It is common for schools to provide fringe benefits to attract and retain teachers or other staff. These fringe benefits are generally provided as part of a salary packaging arrangement and factored into the recipient employee's remuneration. However, many schools are not fully aware of the fringe benefits tax (FBT) risks that the provision of these fringe benefits introduce. We outline some of the risks that you should be aware of as follows:
Regardless of whether or not all costs associated with providing fringe benefits are factored into an employee's remuneration, it is important that professional advice is obtained to ensure that the FBT consequences of each fringe benefit are determined. This advice should preferably be in writing to enable it to be clearly understood.
Make sure your advice is up to date
Ongoing advice should also be obtained to ensure that you are aware of changes in FBT legislation. In the past couple of years, significant changes have been introduced in relation to the taxation of in-house fringe benefits (such as discounted school fees) and living away from home allowances. These changes need to be understood so that salary sacrifice arrangements can be amended if necessary, and unintended consequences can be avoided.
Know when you are providing a fringe benefit
Employers are sometimes unaware that they are providing a fringe benefit until it is too late. The car that an employee is able to take home is probably a fringe benefit, even if it is never used privately apart from travel between home and work. That same car can still be a fringe benefit when it is left at the airport car park while the employee is travelling, even though they don't actually use it.
Structure fringe benefits correctly
Make sure that you are paying a fringe benefit if this is what is intended. Some schools mistakenly believe that they are providing a fringe benefit when they could be deemed to be paying an allowance.
Calculate the taxable value correctly
Different valuation rules and concessions apply to different types of fringe benefits. For example, a car provided under a novated lease arrangement is a concessionally valued fringe benefit, whereas simply paying for the expenses of a car that an employee owns is a not. It is critical that these rules and concessions are understood to ensure that the taxable values of fringe rules benefits provided are calculated accurately.
Don't confuse the rules
Just because FBT rules apply in a certain way for one employer doesn't mean that they will operate in the same way for another employer. For example, entertainment expenditure is more likely to be subject to FBT when provided by a school than a private enterprises employer.
Ensure that capping thresholds aren't exceeded
Schools need to make sure that the capping threshold (currently $31,177 for most NFP employers) per employee is not exceeded. If it is, FBT at 49% applies to the excess. Remember that the capping threshold is the "grossed-up" taxable of fringe benefits, and this is different to the actual cost fringe benefit that is being provided.
The start of the next FBT year is often a reminder to employers to review their current salary packaging arrangements and FBT position. Although salary packaging is a complex area, many legitimate and tax-effective arrangements still remain and are available to be utilised.
You should not hesitate to contact Murray Nicholls if you would like to discuss any issues in relation to FBT or your salary packaging arrangements.