Latest / My Accounting Advantage / The Tax Risk In Your Driveway

Transcript

The Tax Risk In Your Driveway · My Accounting Advantage

• 0:07
  SPEAKER_01: Hello and welcome back to the podcast My Accounting Advantage.
• 0:11
  SPEAKER_01: My name's Lee Woodward, and joining me today will be Mai Harris as we take on a very interesting topic, and that is the tax risk sitting in your driveway.
• 0:22
  SPEAKER_01: Mai, welcome back to the program.
• 0:24
  SPEAKER_00: Thank you, Lee.
• 0:24
  SPEAKER_00: Nice to be back.
• 0:25
  SPEAKER_01: Now we're going to be speaking about FBT today.
• 0:29
  SPEAKER_01: Yes.
• 0:29
  SPEAKER_01: And for all those people who have no idea what that is, although they've heard it in the past, what is French benefit tax?
• 0:37
  SPEAKER_00: Well, fringe benefits tax is actually a non-cash benefit to employee and they're taxing you on that.
• 0:46
  SPEAKER_00: If you are providing non-cash benefits to your employees, for example, a company car or some sort of entertainment, or it's like gift cards or anything like that that is going to be caught under a fringe benefits tax.
• 1:03
  SPEAKER_01: So it's not just about cars.
• 1:06
  SPEAKER_00: No, absolutely not.
• 1:07
  SPEAKER_00: It's anything that is non-cash benefits that you're providing to your employee.
• 1:12
  SPEAKER_00: And there's so many rules and regulations that you have to follow.
• 1:17
  SPEAKER_01: So what does it apply to?
• 1:19
  SPEAKER_01: We've got company vehicles, fuel cards, private health insurance, school fees, interesting one.
• 1:24
  SPEAKER_00: Mm-hmm.
• 1:25
  SPEAKER_01: Entertainment and interest-free loans.
• 1:28
  SPEAKER_00: Yeah.
• 1:28
  SPEAKER_00: So a lot of companies, you know, where they want to entice employees to join them.
• 1:34
  SPEAKER_00: And in the past, that used to be the tactic to get, for example, sports person, you know, to join your team.
• 1:43
  SPEAKER_00: And they provide you with fringe benefits like gym membership fees and also free clothing, free travels, etc.
• 1:55
  SPEAKER_00: And a lot of business owners still doing that with company cars.
• 2:01
  SPEAKER_00: And as well as often they say, look, we'll pay the school fees for you, but that's actually fringe benefits that you are providing to the employee.
• 2:13
  SPEAKER_00: Instead of remunerate them as wages, you provide them them, you're providing them with non-cash benefits.
• 2:21
  SPEAKER_01: Why does FBT exist?
• 2:24
  SPEAKER_00: Well, FBT exists to ensure employees receiving benefits are taxed similarly to employees receiving wages.
• 2:34
  SPEAKER_00: So what the tax office is trying to achieve, if they're saying, look, you aren't getting benefits that is would be a certain amount of value if you were to pay for it before you pay tax.
• 2:48
  SPEAKER_00: So instead, you're getting that benefit instead of wages that you would have used your own money after tax to pay for it.
• 2:59
  SPEAKER_00: So we're going to penalize the employer for providing you with that benefit because they're seeing it as being tax avoidance.
• 3:10
  SPEAKER_01: Give us an example.
• 3:12
  SPEAKER_00: The example is basically if um an employee uh typically getting paid$100,000 in wage, but another company would come along and say, look, you know, I can provide you with an$80,000 salary package, but within that package, there's a company car.
• 3:35
  SPEAKER_00: And I'll also give you a field card.
• 3:38
  SPEAKER_00: And I will also pay for your private health insurance.
• 3:42
  SPEAKER_00: Would you rather that?
• 3:44
  SPEAKER_00: And a lot of the time, people can see the value in that benefit because they don't have to pay the tax beforehand, you know, the tax on wages.
