Fringe Benefits Tax – Year Ended 31 March 2024

FBT Exemption for Associated Car Expenses

Car expenses paid by an employer that are associated with an FBT-exempt electric car are also exempt from FBT. This includes costs such as registration, insurance, repairs and charging fees.

The ATO has confirmed the cost of electricity to charge an electric car, including at home or at a commercial charging station, qualifies as an FBT exempt car expense. Determining the specific costs of charging an electric vehicle at home can be challenging as the electricity expenses for charging the electric car are combined with household electricity costs.

The ATO has released Practical Compliance Guideline PCG 2024/2 which outlines the shortcut method to calculate the cost of electricity for charging an electric car at an employee’s home. This method can only be used for zero emissions electric vehicles and it cannot be used for plug-in hybrid vehicles.

Under the shortcut method, the ‘electric vehicle home charging rate’ is 4.20 cents per kilometre. This rate is applied by multiplying the total number of relevant kilometres travelled during the relevant FBT year.

To use the shortcut method, the employee will be required to maintain odometer records at the start of each FBT year. Under transitional rules, if odometer records have not been maintained as at the start of the 2023 or 2024 FBT years, a reasonable estimate may be used based on service records, logbooks or other available information.

If an employer chooses to use the shortcut method, all costs associated with charging the electric car provided at a commercial charging station are disregarded.

Reportable fringe benefits amount (RFBA) reporting requirements

An employer is required to include the grossed-up value of an FBT-exempt electric car and associated expenses in the employee’s income statement as a reportable fringe benefits amount (RFBA) where the total fringe benefit provided to an employee exceeds A$ 2,000.

For electric cars provided to employees, employers are required to calculate the notional taxable value of the FBT-exempt electric car on the assumption the relevant exemption did not apply. This is to report the amount in the employee’s income statement. This can be done using either:

• The statutory formula method, or
• The operating cost method

An employer who has used the shortcut method for calculating the electricity costs an employee has incurred in charging the car at their home can also use the same method to calculate the RFBA for the employee.

Update for car parking fringe benefits

A car parking benefit may arise when an employer provides an employee with a car parking space. The parking space provided to the employee is considered to be a car parking benefit where a commercial car parking station is situated within a one-kilometre radius and the lowest all-day rate at the facility exceeds $10.40.

The ATO has changed its view on the definition of a commercial car parking station effective from 1 April 2022. This has resulted in more employers being subject to FBT for the provision of car parking benefits.  

On 8 November 2023, the ATO updated section 16.1.7.1 of the FBT Guide for Employers to provide guidance on when a car parking facility is considered to be a commercial car parking station.

The ATO has clarified that a car park facility can be a commercial parking station even if it has a purpose other than providing all-day parking to the public. This includes ‘special purpose’ facilities (such as shopping centre carparks) that charge penalty rates to discourage all-day parking. These types of special purpose car parking facilities were previously not considered commercial car parking stations. They are now included in the definition of a commercial car parking station.

The ATO has also clarified that ‘dual purpose’ car parks, which have more than one purpose such as offering all-day public parking alongside reserved spaces for particular persons, can also be classified as commercial parking stations. Examples of dual purpose car parks that may now be considered commercial parking stations include hospital car parks that reserve most spaces for medical staff but have public parking, and park-and-ride facilities used by commuters and the public.

This change expands the definition of a commercial parking station, potentially creating more car parking fringe benefit situations for employers. All employers who provide car parking benefits to employees should review their arrangements to determine if any special purpose or dual-purpose car parks are located within a 1km radius of their parking facility.

FBT development on Employee travel

Generally, the ‘’otherwise deductible rule” will only apply to travel costs paid by an employer where the employee is travelling for work purposes (i.e. the travel is incidental and it is incurred as part of the income earning process). Lunney v FCT (1958) HCA 5 (‘Lunney’s case’) provides that where an employee is travelling to a regular place of work, the journey occurs outside of the employee’s income-producing activity and is considered private and non-deductible.

