How do you best submit Fringe Benefits Tax returns, use salary packaging, and change an office lease?
As the end of the FBT year approaches, we explore how you can best prepare to submit Fringe Benefits Tax returns. We also look at the value of Salary Packaging for employers and employees, and, in light of our own office move on March 27, we provide tips on how to ease the burden of shifting from one office lease to another.
Preparing for Fringe Benefits Tax before March 2017
It is time to start planning and thinking about the 2017 FBT return for your business. These benefits may include cars, meals, equipment, accommodation, and living away from home allowances. Unlike the financial year, the FBT years end on March 31.
First, be aware of key changes. The FBT rate has increased to 49% from 47% in the previous year because of an increase in the Medicare levy. There has also been a precise but potentially consequential change in what may be exempt from FBT. Previously, you could only exempt a singular electronic device. This meant that if your employees used multiple devices for work, such as tablets and phones, you could only exempt one device from FBT. Now, as of April 2016, small businesses can provide multiple portable electronic devices to employees and be exempt from FBT for these devices.
Second, don’t underestimate the importance of an external audit in the broader context of maintaining a healthy business structure. More specifically, double-check your procedures for FBT reporting. You not only need to record and control how your employees spend money for business purposes to make sure your business does not leak costs, but also so you pay the right amount of FBT on these expenses. All significant entertainment expenditure by employees should be approved. Log books and odometer records for work vehicles should be kept up to date. Phones, laptops, and other devices given to employees for work purposes should be documented and costed.
As part of any FBT planning process you should consider:
- Have I kept log book information about all company car use or leases by my employees? The operating cost method for calculating car fringe benefits which requires a maintaining log book can result in a lot less FBT than the statutory method, which is generally calculated from a flat rate of the cost of the vehicle.
- Can my employees provide car odometer readings before March 31?
- Do I have a plan for how employee meal and entertainment expenses will be taxed under FBT? The 50/50 split method may be an easy method for determining the FBT liability but may result in more tax, particularly if the proportion of client entertainment will increase during the year.
- Have I offered any tangible or intangible property benefits to my employees?
- Have my employees declared LAFHA (Live away from home benefits)?
The ATO has been keeping a close eye on companies paying LAFHA allowances and those purchasing cars and not disclosing this on their FBT returns. They can access vehicle registration records. Not knowing about recent changes or the requirements is not an excuse when faced with an ATO tax audit.
If you are feeling the pressure of handing in accurate FBT returns by March 31, there is no need to panic. Contact an accountant at Calibre. We can carefully and thoroughly help you get the right documentation in order to present the most accurate returns.
Work Out if Salary Packaging is Good for Your Business
Salary packaging or salary sacrificing looks appealing when you are an employee. You forgo a portion of your pay in return for a benefit, such as car or computer. Not only do you get something that you need for their work, it also reduces your out of pocket expenses. If the cost of a car, for example, is taken out of your remuneration before tax, you end up paying less tax. So your take home pay may in the end be fairly similar, your reduction in tax helps your cash flow, and you don’t have to pay for a car, or laptop, or any other benefit you may need for work.
But employers need to keep an eye out for the Fringe Benefit Tax costs when offering salary packages. For example, if you decide to give your employee a car for work purposes, and the cost of this car is deducted from the employee’s salary before tax, then you will have to pay FBT on this cost. Since the FBT rate is a considerable 49%, you need to carefully consider whether you will end up paying more than you expected.
To avoid any surprising tax costs when salary packaging, think about the following:
What benefits can my employees salary sacrifice?
There is a wide range. Common benefits include cars, superannuation (additional to the 9.5% standard that needs to be taken out by the employer), travel costs, phones, portable devices and laptops, and even bonuses. Always keep an eye out for fringe benefits that may be eligible for an exemption since these are often worth salary sacrificing.
Can I be exempt from paying FBT on salary packaging?
There are number of business types and that don’t need to pay FBT or will receive a rebate. These mainly include entities in the not for profit sector such as hospitals, churches, and charities. There is, however, potentially a limit on the number of employees you can exempt. Likewise, you should explore which benefits are exempt from FBT.
If I’m not exempt from FBT, how do I work out what I must pay?
