Fringe benefits tax

FBT and living-away-from-home allowances

From 1 October 2012, the living-away-from-home (LAFH) rules have been significantly overhauled. While the tax treatment remains in the FBT regime, there is an increased requirement to ensure LAFH payments are properly tracked, categorised and substantiated. The need for ongoing substantiation (and effort involved) cannot be underestimated. The main changes are as follows:

• LAFH benefits may only be considered for exemption where the employee maintains a home in Australia (subject to transitional rules and fly-in fly-out (FIFO) or drive-in drive-out (DIDO) arrangements).

• LAFH benefits may only be considered for exemption for the first 12 months of each work location (subject to transitional rules), unless the employee is on a FIFO or DIDO arrangement.

• LAFH benefits will generally only be FBT-exempt to the extent they are actually incurred by the employee and substantiated.

There are transitional rules up to 30 June 2014, which are as follows:

• Permanent residents who had a LAFH arrangement in place at 8 May 2012 can continue to access concessional treatment up to 30 June 2014, without the need to maintain a home in Australia.

• The transitional rules will only apply after 1 October 2012 to temporary or foreign residents who maintain a home in Australia.

• The transitional rules are subject to there being no material amendments to the employee contract.

Obtaining a declaration from each employee prior to lodging the FBT returns is a must. It is vital that the correct declaration is completed by each employee. Importantly, for many employers who stopped paying LAFH allowances to temporary residents as at 30 September, declarations up until that date are required. The ATO has issued four approved LAFH declaration formats, which are available from the ATO’s website at www.ato.gov.au/businesses/content.aspx?doc=/content/00335807.htm.

Car fringe benefits

The four rates used in the statutory formula method for determining the taxable value of car fringe benefits are being replaced with a single statutory rate of 20% for fringe benefits provided after 10 May 2011. Note that there is a three-year phase-in period.

Statutory rates for “new” contracts entered into after 7:30pm AEST on 10 May 2011 are being phased in as follows:

For those with pre-existing commitments (contracts entered into up to 10 May 2011) that are financially binding on one or more of the parties, the old statutory rates continue to apply. However, where there is a change to pre-existing commitments, the new rates will apply from the start of the following FBT year. Changes to pre-existing commitments include refinancing a car and altering the duration of an existing contract. Changing employers will cause the new rates to apply immediately for the new employer.

In-house property fringe benefits and salary packaging

The Government has proposed amendments to the Fringe Benefits Tax Assessment Act 1986 to remove the concessional FBT treatment for in-house fringe benefits accessed by way of salary-packaging arrangements. In particular, the proposed amendments would:

• remove the concessional taxable value calculation method for particular benefits;

• ensure that the concession associated with the valuation of particular in-house expense payment benefits, in-house property benefits or in-house residual benefits would no longer apply where the benefit is accessed by way of a salary-packaging arrangement. Instead, the taxable value of the benefit would be based on the "notional value" of the benefit. The "notional value" of an in-house property fringe benefit accessed through a salary-packaging arrangement would take its meaning from s 136(1) and mean the amount that the employee could reasonably be expected to have been required to pay to obtain the property from the provider under an arm's length transaction (ie, market or fair value);

• remove the exemption that applies for residual benefits that are provided for transport from home to work (for employers in the transport business) and accessed through a salary-packaging arrangement; and

• remove the annual $1,000 reduction of aggregate taxable value in respect of in-house fringe benefits where they are provided under a salary-packaging arrangement.

However, it is proposed that the amendments would not affect the concessions relating to in-house benefits provided by employers where those benefits are provided outside of a salary-packaging arrangement or are paid for out of after-tax income. The changes would generally apply to benefits provided on or after 22 October 2012 with transitional arrangements for existing salary-packaging arrangements. (See Tax Laws Amendment (2012 Measures No. 6) Bill 2012 – still before the Senate at the time of writing.)