• 3:55
  SPEAKER_00: They're getting those benefits that they would have been, you know, paying for it with the after-tax money straight away.
• 4:04
  SPEAKER_00: So that's why the the fringe benefit tax exists, so that it makes sure that the employer are not providing those benefits and avoiding paying the um tax on wages.
• 4:21
  SPEAKER_01: I can see why this is so important on both sides of the equation.
• 4:26
  SPEAKER_01: For an employer, it's called stickability.
• 4:29
  SPEAKER_01: Someone's not just gonna walk out, leave, but I've got so many benefits here, I've got a car, I've got this.
• 4:34
  SPEAKER_01: And it like everyone's leaving your business.
• 4:37
  SPEAKER_01: Good management and leadership just prolongs the process.
• 4:40
  SPEAKER_01: Yeah.
• 4:41
  SPEAKER_01: And something like this, I know many people go, but I just couldn't leave that.
• 4:45
  SPEAKER_01: I've got too many benefits.
• 4:46
  SPEAKER_01: Yeah.
• 4:47
  SPEAKER_01: And they're there for 20 years.
• 4:49
  SPEAKER_01: So I can see why the employers, I had another company that used to put all the family mobile numbers into a pool scheme and everyone got a better deal, but when you wanted to unplug from the company, there was a lot of things you would have had to do.
• 5:03
  SPEAKER_01: When does FBT apply?
• 5:05
  SPEAKER_00: FBT apply is when the company owned the car and then provided that car to the employees to actually use for private use as well as for business use, or they pay for private expenses for you, or they've supply entertainment.
• 5:27
  SPEAKER_01: Define entertainment.
• 5:29
  SPEAKER_00: Yeah.
• 5:30
  SPEAKER_00: Well, Christmas is coming up.
• 5:32
  SPEAKER_00: So um Christmas party falls into the entertainment category.
• 5:37
  SPEAKER_00: Also, team activities.
• 5:40
  SPEAKER_00: So if it involves alcohol, especially, that is classified as entertainment.
• 5:47
  SPEAKER_00: And if it's for just pure enjoyment, you know, like shows that you take your employees to go and see, like musical concert, you've paid for it, that falls into entertainment.
• 6:04
  SPEAKER_01: Is a company allowed to have entertainment in their PL?
• 6:08
  SPEAKER_00: They are, but it's not tax deductible.
• 6:11
  SPEAKER_00: A higher level, which is greater than$300 per employee and their associates, it is subject to FBT.
• 6:21
  SPEAKER_00: So you are allowed to provide entertainment.
• 6:24
  SPEAKER_00: However, it's up to$300 per person for that privilege.
• 6:30
  SPEAKER_00: And if you pay more than$300 per person, you are subject to FBT because it's not qualified under the minor and infrequent rules.
• 6:43
  SPEAKER_01: Now associates matter too, and they provide benefits to their spouse, their partner, their children.
• 6:49
  SPEAKER_01: There's many children driving a company car out there in the world.
• 6:53
  SPEAKER_01: Um some do.
• 6:54
  SPEAKER_01: Yeah, and this can still be an FBT obligation.
• 6:57
  SPEAKER_00: Yes, absolutely.
• 6:58
  SPEAKER_01: Who pays FPT?
• 7:00
  SPEAKER_00: So FBT is a tax that is payable by the employer and not the employee.
• 7:06
  SPEAKER_00: So we need to be clear about that.
• 7:08
  SPEAKER_00: And hence why a lot of the time when you do an ovated lease for the car that you take out under your employment, you have to pay F FBT contribution.
• 7:21
  SPEAKER_00: So just to reimburse your employer for the tax on that benefit that you are receiving.
• 7:29
  SPEAKER_01: Why is it so expensive?
• 7:30
  SPEAKER_00: It's expensive because it's a fixed amount and it disregards, you know, how much you actually earn.
• 7:40
  SPEAKER_00: For the person who earns$300,000 a year or for the person who earned$60,000 a year, it's actually FBT will be taxed the same way.
