Fringe benefits tax (FBT) is paid by employers on certain benefits they provide to their staff, and often includes allowing the use of a car for private purposes. For this coming tax time, those car-related claims will be at the top of the ATO's watch list.
The ATO will also pay special attention to the calculation of car-related fringe benefits, particularly where it suspects significantly discounted market valuations are being used.
Making claims using non-commercial parking rates, and not having adequate evidence to support the calculated rates, will also raise a red flag. Put simply: parking claims which seem too high, and aren't backed up with receipts, are in the ATO's sights.
The ATO had already fired warning shots about its plans to target car-related expenses last year, when it released this Practical Compliance Guideline.
“This law has always been about minor, infrequent travel for work vehicles, but this [guidance] puts the onus very much on the employer to prove that work cars are not used as a perk to retain and attract staff,” said Pilot Partners tax specialist Murray Howlett at the time.
“The ATO is delivering a clear warning to employers to make sure they have a policy on work-related travel and to make sure they enforce it,” he said.
“The increasing sophistication of the ATO’s tracking methods will mean that there will be many employers out there who are at risk of an unforeseen tax bill,” he said.
“It will create an uneven playing field and one that is going to mean a big mind shift for employers who, for many years, have turned a blind eye to FBT,” he added.
Other items on the watch list
The tax office will be watching for mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer’s tax return.
Further, claims related to entertainment will also come under the microscope. Businesses claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising, should expect to hear from the ATO.
As with each tax time, those who do not lodge an FBT return or lodge them late to avoid or delay the payment of tax should expect scrutiny.