The Australian Tax Office (ATO) is becoming increasingly sophisticated at discovering unpaid tax liabilities, and people need to be scrupulous about ensuring they are accurately recording and lodging their returns or claims.
A recent report showed the ATO is even using resources, such as social media, to assess whether persons’ claimed income matches their lifestyles as shown on social media, or whether they are promoting businesses on sites such as Facebook when they don’t claim any income.
FBT is one area where businesses often make mistakes, so it is important to understand exactly what is a fringe benefit and what tax needs to be paid on it.
A common area of confusion is the use of motor vehicles owned by a business and used by an employee, and how to record and assess usage for tax requirements. For instance, it is important to determine whether a vehicle is for business or private use, when looking at potential FBT liabilities.
A good way to assess this is to ask when does the employee have ‘custody and control’ of the vehicle – is it parked near their home (even where the home is – is it a place of employment or is there nowhere to park the vehicle at the office), and is it available to the business if the employee is on holidays and has the keys?
If the answer to these questions is ‘yes’ and ‘no’, respectively, then the vehicle should be treated as a fringe benefit and taxed accordingly.
The trick is to use the FBT concessions wisely to reduce the potential liability – for instance, keeping a log book of business use.
Another common misunderstanding is around what qualifies as a business trip for the motor vehicle logbook. The following rules of thumb should help:
What is a work-related trip:
• Between home and work, but only when carrying equipment such as bulky tools
• Visiting clients, suppliers, different job sites or the office
What isn’t a work trip:
• Between home and work
• Undertaking minor tasks on the way to or from work
• Being ‘on call’
• Where some work is done before or after travelling to/from work
It’s also useful for businesses to be aware of the areas that the ATO is targeting.
The ATO is particularly interested in businesses paying living away from home allowances (LAFHA) to employees to ensure they are meeting the requirements of the legislation. They are also keeping a close eye on employers who have purchased cars and record them as assets of the business, but haven’t lodged a car fringe benefits returns.
With the growing use of technology and ability to match data, it is becoming increasingly easy for the ATO to uncover any discrepancy or mistake, and it is always better to flag problems with the Tax Office rather than wait for them to come knocking on your door.
Another interesting area where it’s possible we may see more action by the ATO in the future is to do with customer loyalty schemes, such as frequent flyer points or points accrued on credit cards.
At the moment, the ATO has indicated that accumulating points is not a fringe benefit, but one needs to consider whether the redemption of these points constitutes a benefit to employees.
It is not likely to be a fringe benefit where there is a commercial purpose; the transaction is not contrived, and it is not given as a substitute for income. But the law is slightly less clear when it comes to business owners, and it is possible that at some point in the future, the ATO may require business owners to declare the redemption of such rewards as part of their assessable income.
While there have been no instances of this to date, business owners should make sure their accountant is on top of such concerns, and can advise them appropriately if things change in the future.
Mariana von-Lucken is a tax partner at HLB Mann Judd Sydney.