• 7:51
  SPEAKER_00: Why is that?
• 7:52
  SPEAKER_00: Is because they're seeing it as, you know, it's too difficult to try to apply the tax rates, FBT rate, to different levels of income.
• 8:05
  SPEAKER_00: So they're making it straightforward that if you receive X amount of dollar in fringe benefits tax, we're going to gross it up.
• 8:14
  SPEAKER_00: And there's two types of gross up value.
• 8:17
  SPEAKER_00: Number one is if the benefits is subject to GST, it's grossed up a lot higher than the benefits that is without GST.
• 8:30
  SPEAKER_00: The reason being they actually accounted for the company or the business is getting benefits from the GST refund.
• 8:39
  SPEAKER_00: So they're going to gross it up double what it is for the benefits that is not subject to GST.
• 8:47
  SPEAKER_00: And then they up once they gross up the value of the French benefits, then they apply 47% tax.
• 8:55
  SPEAKER_00: So yes.
• 8:56
  SPEAKER_01: Give us some examples.
• 8:58
  SPEAKER_00: With the example that I have here, is if the employee receives a$10,000 benefit, the ATO effectively is saying if the employee had to buy that benefit personally, they would need more than$10,000 of salary because income tax would also need to be paid on that.
• 9:19
  SPEAKER_00: So therefore, the benefit is grossed up before applying FBT.
• 9:23
  SPEAKER_00: So they are trying to reverse engineer and anticipating that.
• 9:40
  SPEAKER_00: So they they're working backwards to work out the pre-tax value of that benefits.
• 9:49
  SPEAKER_01: So on 10,000 at 47%, roughly someone's going to be paying$4,888 in tax.
• 9:57
  SPEAKER_00: Yeah, absolutely.
• 9:58
  SPEAKER_00: But then that's the um, you know, general tax on basically high-income earners.
• 10:06
  SPEAKER_00: So what they're saying is we're just going to slog you with 47% tax, which means that it goes on top of the benefit that you receive, which is assumingly to be an after-tax benefit.
• 10:20
  SPEAKER_00: So we're grossing it up so that we make sure that you are taxed correctly.
• 10:27
  SPEAKER_01: So FBT exists to put benefits and salary on a level playing field.
• 10:32
  SPEAKER_00: Yeah.
• 10:33
  SPEAKER_01: Is FBT tax deductible?
• 10:35
  SPEAKER_00: FBT is tax deductible to an employer.
• 10:38
  SPEAKER_00: And once you pay the tax on those benefits, all the expenses are also tax deductible.
• 10:47
  SPEAKER_01: And my these are all separate tax systems.
• 10:50
  SPEAKER_00: Yes, absolutely.
• 10:51
  SPEAKER_00: So a lot of people don't realize that FBT is the tax system in itself.
• 10:56
  SPEAKER_00: It's not spoken about like, you know, the GST or the income tax or payroll tax.
• 11:03
  SPEAKER_00: It's actually so important that it has its own financial year.
• 11:09
  SPEAKER_00: The financial year starts from 1st of April and it ends on the 30th of March on the following year.
• 11:18
  SPEAKER_00: So yes, it has a total different financial year to our income tax year.
• 11:25
  SPEAKER_01: Why why is that?
• 11:26
  SPEAKER_01: Is it to separate the work required or I believe that is the case.
• 11:30
  SPEAKER_00: So um they're expecting that you captured the expenses that you paid on um on the employer's behalf and the non-cash benefits that you provided.
• 11:44
  SPEAKER_00: They wanted you to capture those details and report that before the financial year end, because it can be quite a lot of work in itself to do that.
• 11:56
  SPEAKER_00: So I believe that that's why they give it a different financial year.
• 12:01
  SPEAKER_00: Typically, when the FBT year ends, it will have um FBT tax return will have to be lodged by the 25th of June.
