COVID-19 has brought uncertainty and redefined many standard and customary work practices. One area where it has had a significant impact is fringe benefits tax (FBT) and benefits provided to employees. With the Christmas period fast approaching, many employers will be considering what benefits to provide their staff and clients.
For many employees, COVID-19 restrictions have changed the way they use their cars for work-related purposes. Consequently, Pitcher Partners recommends all employers review the car benefits they provide as follows:
- Is the current method of valuation (Statutory Formula Method or Operating Cost Method) still appropriate in the circumstances?
- If using the Operating Cost Method, is the logbook still representative of the employee’s usual pattern of use?
- Are vehicles treated as exempt still meeting the requirements for private use to be minor and infrequent?
In recognition of the impact COVID 19 may have had on the use of employer provided cars, the ATO has issued a factsheet.
Pertinent comments in this factsheet include:
- If a work provided car garaged at an employee’s residence has not been driven at all or only driven short distances for maintenance purposes during a lockdown period, no FBT liability arises for this period as long as the employer elects to use the operating cost method and odometer records demonstrate there was limited or no use.
- Vehicles eligible for FBT exemption, including utes and vehicles with a carrying capacity greater than one tonne, continue to be exempt as long as private use remains minor, infrequent, and irregular.
- If an employee’s pattern of use has changed during a period of COVID-19 restrictions, you can still rely on an existing valid logbook. However, you need to make a reasonable estimate of business use, taking into account the logbook, odometers records, and changes in the employee’s pattern of business use including use during a period of COVID-19 restrictions.
- Employees can keep a new logbook during the COVID-19 lockdown period as long as it is kept for at least twelve weeks and is representative of business usage throughout the FBT year.
Whilst the factsheet provides some clarification, particularly where a vehicle is not used during a period of lockdown, we believe the ATO needs to provide greater detail on when pre-existing logbooks can be relied upon and how a logbook kept during a period of COVID-19 restrictions can be considered to be representative of the whole years’ travel.
Importantly, even if an employee is severely limited in how they can use a vehicle during a period of COVID-19 restrictions, if the vehicle is parked at or near the employee’s residence and the Statutory Formula Method is used, a benefit will still arise. The only way a fringe benefit will not arise under the Statutory Formula Method is if the vehicle is garaged at premises under the employer’s control with the keys handed back to the employer such that the employee is not deemed to have custody and control of the vehicle.
We advise all employers to review the vehicles they provide to employees and how they could do so in the most tax effective way.
Car parking benefits
Employers providing car parking fringe benefits to employees should review the method they are using, particularly where employees have been working from home for extended periods due to COVID-19 restrictions.
A car parking fringe benefit is only provided on a given day if the employee has used their car to travel between home and work on that day and parked it in a space provided by the employer at or near the employee’s place of employment. Consequently, if a car garaged at an employee’s home is not driven to or from work on a given day, no benefit arises on that day. Similarly, if an employee’s car is parked in a space owned or leased by the employer for a number of continuous days and not driven home at all, no car parking benefits arise during that period.
Notwithstanding that no benefit is provided in the scenarios above if the Statutory Formula Method is used and at some time early in the FBT year the employee did use the car parking space, benefits may still be deemed to be provided during a lockdown period. Further, the Statutory Formula Method may not properly reflect flexible work arrangements whereby employees work from home far more often than under previous circumstances. The only way to ensure that no benefits are deemed to occur during a period when the employee is not driving to his or her workplace is to use the actual method. That is, count the actual number of days car parking benefits were provided over the entire FBT year. If records have not been kept, employees could still determine the days and periods that they travelled to their workplace based on work diaries or other personnel records (e.g. leave records, public holidays). If it is less than 228 days over the entire FBT year, it will result in a lower taxable value than using the Statutory Formula Method for the same period.
Employees may also receive other benefits due to COVID-19 such as paying for or providing them with equipment that enable them to work from home. Strictly, the law has not changed and the usual FBT considerations apply.
To address these issues in some details, the ATO has issued a factsheet entitled “COVID-19 and fringe benefits tax”:
The benefits and issues specifically addressed include:
- Benefits provided to employees working from home due to COVID-19;
- Emergency assistance including accommodation, food, and transport;
- Items provided to protect employees from contracting COVID-19 whilst at work;
- Emergency health care;
- COVID-19 testing costs; and
- The treatment of cancelled events.
Probably the most significant of the benefits addressed is the provision of benefits relating to employees setting up to enable them to work from home. Whilst certain portable electronic devices (e.g. laptops) may be exempt, other items provided may be subject to tax albeit the ‘otherwise deductible rule’ can apply in some circumstances.
The ATO’s position is based on the legislation and how it applies to COVID-19 specific scenarios. Unfortunately, it does not provide any additional concessions or exemptions other than those which have always been available. For example, the minor benefits exemption may apply to benefits with a value of less than $300 subject to other considerations.
Christmas gifts and functions
It is timely to turn our focus to the benefits that may be provided to both employees and clients. Indeed, due to the impacts of COVID 19 and continued restrictions, many businesses are considering providing different benefits compared to what they have traditionally provided. These could include gifts, gift cards, and vouchers rather than Christmas get togethers or more formal functions.
In considering different benefits that could be provided during the festive season, it is important to be aware of the treatment for FBT purposes, including:
- What benefits are taxable and in what circumstances.
- When the minor benefits exemption applies such that a benefit is not subject to FBT?
- What is the income tax treatment of such benefits, particularly when entertainment benefits are provided?
- Can GST input tax credits be claimed for the costs incurred?
Pitcher Partners has developed a comprehensive guide addressing most of the benefits that could be provided during the Christmas period and how they should be treated from an FBT and income tax perspective. A link to this guide is provided here.
If you require assistance or advice concerning the issues raised in this bulletin, contact your Pitcher Partners representative.