Three ways to avoid FBT-regret
A building client rang me to ask if there was any issue if they took a developer out for a game of golf.
“Is the company paying for it?” I asked.
“OK,” I replied, “then FBT applies. How much will the round of golf cost?”
“Well, you&aposll be up for (pretty much) two grand in FBT.”
FBT is a nightmare for business owners, with lots of tricks and traps. It can often get a little murky, to the point where you may not know you’ve tipped over into FBT territory. If I take you (an employee or customer) out for coffee or a small bite to eat at a cafe at the company’s expense, then generally there is no FBT payable. But if it’s at a restaurant and I throw in a few beers, then the FBT genie is out of the bottle.
FBT can apply to a wide variety of activities - golf, footy tickets, a team-building lunch, and of course company cars to name a few. Many well-meaning business owners get caught out; they only want to show some appreciation to their employees, but wind up with an FBT headache they didn’t see coming.
And there’s no escaping FBT as most transactions are paid by traceable payments such as credit card, bank EFTs or BPAY.
The killer with FBT - it’s pretty much a 100% tax, especially on entertainment expenses and the like. (I won’t bore you with the calculation - just know that the total cost of the FBT event is pretty much what you can expect to pay in FBT.)
Example - company car
John is an employee at ACME. As part of his package, he gets a company car. John fills out a log book showing the breakdown of work v private use (he has listed 10% private use). The employer is required to pay FBT on the private use. The ATO selects ACME at random for an FBT audit. They review John’s Citylink, mobile phone and credit card statements. From his mobile phone location data and credit card usage, they deduce that John has been using the car for private use far more than the 10% allocated. The ATO therefore deems the log book invalid. Where no log book is valid, the employer is subject to the other treatment, which is 20% of car costs per annum. So, with John’s car costing $50k, the employer is liable for an FBT cost of $10k per year.
Importantly, as ACME don’t have an FBT tax return in place, the ATO can go back as many years as they want in order to recoup outstanding FBT tax. In the ACME example, they went back five years for a total of $50k (which equals the cost of the entire car!) Multiply that by the six company cars in ACME’s fleet, and they are in a world of FBT pain.
However, if ACME had simply lodged an FBT tax return, the ATO would have only been able to go back three years. This is why I look at an FBT tax return as an insurance policy that every business should have in place.
Three ways to manage FBT-regret:
- Ask your accountant before undertaking any expenditure that may push you into FBT territory
- Work with your accountant to lodge an FBT tax return every year - think of it as an insurance policy for your FBT activities
- Make sure John doesn’t fudge his log book - you as the employer can wind up paying a hefty price!