• 12:12
  SPEAKER_01: So exemptions, every business owner should know.
• 12:16
  SPEAKER_01: The exempt vehicle categories, which is where we started this particular podcast, take us into that.
• 12:22
  SPEAKER_00: So there are exempt vehicles that you can look at purchasing, and it'll be exempt for FBT.
• 12:30
  SPEAKER_00: So you wouldn't have to pay tax FBT tax on this.
• 12:34
  SPEAKER_00: These are EVs.
• 12:36
  SPEAKER_00: So that has been a very popular choice for median businesses.
• 12:43
  SPEAKER_00: Panel vans, Utes, trucks, delivery vehicles, and certain commercial vehicles that's not principally designed to carry passengers.
• 12:53
  SPEAKER_00: So it's like, you know, your moving studio.
• 12:57
  SPEAKER_01: What what's the podcast bus.
• 12:59
  SPEAKER_00: The bus.
• 12:59
  SPEAKER_00: Yes, the podcast bus.
• 13:01
  SPEAKER_00: That's right.
• 13:02
  SPEAKER_00: That's absolutely exempt for FBT.
• 13:06
  SPEAKER_01: I'm feeling good about that.
• 13:08
  SPEAKER_01: So minor benefits exemption.
• 13:11
  SPEAKER_01: What should we be careful of here?
• 13:13
  SPEAKER_00: Yeah, so minor benefits exemption is potential exemption where the benefits that you're providing to your employee per person is valuing under$300.
• 13:26
  SPEAKER_00: And then you're also providing it infrequently and irregularly.
• 13:30
  SPEAKER_00: So which means that it's minor and infrequent, that's what we call it.
• 13:35
  SPEAKER_00: So it's not something that you do all the time, but it doesn't cost any more than$300 per person.
• 13:43
  SPEAKER_00: So what that means, it can be entertainment value, like it can be footy tickets or like um tickets to an event.
• 13:53
  SPEAKER_00: It has entertainment value, but it's value less than$300.
• 13:58
  SPEAKER_00: Well, then it's okay.
• 14:00
  SPEAKER_00: You won't be subject to FBT, but we still need to categorize those expenses t into um entertainment, which means that it will land on the profit and loss for your business.
• 14:12
  SPEAKER_00: Unfortunately, it won't be tax deductible though.
• 14:16
  SPEAKER_01: What about damn Murphy card gifts for customers?
• 14:21
  SPEAKER_00: Yeah.
• 14:22
  SPEAKER_00: So with those, it can be it depends, you know, on um how you uh utilize those cards.
• 14:31
  SPEAKER_00: If it's to directly promote your business, well, yes, it's not uh fringe benefits and especially it's not for employee.
• 14:40
  SPEAKER_00: So fringe benefits is primarily the tax that is when you providing non-cash benefits to the employees and not it doesn't, you know, get into the involvement of providing benefits to your to your customers.
• 14:58
  SPEAKER_01: Just back on these EVs and the exempt vehicles, what gets the green light?
• 15:04
  SPEAKER_00: With um the EVs, there are as you are aware, there's different types of EVs.
• 15:10
  SPEAKER_00: So not all EVs are actually exempt for FBT purposes.
• 15:15
  SPEAKER_00: So it cannot be hybrid.
• 15:17
  SPEAKER_00: Yep.
• 15:17
  SPEAKER_00: So it needs to be 100% EV, which satisfy the EV exemption rules.
• 15:24
  SPEAKER_00: What are what are these rules?
• 15:27
  SPEAKER_00: They battery electric vehicles, hydrogen fuel cell vehicles.
• 15:32
  SPEAKER_00: So they need to be plugged in.
• 15:34
  SPEAKER_00: So they can't be hybrid like um Toyota hybrid.
• 15:39
  SPEAKER_00: The benefits here is there's no logbook required for FBT purposes.
• 15:44
  SPEAKER_00: Yeah, that that is a really good one.
