Understanding Fringe Benefits Tax: Avoiding Common Pitfalls

As the Fringe Benefits Tax (FBT) year wraps up on March 31st, it’s crucial for small business owners to stay informed about potential areas of scrutiny from the Australian Taxation Office (ATO). Let’s delve into some of the key FBT considerations that could impact your business.

Electric Vehicles: A Spark of Change

The government’s recent concession on electric vehicles (EVs) offers an enticing FBT exemption for employers. If you’re considering adding an electric car, hydrogen fuel cell electric car, or plug-in hybrid electric car to your fleet, remember:

  • The car’s value must be below the luxury car tax (LCT) threshold for fuel-efficient vehicles ($89,332 for the 2023-24 financial year).
  • The car must be first held and used on or after July 1, 2022.

However, from March 31, 2025, plug-in hybrids will lose this exemption unless certain conditions are met beforehand.

The Exemption Limitations

It’s essential to understand who qualifies for this exemption:

  • It applies only to vehicles provided to employees, including those under a salary sacrifice agreement.
  • Sole traders and partners in a partnership, not being employees, can’t access this exemption personally.

Additionally, home charging stations and certain other benefits fall outside this exemption, creating potential FBT liabilities.

Home Charging Stations and Other Considerations

While the FBT exemption covers various associated benefits, it notably excludes home charging stations. If your business provides one, this is considered a separate fringe benefit.

Even when exempt from FBT, the value of provided EVs must still be reported on the employee’s income statement as part of their reportable fringe benefits, affecting various tax and social security considerations.

The Cost of Electricity

Determining the cost of electricity for FBT purposes can be complex. The ATO offers a shortcut method, applying a rate of 4.20 cents per kilometre. Otherwise, you’ll need a reliable method to calculate the specific electricity usage for the car.

Lease and Purchase Arrangements

The FBT exemption doesn’t apply to EVs that employees purchase or lease directly, even if reimbursed by the employer. However, carefully structured novated lease arrangements might still qualify.

Vehicle Classification

Only vehicles classified as cars are eligible for the exemption. This means electric bikes, scooters, and certain other vehicles don’t qualify.

Other FBT Concerns for Small Businesses

  • FBT Registration: If you provide any benefits to employees, ensuring your business is registered for FBT is vital to avoid ATO scrutiny.
  • Employee Travel: The distinction between work-related travel (exempt from FBT) and home-to-work travel (subject to FBT) is critical. Recent court decisions underscore the importance of understanding these nuances.

Final Thoughts

FBT can be a minefield of complexities, especially with evolving regulations around modern benefits like electric vehicles. Staying informed and seeking professional advice can help you navigate these waters safely, ensuring compliance while maximizing the benefits to your business and employees.

For personalized guidance tailored to your business needs, don’t hesitate to reach out to financial experts who can help you make the most of these opportunities and avoid potential pitfalls.