This article highlights the more commonly provided residual fringe benefits and offers additional commentary on two residual benefits that can be easily misunderstood.
Common residual fringe benefits
Set out below is a non-exhaustive list of examples of benefit arrangements which can fall within the ‘residual’ fringe benefit category:
Hire cars: When an employer provides a hire car to an employee for private use for a period of less than three months, a residual benefit may arise. For completeness, where a hire car is provided for three months or more, it will constitute a car fringe benefit.
Motorcycles: Motorcycles provided for the private use of employees constitute residual fringe benefits.
Insurance: Employers maintaining insurance policies (e.g. health insurance, life insurance etc.) that benefit their employees are providing residual fringe benefits. For completeness, we note that an employee-portion of income protection insurance may be otherwise deductible.
Professional services: Professional services such as legal, financial (or similar) advice provided to employees for their personal affairs constitute residual fringe benefits.
Income tax payments: Payments made by an employer to cover an employee’s personal income tax liability, commonly occurring under tax equalisation programs, can result in residual fringe benefits. The taxable value can be reduced by refunds received from the individual or the relevant tax authority, which are rightfully retained by the employer under the terms of the agreement with the employee.
Tolls: Tolls incurred during private travel in company vehicles equipped with e-tags are residual fringe benefits.
Use of recreational or child care facilities: The use of recreational facilities, such as gyms or pools, or childcare facilities, not located on business premises is considered a residual fringe benefit.
Use of employer properties: The private use of properties held by the employer, such as a venue or holiday house, constitutes a residual fringe benefit.
In addition to the above, two types of residual benefit which often result in challenge for employers are residual-classified vehicles, which require careful consideration given the complexities involved with determining the appropriate FBT treatment and calculating their taxable value:
Charging electric vehicles (EVs) on premises: Where employers allow employees to charge their EVs on business premises, this may result in the provision of a residual fringe benefit. The minor benefit exemption may be applied to this benefit, however, consideration would need to be given to the frequency of the benefit to the employee. The ‘property consumed on premises’ exemption is not available for this benefit. Monitoring and tracking employees' use of the EV charging stations will be important in understanding if any exemptions are available.
Non-cars: Vehicles designed to carry a load exceeding one tonne or accommodate nine or more passengers are classified as ‘non-cars’ for FBT purposes. These vehicles typically qualify for FBT exemption where their usage is confined to:
travel between home and work
travel incidental to employment duties, and
non-work-related use that is minor, infrequent, and irregular.
The Australian Taxation Office’s (ATO) Practical Compliance Guideline PCG 2018/3 provides detailed guidance on the above conditions (also refer to our previous article for the key points). Employers should take steps to accurately assess the actual usage of the non-car fleet prior to applying the FBT exemption.
To the extent that a non-car is a taxable benefit, it will need to be valued under either the operating cost method or the cents per kilometre method (i.e. the statutory method is not available).
Tips to check for residual benefits
The identification of residual benefits will often involve a careful analysis of transactions and arrangements, given they - by their very nature, may not stand out as visibly as other types of fringe benefits (e.g. cars, loans, car parking). Employers should ensure consideration is given to a variety of sources, including for example general ledger (GL) transactions, payroll data, asset/fixed asset registers, short term vehicle leasing schedules, benefit/compensation data from overseas parent entities or associates, or even incentive data from third parties.
For further information, please don’t hesitate to contact one of our Employment Taxes specialists or refer to the following articles on the PwC employment taxes website.
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