• 15:47
  SPEAKER_00: And the business can generally claim depreciation, registration, insurance, servicing, electric charging costs, and interest.
• 15:56
  SPEAKER_00: So it's really is a good tax strategies for business owners who are looking at purchasing vehicles for their employees.
• 16:07
  SPEAKER_01: Now you mentioned this before about panel vans, single cab ute, cab chassis vehicles, trucks, delivery trucks, and tipper trucks.
• 16:16
  SPEAKER_01: They all make it.
• 16:17
  SPEAKER_00: Yes, they all make the list.
• 16:19
  SPEAKER_00: And um, especially those vehicles that, you know, the tradees are required to carry tools of trade in them.
• 16:28
  SPEAKER_00: And um, with the dual cabs, though, you've got to be really careful because they are dis designed to carry more than two passengers.
• 16:38
  SPEAKER_00: There are special requirements for jewel cabs, so you need to review the payload capacity, vehicle design, and actual use.
• 16:47
  SPEAKER_00: So if you are unsure about whether or not the jewel cabs or certain vehicles like sedan, wagons, SUVs, and family type vehicles, whether or not it will be exempt for FBT.
• 17:03
  SPEAKER_00: And the rule of thumb is to keep a logbook so that you can provide that to your accountant and they can review the business usage percentage for you and then calculate the correct FBT that you have to pay correctly.
• 17:22
  SPEAKER_00: Just so I want to be clear the fringe benefits tax is only payable on the private use amount.
• 17:30
  SPEAKER_00: So the more that you use the vehicle for business use, for example, you use the SUV for the business 80% at the time for business use, you're only paying tax, the um fringe benefits tax on 20%, which is the private use.
• 17:50
  SPEAKER_00: So keeping logbook really helps.
• 17:53
  SPEAKER_00: So what's the red lights?
• 17:55
  SPEAKER_00: The red lights is when you actually just go out there, purchase the vehicle before even asking, you know, or just checking with your accountant, and you gone ahead and purchased a, for example, a sedan, and you don't keep a logbook.
• 18:17
  SPEAKER_00: So the tax office will actually be knocking on your door and go, hey, you've bought a a new car, and we can see that um, you know, in from your registry.
• 18:28
  SPEAKER_00: How much usage is it that's relevant to your your business use?
• 18:33
  SPEAKER_01: So, my why businesses should consider the annual FBT reviews would be why.
• 18:41
  SPEAKER_00: Well, at the moment, you know, there's a massive emphasise um and focus from the ATO to raise more tax.
• 18:51
  SPEAKER_00: Surprise, surprise.
• 18:52
  SPEAKER_01: Wow.
• 18:53
  SPEAKER_00: Yeah.
• 18:54
  SPEAKER_00: And um in the past, if you don't required to lodge your FBT return, which a lot of the case is because you make contributions towards the fringe benefits tax, which result in the nil FBT payable for the company, you're generally not required to lodge.
• 19:18
  SPEAKER_00: However, now the ATO is implementing data matching and also deploying AIs to go and check or the government database, such as Service for New South Wales.
• 19:34
  SPEAKER_00: And now, more than ever, where are we finding the ATO is drilling down to is whether or not your business owns vehicles.
• 19:45
  SPEAKER_00: So they go and do data matching and then AI telling them that, oh, um, this business has five vehicles registered under their name.
• 19:54
  SPEAKER_00: And then the AI will actually go and try and match the records whether um with the ATO records and compare and um to see whether or not there are FBT returns being lodged for this business.
• 20:11
  SPEAKER_00: And if there isn't, they do send you a letter, a warning letter to say, look, you need to really review your FBT obligations and you need to consider lodging FBT return.
• 20:24
  SPEAKER_01: And with AI, we know they're gonna do that in such a fuss rate that there's gonna be a lot of letters coming out.
• 20:32
  SPEAKER_00: Yes.
• 20:32
  SPEAKER_00: Oh, there has been a lot of letters coming out.
