FBT compliance process more complex this year, says DeloitteDOWNLOAD
The fringe benefits tax (FBT) compliance process will be significantly more complex this year for employers who have short-term expatriate employees working overseas, according to professional services firm Deloitte.
Before 1 July 2009, most Australian experts working overseas for longer than 91 days were not subject to Australian income tax on their foreign-earned wages and benefits.
With the removal of the section 23AG exemption for most short-term expatriate employees, these individuals are now subject to Australian income tax. Their employers will now also be subject to FBT on any benefits provided.
Frank Klasic, Employment Taxes partner at Deloitte, said with the FBT year-end fast approaching, it is again time for employers to start collecting the information they need to prepare the annual FBT return.
“The removal of the section 23AG exemption is already causing employers confusion about how to track and account for benefits provided outside Australia.
“This year, employers must include in the FBT return the fringe benefits provided to expats who are no longer exempt from Australian income tax because of section 23AG changes.
“There is a similar issue for foreign employers who engage Australian resident employees to work overseas. Applying the new section 23AG rules, they technically need to register for FBT in Australia and pay FBT on non-cash benefits provided to those employees.
“This will involve collecting details of all fringe benefits provided and obtaining declarations and other substantiation documents required under the FBT legislation.”
Mr Klasic warns employers to ensure that all benefits are included in the FBT return.
“Employers may not be aware, for example, that they are liable for FBT on benefits provided to their employees by an associate, for example, if an employee is seconded to an overseas firm.”
Mr Klasic also notes that there are significant FBT issues caused by the changes to section 23AG.
“Examples of these FBT issues include double taxation of fringe benefits, and foreign superannuation or pension contributions for employees will be subject to FBT, even if these are compulsory under the laws of the country where the employee is working,” Mr Klasic said.
Employers should also note that in most cases the changes to section 23AG will mean that PAYG is required to be withheld from salary paid to affected expats.
“Employers who have not yet done so should ensure that appropriate procedures are put in place to withhold PAYG and to issue payment summaries to employees. The ATO has recently released the format for payment summaries for expats working overseas, which is available on the ATO website,” Mr Klasic concluded.