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25 Mar 2021 This week in tax

In this week’s TaxVine, Paul Ellis, CTA, Chair of The Tax Institute’s National FBT and Employment Taxes Technical Committee provides an update on the current employment tax challenges.

Current employment tax challenges

Employment taxes present a uniquely interlocking web of State and Federal obligations, which continues to present challenges. At the same time, it is becoming increasingly difficult to resolve complex issues, whether with the tax authorities or through legislative change, where required.

Two current examples that clearly illustrate these difficulties can be seen in the draft FBT rulings dealing with car parking benefits and travel expenses. Despite ongoing ATO consultation that the Committee has been, and will continue to be, involved in, clarity remains elusive.

Car parking provided to employees is subject to FBT where a commercial car park exists within one kilometre that charges more than the benchmark rate (currently $9.15). When enacted, the clear intention was to catch CBD parking benefits. However, since the Qantas Airways decision in December 2014, there has been continuing uncertainty over how taxpayers identify the existence of a commercial car park. The ATO’s most recent draft ruling on this topic, TR 2019/D5, continues to create concern that many taxpayers who provide employee parking may be unintentionally caught in the FBT net. The ATO have indicated that the ruling will be finalised by 31 March 2021 and to the extent it contradicts the prior ruling, TR 96/26, will apply from 1 April 2021. However, a number of unresolved issues remain, including:

  • The proposed transition date of 1 April 2021 has become unrealistic.
  • Parking spaces in suburban areas and industrial precincts that have not traditionally been subject to FBT — as the only car parking facilities nearby are typically shopping centres, hospitals, hotels, universities, airports, or other car parking facilities run by not-for-profit organisations — will become subject to FBT.
  • The treatment of non-‘bricks and mortar’ parking provided via apps remains unclear.

A better approach would be to look at the definition of commercial car parking station more holistically such that, fundamentally, a commercial car parking facility is one that is only run for profit in the ordinary course of an entity’s business of providing commercial car parking facilities. This is not inconsistent with the Qantas case referred to above.

The second long-running issue, which can also be traced as far back as 2014, is the FBT treatment of travel costs. The ATO recently finalised TR 2021/1, dealing with transport costs and issued TR 2021/D1, dealing with other travel costs, including accommodation and food and drink. Although these two rulings substantially simplify earlier proposed approaches, again, there remain some key unresolved issues, including:

  • The treatment of extended travel arrangements, which could result in FBT applying to extended travel arrangements for periods of up to 3-6 months that are common in many industries, including the consulting, health provision, construction and allied industries, as well as many others.
  • The rulings do not seem to allow for changes to business circumstances, that frequently require alteration/extension of travel circumstances.
  • Any acknowledgement by the ATO of the broad application of the principles from the John Holland Group case from June 2015, in relation to fly-in fly-out (FIFO) workforces.

Overall, it is suggested that a better approach would be to focus on the key consideration — that if an employee is required to travel for work away from their usual residence for the purposes of their employer, then the costs of such travel should be deductible (and otherwise deductible for FBT purposes).

What about non-FBT matters?

Two other quick matters warrant some brief commentary:

  • There is currently an increasing prevalence of Payroll tax audits, particularly in NSW. Payroll (and Payroll tax) is an area where Corporate Tax Managers are frequently reluctant to get involved. But beware, lack of oversight can come back to bite.
  • Superannuation and wage underpayments continue to make headlines. It is critically important for payroll systems to be regularly reviewed to ensure they are correctly configured, particularly with Single Touch Payroll (STP) Stage 2 commencing on 1 January 2022.

The Tax Institute’s FBT and Employment Taxes Committee continues to review these issues and work with the ATO.

As always, we welcome your views and thoughts, which you can provide here.

 

Kind regards,

Paul Ellis, CTA

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