You need to consider the TEC, or the Total Employment Cost of each employee. The TEC is the total cost of providing salary packaging to an employee, and includes wages, benefits, FBT, SGC, etc. With the TEC, you will have a clear idea if offering salary packaging exceeds the remuneration you are willing to pay for the employee. If it does, then you shouldn’t agree to such a package or you should make sure that the employee bears the cost through their after-tax salary.
Questions I should ask before I offer salary packaging to my employees
- Am I exempt from FBT? Are the benefits that I’m offering exempt? If so, then such benefits are usually good to be included in salary packaging.
- Are the benefits 100% for private use by the employee? These should not be salary sacrificed.
- Have I calculated my TEC for the proposed salary package?
- Is the benefit going to be used regularly for business purposes? Cars are a common example. Subject to Total Employment Cost analysis, such benefits are generally good to be salary sacrificed.
- Have I set procedures for the consistent and accurate documentation of the benefit and its use? To make sure you pay the right FBT, documentation such as vehicle log books and odometer records are very important. Salary sacrifice amounts which are determined by a particular method for calculating the FBT (such as the operating cost for cars) should ensure that documentation such as log books are kept.
Salary packaging can work well for both employers and employees. Contact your Calibre tax accountant to work out in detail whether it would suit you.
Move Out of a Rented Office with Less Stress
Moving out of a rented office can quickly become stressful. We know – Calibre moves into new offices on 27 March 2017. This exciting action, symbolic of your business moving forward, can bring you grief when you get bogged down in details. It can potentially disrupt your business, but there are ways to mitigate this.
Here are 5 tips on how to make the move financially smooth.
1. Plan the transition period with precision
It’s likely that you will start a new lease before the current one ends. This gives you a transition period wherein you can move your infrastructure and staff to the new place while still operating out of the old office. While this transition period simplifies the logistics of the move, it does incur costs. You will effectively be paying rent on two offices. This cost needs to be carefully managed and planned for in concord with the logistical value of having occupancy rights at both your current and future offices.
2. Get your head around ‘make good’ provisions.
Landlords often include provisions in contracts that ask tenants to return offices to the state they were in when the lease commenced. These make good provisions often expect you to pay money to return the premises to their original state.
To limit the impact of these provisions at the office you are vacating, review them with your legal team. To make sure you don’t get trapped by onerous make good provisions in your new lease, minimise what needs to be made good. Get quotes from your own suppliers if works are needed. Many landlords will encourage you to pay them a lump sum in the make good provisions to cover the costs. Since they often use this as a means of making margin, consider including in the lease the option of costing this work yourself.
It’s also vital to make sure your fit out suppliers complete their construction works properly and an occupancy certificate is granted. This helps avoids any future dispute about returning the offices to their original state.
3. Assess your depreciable assets
Working out the new make good provisions on your future lease can allow you to self-assess a lower effective life on depreciable assets required for a fit out. This could increase the depreciation rates and increase deductibility of fit outs required for the move.
4. Review what to rubbish and what to renew
What furniture and equipment will you keep and what will you throw out? These choices should be carefully recorded. This allows you to substantiate which assets can be written off and claimed as a tax deduction.
Often, your new lease will give you new opportunities to negotiate the supply of brand new furniture and equipment. Some of this supply will come in the form of leases of their own. It’s important to check that the length of these leases and the value of new negotiations meet the length of your new office lease and the overall costs of your assets. For example, you need to check when a building will be NBN/Fibre ready before signing an internet service provider contract.
In the end, you need to have some sort of plan regarding when you might end your new lease when measuring the affordability of old and new assets on the premises.
5. Evaluate any lease incentives
Landlords can offer financial incentives. For example, you may be offered rent abatements. Your rent might be reduced for an initial period before being raised to the normal rate. Lump sum incentives may also be offered. The landlord may present you with a lump sum as an incentive to move in, which can be ideal in assisting to cover the immediate costs of fit outs and renovations.
But you should consider the tax implications of all these incentives. Lump sums are assessable income which may result in additional income tax. It may be possible to structure them in a more tax effective manner. Rent abatements do not offer a surge of cash but spread out the tax impact over time.
All of the above suggestions help you to avoid financial headaches when moving office. Since the move can be stressful enough logistically, it may be wise to minimise the impact on your business by talking to your business advisor about how best to transition to your new lease and office.
Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.