In the recent case of Bechtel Australia Pty Ltd v FCT [2023] FCA 676 (“Bechtel’s case”), the Federal Court provided insights into the application of the ‘otherwise deductible rule’ to the transport costs of fly-in fly-out (FIFO) employees. The dispute in Bechtel’s case was whether the FIFO employees in question were travelling on work or to work.

In Bechtel’s case, the company employed additional workers on a Fly-In Fly-Out (FIFO) basis for a project at Curtis Island, located near Gladstone in Central Queensland. Curtis Island is accessible only by sea or air, with a ferry service connecting it to the mainland.

The FIFO employees travelled from their homes to their nearest ‘home airport’ at their own expense. Bechtel paid the travel expenses from the ‘home airport’ to Gladstone Airport, and finally to Curtis Island via ferry so that the employee could reach Curtis Island on time for their rostered duty. Accommodation on Curtis Island was provided by Bechtel near the project site.

The ATO deemed the transport costs paid by Bechtel for the employees’ travel between the ‘home airport’ and Gladstone Airport as a residual fringe benefit. The ‘otherwise deductible rule,’ did not apply as the travels between the airports constituted travel to work rather than work-related travel (travel on work).

The Federal Court found in favour of the Commissioner and held that the ‘otherwise deductible rule’ did not apply to reduce the taxable value of the residual fringe benefits. This is because the travel was non-deductible travel to work rather than in the course of work as evidenced by the fact that the employees commenced their shift when they arrived at Curtis Island.

Bechtel’s case reinforces the principle that travel between home and work is generally not deductible unless it is part of the employee’s work activities (travel on work). In addition, the determination of whether a FIFO worker is rostered on during travel remains crucial, as seen in both John Holland’s and Bechtel’s cases and in TR 2021/1. In light of the Bechtel case, employers should review existing arrangements and consider the costs and FBT implications of employees commencing work from their home airport rather than when they arrive at a worksite.

Employee vs contractor update

The classification of workers as either employees or contractors holds significant implications for both the engaging entity and the individual providing services.

The Australian Tax Office (ATO) has finalised Taxation Ruling TR 2023/4, which outlines the criteria for identifying an employee or contractor for PAYG withholding purposes. The ruling emphasises an objective assessment of the totality of the relationship between the parties, based on the terms of the written agreement. This totality relationship test replaced the multifactorial test that was used previously.

As mentioned above, the totality of the relationship between a worker and an engaging entity is assessed based on the contractual relationship between the parties. The more control an engaging entity has, the more likely the worker is considered an employee as it indicates a subservient and dependent relationship with the engaging entity. Determining whether a worker is classified as an employee or contractor is crucial as any non-cash benefits provided to an employee may be subject to FBT. This means that the engaging entity could be liable for FBT on non-cash benefits provided to the worker where the worker is considered an employee.

Update on Self-Education expenses

On 21 February 2024, the ATO finalised Tax Ruling TR 2024/3, which sets out the principles for deducting self-education expenses under  s 8-1 of the ITAA 1997. The draft ruling replaces the ATO’s former ruling on self-education expenses, TR 98/9, which has been withdrawn.

In the new ruling, the ATO outlines three circumstances where self-education expenses are non-deductible for the taxpayer:

1. Expenses for self-education are non-deductible if they were related to securing employment, finding new employment, or starting a new income-generating activity. These expenses are considered to be preliminary expenditure.

2. Self-education expenses cannot be claimed as deductions if they are incurred when an individual is not engaged in income-producing activities to generate assessable income.

3. Section 26-20 of the Income Tax Assessment Act 1997 specifically disallows a deduction for self-education expenses such as HECS or HELP repayments.

An employer will not be able to reduce the taxable value of these benefits using the otherwise deductible rule on the basis that the employee would not be able to claim deductions for these expenses had they incurred the expenses rather than the employer.

FBT determinations for adequate alternative records

The ATO has released a number of legislative instruments outlining the alternative record keeping requirements available to employers in lieu of obtaining employee declarations. The instruments generally apply from the 2024/25 FBT year onwards. These alternative records must be written in English and contain the relevant information outlined in the applicable instrument.

