fringe benefits tax is based on the cost of the vehicle.  The benefit in purchasing the vehicle prior to 31March is that this cost is "notionally" reduced to two thirds of the original cost when the vehicle has been held for four years at the start of the fringe benefits tax year (1st April).  This results in lower FBT costs.

Therefore, by purchasing your vehicle just one month earlier, a one-third reduction in fringe benefits tax one year earlier would result.

There are other issues to consider, including:

  • The tax position on the sale or trade in of an existing vehicle
  • If you are registered for GST, the level of GST allowed to be claimed as an input tax credit
  • Whether the new vehicle is under the depreciation cost limit ($57,466 for 2013/14) or not (sometimes this is an argument for delaying purchase until July)
  • Method of financing the new vehicle, consideration of prepayment of leases etc
  • Possible discounts available on vehicles in June "end of financial year sales"
  • The most appropriate entity or name in which to acquire the new vehicle
  • Trade in value, log books etc

We recommend that you talk to us about any transaction before the deal is finalised. 

 

* * * *
This Newsletter, of necessity, has dealt with matters of a technical nature in general terms only. Clients should contact us for detailed information on any of the items in the Newsletter. No responsibility for loss occasioned to any person acting or refraining from acting in reliance upon any material in this Newsletter can be accepted by any member or employee of the firm.

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