5 FBT traps
The end of the financial year is looming and all over the country, nervous accountants are picking up the threads of their most-detested tax. Yes, it’s FBT season.
FBT is finicky, it only comes up once a year and there’s always potential for an irate colleague to dispute their reportable benefit amount. It’s even worse if you’re the Public Officer wielding a shaking hand to sign off (or click to authorise) that the return is “True and Correct”! So where do things most often go wrong?
1. Overuse of the minor benefit exemption
The company never pays for private expenses, right? All those gift vouchers are minor, right? And the mobiles are all exempt, right? Well maybe and maybe not. The minor benefit exemption can be extremely helpful, but it contains tests around frequency and regularity as well as the $300 threshold. Having sufficient records to track and assess, and document the positions taken, is essential.
2. Rolling forward the prior year without considering new benefits
It’s very easy to overlook ad hoc arrangements that can trigger benefits, non-exempt matters in the course of relocation, assistance provided ancillary to travel and other matters that aren’t automatically captured or appear work-related at first blush. It’s important to have a rigorous process to identify new benefits and changes in arrangements.
3. Misclassifying benefits
It’s easy to get the classification of a benefit slightly wrong, leading to the tax being completely wrong. A good example is a travelling allowance. The ATO publishes reasonable limits for food, accommodation and incidentals and these are widely used by employers. But what if the employee travels so often that the place they are travelling to is also regarded as a place of work? Or if they are required to be away for several months? The allowance might then be a living away from home allowance, with much lower thresholds applicable.
4. Missing declarations
Work-related expenses aren’t subject to FBT, but this relies on the right declaration being held. Some declarations can be made by the employer, some declarations can be carried forward for up to 5 years and this year for the first time, some declarations can be replaced altogether with other documents. But you still need to know the information that has to be covered by a declaration and have a compliant version.
5. Poor data
This is the hardest one to deal with at FBT time. If accounts aren’t set up right to capture information at the point of entry, and employee details aren’t tracked, recreating this information takes a lot of work. Data analytics can help penetrate data and sometimes assumptions can be made, but the best approach is to think ahead and establish better data capture upfront. If grappling with poor data right now, take a conservative approach and focus on delving deeper into the largest value items, which are often one-off events like Christmas parties and overseas conferences.
Awareness of these traps can help overcome FBT anxiety and risk and reassure the Public Officer that things really are in order. Good luck making it through this FBT season and many more!