The finalised FBT instruments relate to the following fringe benefits:

• Temporary accommodation relating to relocation
• Private use of vehicles other than cars
• Fly-in fly-out and drive-in drive-out arrangements
• Car travel to employment interviews or work-related activities
• Relocation transport reimbursed on a cents per kilometre basis
• “Otherwise deductible” benefits
• Overseas employment holiday transport
• Travel diaries
• Living-away-from-home benefits
• Remote area holiday transport

Generally, the alternative records must include details about the employee, the nature of the benefit provided, travel details (if applicable), and other specific information required by the relevant instrument. These alternative records aim to simplify record-keeping requirements for employers while ensuring compliance with fringe benefits tax obligations.

FBT tips and strategies

Exemptions for certain car parking benefits

A car parking benefit provided to an employee is exempt from FBT if the benefit qualifies for an exemption or if the employer is an exempt employer for these purposes. There are two main exemptions to consider:

1. The Small business car parking exemption (s 58GA) would apply if the following requirements are satisfied:

   • The car park is not located in a commercial parking station and generally on the premises of the employer.
   • The employer is not a government body, listed public company, or a subsidiary of a listed public company.
   • The employer is either a small business entity (turnover less than $50 million) or has a total income less than $10 million.

2. Minor benefits exemption (s 58P):

   • The benefit is less than $300 in value.
   • It is unreasonable to treat the benefit as a fringe benefit.

Additionally, car parking benefits provided by certain employers (such as registered charities, public educational institutions, and certain scientific institutions) are exempt from FBT under s 58G(2) and (3). It is essential for companies to carefully assess whether any exemptions may apply when providing car parking fringe benefits to employees. By understanding and applying these exemptions appropriately, companies can effectively manage their FBT obligations and liabilities while providing valuable benefits to their employees.

No requirement to lodge FBT Return

If an employer is registered for FBT and there is no requirement to lodge an FBT return for that year, it is recommended that the employer lodge a ‘nil’ FBT Return. This is because once the employer lodges an FBT Return (including a nil return), an assessment will be issued and this will generally give the ATO up to three years to amend the assessment. The period is extended to six years if there was tax avoidance without full disclosure, and is indefinite if fraud or evasion has occurred. Lodging a NIL FBT return triggers the statutory timeframe (generally three years) for any potential amendments or audits by the ATO. This will help employers mitigate risks associated with future audits or inquiries by the tax authorities.

FBT compliance measures

In the recent years, the ATO has focused their FBT compliance activities as follows:

FBT audit

The ATO has disclosed a significant gap in Fringe Benefits Tax (FBT) revenue collected, with only around 72% of the expected revenue being collected for the 2020/21 year. The ATO statistics reveal that the shortfall was approximately $1.275 billion. The ATO has responded to the findings by ramping up compliance efforts and increasing resources and staffing levels in an effort to identify non-compliant activities

In light of these developments, it is imperative for employers to ensure that their FBT documentation and declarations comply with the law and guidelines. The ATO’s heightened scrutiny, utilising advanced data analytics and third-party sources, emphasises the importance of accurate reporting and compliance with the FBT rules. Employers should proactively review their circumstances and be updated with the latest FBT rules and guidelines.

Substantiation rule for using ‘Otherwise Deductible Rule’

Generally, an employer does not have an FBT liability if the fringe benefits provided to an employee are “otherwise deductible”. The FBT rules provide that the taxable value of a fringe benefit is reduced to the extent that the employee could have claimed a tax deduction had they incurred the expense rather than the employer. In other words, if an expense is fully deductible to the employee, the taxable value of the equivalent benefit should be NIL.

If only a proportion of the expense would have been deductible for the employee (e.g. expenses incurred for partly private purposes), the taxable value of the fringe benefit is reduced by the proportion that would have been deductible.

The employer must also obtain a declaration from the employee that states the extent to which the expense is deductible. It is a requirement for the employer to retain documentary evidence such as the declaration for five years before discarding the evidence.

We have prepared some sample declarations that the employer can adopt for their employees. See toolkit.

Key takeaway

Providing non-salary benefits to employees can be a tax-effective way of rewarding and retaining employees. However, the FBT rules are often highly complex and should be considered first. Andersen Services Pty Ltd can help you to comply with the laws and manage your FBT liabilities.