To attract talent to their businesses, many Australian employers offer their employees a range of fringe benefits as part of their remuneration packages - benefits which often come with associated tax regulations. One of the most common forms of fringe benefit is the provision of phone and internet services, including mobile phone and home connections - the costs of which are either covered by an employer paying a third party, or by directly reimbursing their employees. In this context, the provision may be classified as an expense payment fringe benefit and be subject to tax rules.
The Australian Tax Office (ATO) recently updated its guidance on the provision of phone and internet services as fringe benefits: employers should make sure they’re up to date with the latest guidelines.
Paying Fringe Benefits Tax
Fringe benefits, like phone and internet connections, may involve a Fringe Benefits Tax (FBT), payable by employers and calculated according to the value of the benefit provided. In more detail, employers in Australia that offer fringe benefits must:
- Register for FBT with the ATO
- Calculate the value of the fringe benefit - and how much FBT is payable
- Maintain the relevant FBT records
- File a tax return, and pay FBT to the ATO
Taxable Value of Phone and Internet
The taxable value of a fringe benefit usually relates directly to how much an employer reimburses the recipient employee, or pays a third party. Phone and internet provision classes as an expense payment fringe benefit and - under the ATO guidelines - working out its taxable value depends on:
- The amount the employer reimburses their employee or pays to a third party,
and,
- The percentage of use of the phone and internet connection that is dedicated to work purposes (and that the employee would otherwise have been able to deduct from income tax)
FBT Record Keeping
Phone and internet costs obviously vary by employer, and potentially by employee, but the amount of expenditure also necessitates differing ATO record keeping requirements during the tax year. More specifically, phone and internet FBT record-keeping can be split into two categories:
1) Where phone and internet costs are up to $50,
- Employees do not need to keep detailed records, and are required to retain only limited documentation regarding the phone and internet costs they incur.
- As an employer, you should be able to explain to the ATO the connection between the expense benefit and the employee’s role, and explain the costs they have incurred.
- Employees must provide their employers with a declaration which sets out the percentage of their phone and internet connections that is dedicated to business use.
2) Where phone and internet costs are above $50,
- Both the employer and the employee must keep a detailed record of phone and internet costs.
- The employee must provide their employer with a declaration setting out both the percentage of their phone and internet connections which are dedicated to business use, and detail the purpose of the expense they incurred.
Employee Declarations: The employee declaration regarding their phone and internet use can be provided electronically (but must be signed by the employee with an electronic signature). All employee declarations must be provided by the day on which the FBT return is to be lodged with the ATO. The declaration itself is not sent to the ATO but must be retained as part of the employer’s FBT records. The ATO offers guidance on employee declarations - including expense and fringe benefit declarations - online.
For more information and insight on Australian tax returns and regulations, browse our Global Insight Guide to Australia.