It is important for Australian employers to be aware of their Fringe Benefits Tax (FBT) obligations when employees are provided with benefits to assist them when they are working from home during the covid-19 pandemic.
As an employer you might have given or loaned specific eligible work related items to your employee in order to make it possible for them to work from home during the covid-19 pandemic or reimbursed them for expenditure they incurred on these items.
It is important to note that an eligible work-related item will be listed as exempt from FBT if it is firstly of all primarily used in the employee’s employment and secondly it is not a duplicate of something with a substantially identical function that has already been provided to the employee in the FBT year (unless it is a replacement).
Eligible work-related items which can be excluded from FBT include; a portable electronic device, computer software, protective clothing, a brief case and other tools of trade.
Examples of portable electronic devices include item such as; laptops, smart phones, tablets and calculators. Under these rules, a desktop computer is not be considered a portable electronic device.
Small business might be eligible for an exemption to provide multiple portable electronic devices to an employee, even if the items have significantly identical functions.
From 1st April 2021, the turnover threshold for businesses to be eligible for this exemption will increase from $10 million to $50 million.
The definition of “tools of trade” refers to items which are handheld for use in mechanical operations or they require manual operation to produce a desired result. These tools are of a specialist nature for use by an operator in a specific operation. An example of a tool would be when an individual who is employed as a carpenter is given a hammer, a chisel or a screwdriver by their employer to carry out their work duties. The definition of “tools of trade” doesn’t cover desktop computers, computer peripherals or any other general office equipment.
Examples of “general office equipment” include; desks, cabinets, stationary, chairs, computer monitors and peripherals and other items generally available for use in an office setting.
The way FBT applies to general office equipment will depend on how an employer provides the benefit to their employee.
The benefit ascending from lending general office equipment to your employee during temporary working from home arrangements due to COVID-19 may be exempt from FBT.
For continuing working from home arrangements, the benefit may also be exempt in some circumstances, and where it is not exempt, the taxable value may be reduced by the ODR.
During phases of temporary working from home arrangements due to COVID-19, the provision of office equipment will be exempt from FBT if it is: property that is ordinarily located on your business premises and if it is principally or wholly used directly in connection with your business operations.
Office equipment is considered ‘ordinarily located on your business premises’ if: the home use of the equipment by your employee is temporary. However, there is an expectation to the rule if the equipment will be returned to your business premises when the temporary working from home arrangement is concluded.
The equipment is not required to have been physically located on your business premises prior to entering into a working from home arrangement to meet the test, providing it is an item that is expected to be returned to the premises.
Office equipment that you loan to an employee to support a work from home arrangement that is planned on continuing over a long-term basis is unlikely to meet the exemption above.
Despite this ruling, the benefit may be exempt if you make a no-private-use declaration that covers all office equipment loaned to your employees to support their working from home arrangements where both of the following apply: the equipment is subject to a consistently enforced policy in relation to its use this use means the benefits would have a taxable value of nil.
Where you as employer provides general office equipment to your employees solely to make it possible for them to work from home, and have a consistently enforced policy documenting this purpose, the Australian Tax Office will accept that the requirements of this exemption are met.
An employer will not be forced to provide documentation that demonstrates the employment use of the office equipment. The fact that there may be some incidental use of an item outside of work hours while it is located at an employee’s home will not prevent the benefit from meeting this exemption.
If your employee fails to complete a no-private-use declaration, the taxable value of that benefit may be reduced under the ODR. The ODR applies if your employee would have received a one-off deduction had they sustained the spending themselves to rent the equipment solely to use for work purposes.
If the ODR applies, the taxable value of the benefit is reduced by the gross amount that your employee would otherwise have been permitted to deduct had they incurred the expenditure themselves, less the value of any contributions made by them.
Despite this ruling, if the equipment provided has an alternative purpose besides the working from home arrangement, or is considerably used for private purposes, you may need to apportion the use of the equipment to figure out the amount of reduction to the taxable value. In these circumstances, you will be required to provide a copy of the employee’s residual benefit declaration and evidence of the employee’s work-related use of the equipment for example, a diary indicating the times of usage.
The employer is required to show that the equipment was only lent or made available to your employee. This means the equipment still belongs to you and it will be returned when the working from home arrangement finishes. If this cannot be shown, then the provision of the equipment may be a property benefit.
When employers give an employee office equipment that has a notional taxable value of less than $300 (including goods and services tax (GST)), or have reimbursed an employee for expenses of less than $300 which they incurred in acquiring equipment, the item may be exempt from FBT or its taxable value may be reduced by the ODR.
If the value of that office equipment is $300 (including GST) or more, then FBT is generally payable.
Where the taxable value of the reimbursement or item is below $300 (including GST), the benefit may be exempt if it is a minor benefit.
Employers should have regard to the following factors in determining whether a benefit you have provided is a minor benefit: whether the provision of the benefit is infrequent or irregular, whether the provision of the benefit arises from an unexpected event or whether other similar benefits are provided at the same time, and if so, the value of all combined similar benefits.
When an item of general office equipment is given or the amount paid to acquire it is reimbursed on a one-off basis to support the establishment of a working from home arrangement, the Australian Tax Office will most likely accept that the benefit is irregular and infrequent.
If the benefit is not a minor benefit, the ODR may still apply to reduce the benefits taxable value if the employee would have been entitled to a deduction if they had incurred the expenditure themselves. The employer must hold evidence to demonstrate the employment use by the employee via a diary to illustrate the usage.
If an item costs $300 (including GST) it will not qualify for the minor benefits exemption.
If the employee would have been entitled to a one-off deduction under the capital allowance provisions in Division 40 of the Income Tax Assessment Act 1997 had they incurred the expenditure themselves, the ODR may apply to reduce the taxable value of the benefit.
Where the taxable value of the benefit is $300 (including GST) or more, FBT is generally payable.
The minor benefits exemption does not apply to any benefits with a notional taxable value of $300 or above.
The ODR will not apply because the employee would be entitled to a deduction for depreciation, (which is not a once-off deduction) under the capital allowance provisions in Division 40 of the Income Tax Assessment Act 1997.
Counselling
Counselling services provided to support an employee’s working from home arrangement may be exempt from FBT under the existing rules for work-related counselling.
‘Work-related counselling’ can be defined as counselling that seeks to improve or maintain the quality of your employee’s work performance and relates to matters such as health and safety, stress management, retirement, relationships and any other similar matters.
This includes counselling sessions undertaken over the telephone or online platforms during a WFH arrangement.
Health Care
Health care given to an employee to support their working from home arrangement may also be exempt from FBT if it is the provision of work-related preventative health care.
‘Work-related preventative health care’ means any form of care that: is offered by or on behalf of a legally-qualified medical practitioner, nurse, optometrist or dentist. It must also serve a primary purpose of stopping your employee from suffering from injury or disease that is related to their employment. It is also available for employees who are likely to suffer from similar work-related injury or disease.
Also exempt from FBT is a car benefit, property benefit, expense payment benefit or residual benefit provided to an employee that is associated with work-related preventative health care of an employee.