Many strata schemes inadvertently provide fringe benefits to caretakers and set themselves up for possible costly tax bills as a result
Fringe benefits are defined as payments for employee services made via non-cash methods. Common examples include the provision of premises, payment of personal expenses (eg: phone bills) and motor vehicles.
Many strata schemes inadvertently provide fringe benefits to caretakers and set themselves up for possible costly tax bills as a result. Many of us have seen this common scenario - to save the strata company the expense of engaging a regular contractor, an resident in the building is happy to carry out the maintenance duties for the common property themselves. Instead of being paid in cash, they are provided free or reduced rent (either in a commonly owned unit or with the rent paid to the respective Lot owner). After all, it's better than showing the wages on the books and the caretaker having to pay tax on it... and the strata company pays the same either way. Right?
Well, thanks to the Hawke / Keating Labor government of the 1980s, not quite. In the normal course of events, an employee earns wages, pays tax on those wages and then uses the remainder (hopefully only a portion of it) to pay for their rent. Under the above scenario, the caretaker is receiving an advantage by not having to pay tax on the income The FBT Assessment Act of 1986 hits the employer (in this case the strata company) with a bill. It's a complicated formula but the tax bill that results is often almost around 90% of the value of the benefit! To illustrate the effect: providing a caretaker with a modest $350 pw unit is likely to incur a liability in excess of $16,000 for the offending strata company!
Over the years, the ATO's definition of 'employee' has expanded to close many loopholes to the point where even if no cash changes hands and there is a signed declaration from the person performing the duties that they are NOT an employee, it can still be found that an employment relationship exists - an therefore FBT can potentially apply. In typical legallese - It all depends upon the facts and circumstances of the individual case but in short, you're very unlikely to find an alibi!
There are other alternatives to the above scenario and these should always be explored to protect your clients. Please ensure your clients are made aware of the FBT implications if they are considering engaging for services for which cash is not going be paid. It could prove to be a very expensive exercise.
What do you need to do?
Please note that the due date for 2018 FBT Returns is 21 May if lodged by paper (by an owner) or 25 June if lodged electronically via a registered tax agent.
For more information, the ATO provides detailed information on FBT via their website. Alternatively, please contact the Ascend office if you'd like to discuss the options for any of your managements that you feel may be at risk of Fringe Benefits Tax.
The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above. Please contact our office for more information.
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