- The latest in fringe benefits tax
A summary of the latest on fringe benefits tax covering credit card loyalty programs, FBT end-of-year considerations, and new entertainment caps for Not for Profits from 1 April 2016.
Credit card loyalty programs - a new trend emerging
Corporate credit cards are an efficient expense management system for business owners and employees, and it’s common practice to sign up to loyalty programs and accumulate points on business expenses. Indeed, some individuals are able to amass a significant quantity of points using their cards in this way.
An emerging trend is for the loyalty program membership to be in the business name, with the huge number of points accrued then redeemed for various flights and gifts that are passed on to either the business owners or employees.
Points that accumulate in an individual’s name traditionally do not attract tax when they are redeemed, except where the individual has accumulated a vast number of points.
However, in situations where the business accumulates the points, redeems the benefits and passes them on, income tax and FBT issues are likely to arise. This may be cost efficient where the business would otherwise have incurred the cost of the relevant benefit, but there are also tax minimisation strategies that businesses can use in these situations.
Not for Profits: new entertainment caps
Legislation to cap FBT concessions for certain entertainment benefits is now in place.
A $5,000 cap on the grossed-up value of benefits will apply from 1 April 2016. This equates to a limit of about $2,500 in actual entertainment expenditure that will qualify for an FBT exemption or rebate (depending on the organisation’s tax endorsement status).
As a result of these amendments, a number of transitional issues may arise, including:
- Given that the concession is uncapped until 1 April 2016, where employees are reimbursed entertainment expenses, consider whether you will allow prepayments (e.g. holidays) to be salary packaged, what your process will be to determine whether the holiday is taken or refunded and whether any tax adjustments need to be made.
- If employees have accrued salary sacrifice balances for entertainment not yet taken at 31 March 2016, consider whether these need to be paid out in full or whether some can be carried forward.
FBT end-of-year considerations
As the FBT year is drawing to a close, we have noted below a handful of considerations to keep in mind when preparing your FBT return:
- Remember, the FBT rates have changed for the 2016 FBT year. The FBT rate has increased to 49% and gross-up rates 1 and 2 are now 2.1463 and 1.9608 respectively. The increased rates will result in a higher FBT liability.
- If you’re using the 50/50 split method to value meal entertainment, have you considered the actual method? This method often results in a lower FBT liability, and requires less supporting documentation then you may think. For instance, is the bulk of your entertainment expenditure less than $300 per head and do you have few or no employees who regularly receive entertainment? If so, you may not need to pay any FBT on entertainment.
- Do you have employees that travel for business? Have you considered whether they are permanently relocating, living away from home or just on business travel? In some situations the lines are blurred, and even the ATO has difficulty. (In fact, we are part of a current consultation with the ATO seeking better guidance on this issue.) A review of your arrangements may highlight the potential for a different FBT or income tax treatment and the possible application of tax concessions.
- If you are paying a significant amount of FBT on company cars, you shouldn’t be! There are simple ways to achieve significant savings in this area that also provide an extra benefit to employees.
- If you use the statutory formula method for car benefits, there’s no need to obtain odometer readings for cars first held or refinanced after 10 May 2011. Remember, the ‘old’ statutory fractions apply – and odometer readings are required – for cars held under arrangements entered into prior to this date.