• 20:35
  SPEAKER_01: So why consider lodging a nil FBT return?
• 20:39
  SPEAKER_00: Okay, so in the past, like I said, it's not compulsory if you have no FBT um obligation.
• 20:47
  SPEAKER_00: However, now these days, if you actually lodge a nil return, that will give you a limit on the ATO review period.
• 20:58
  SPEAKER_00: What it means is that if you do lodge a return, the FBT return, that will limit the ATO FBT review period to three years.
• 21:09
  SPEAKER_00: However, if you actually don't go ahead and lodge any returns at all, they can potentially audit you at any time.
• 21:20
  SPEAKER_00: And there's no time limit on that.
• 21:23
  SPEAKER_00: They can go back as far as they want to.
• 21:26
  SPEAKER_01: So, Maya, what are the five biggest lessons we can learn from this?
• 21:31
  SPEAKER_00: The lesson number one is FBT is the tax on benefits and not just for vehicles.
• 21:38
  SPEAKER_00: So it is crucial for businesses out there to keep track on the non-cash benefits that you provided to your employees and make sure that you have substantiation for it and alert your advisors, your accountants that there are entertainment payments or you know, you've pay for their private expenses on their behalf because otherwise you'll really not going to report the correct amount because you don't have um the right records in in your books.
• 22:17
  SPEAKER_00: And lesson number two is that the employer pays the tax and not employee.
• 22:24
  SPEAKER_00: So if you think that oh, it's up to the employee to pay um the FBT tax, no, it's actually you who's providing a non-cash benefit to them.
• 22:35
  SPEAKER_00: So you're going to be stuck with it.
• 22:37
  SPEAKER_00: And um, you need to lodge it on um the due date as well.
• 22:42
  SPEAKER_00: And lesson number three, not all youths are exempt.
• 22:46
  SPEAKER_00: So I urge everyone to do a review on their youths.
• 22:51
  SPEAKER_00: Make sure that your youths are qualified under the exempt category.
• 22:57
  SPEAKER_00: Lesson number four: every vehicle purchase should trigger an FBT discussion before signing the contract.
• 23:04
  SPEAKER_00: So please give your accountant a call before you sign on the dotted line and also talk to them about GST because often I see people just got excited about the new car, purchased the vehicle under the wrong name and or the wrong entity that um the entity is not even registered for GST, and the dealership refuses to update the records, so you miss out on that GST refund as well.
• 23:35
  SPEAKER_00: So it's so important to talk to your accountant before you purchase um new equipment, new vehicles, any big things.
• 23:45
  SPEAKER_00: You should really just give um your accountant a quick phone call and double check.
• 23:51
  SPEAKER_00: Lesson number five a new FBT can sometimes be just as important as a taxable FBT return.
• 23:59
  SPEAKER_00: So just ask your accountant to lodge it.
• 24:03
  SPEAKER_00: I know it's an extra bit of expense, but I believe it's worth the investment.
• 24:09
  SPEAKER_01: My another great episode and many things brought to our attention.
• 24:14
  SPEAKER_01: Uh especially myself, we're about to upgrade cars, and today was the day I've just found out all that.
• 24:19
  SPEAKER_01: How would you like to conclude our episode?
• 24:22
  SPEAKER_00: Yes, I would like to end the episode with if you have a vehicle registered in your business name, now is the time to ask the question.
• 24:32
  SPEAKER_00: Have we reviewed our FBT position?
• 24:35
  SPEAKER_00: Even when no FBT is payable, maintaining evidence such as logbook, vehicle policies, or employee declaration, and considering the lodgement of a new FBT may help protect your business in the future.
• 24:50
  SPEAKER_00: So if you are unsure, speak with your accountant before the ATO speaks with you.
• 24:56
  SPEAKER_01: That's another edition of My Accounting Advantage.
• 25:00
  SPEAKER_01: My, I look forward to seeing you next week.
• 25:02
  SPEAKER_00: Thanks, Lee.