Providing Equipment for Remote Work: What Employers Need to Know About FBT

As flexible work arrangements become the norm for many businesses, providing employees with the necessary equipment to work from home has become an essential part of supporting a productive remote workforce. But with the provision of work-related items comes the need to understand how the Fringe Benefits Tax (FBT) applies to these items.

In this blog, we'll explore when FBT applies to work-from-home equipment, how the tax impacts both employees and contractors, and the importance of correctly classifying workers to avoid unintended tax obligations.

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When Does FBT Apply to Work-from-Home Equipment?

Many businesses continue to provide employees with work-related items to facilitate remote work, such as laptops, mobile phones, and other portable electronic devices. In most cases, FBT doesn’t apply to work-related items provided to employees, as long as those items are used primarily for work. This provides a significant tax advantage for businesses that want to support flexible work arrangements without incurring additional FBT liabilities.

Key Considerations:

1.  Primary Use for Work: The equipment must be primarily used for work. If the item is used for both personal and work purposes, FBT could apply to the private use portion. For example, if an employee uses a laptop both for work and personal purposes, the business would only be required to pay FBT on the portion of the usage that is for personal activities.

2. Providing Multiple Items: Businesses are allowed to provide multiple similar items (e.g., multiple laptops or mobile phones) during the FBT year, provided the business has an aggregated turnover of less than $50 million (up from the previous threshold of $10 million). This allows businesses to meet the needs of employees without incurring FBT liabilities.

3. Employee Contributions: If employees use business-provided equipment for private purposes, the FBT liability can be reduced based on the business-use percentage. This means the FBT paid will only be calculated on the portion of the equipment's use that is for personal reasons.

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Does FBT Apply to Contractors?

While FBT rules primarily apply to employees and certain office holders (such as directors), genuine independent contractors are generally exempt from FBT. However, it’s essential for businesses to ensure that contractors are genuinely classified as such to avoid unnecessary tax implications.

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Are Your Contractors Really Contractors?

The Australian Taxation Office (ATO) has provided clarification on determining whether a worker is an employee or an independent contractor through a ruling (TR 2023/4). Following two landmark High Court decisions, this ruling aims to help businesses assess their contractor relationships more accurately.

Here’s what employers need to know:

1. Written Contract: The starting point for determining whether a worker is an independent contractor, or an employee is the written contract. The terms of the contract should clearly outline the nature of the relationship. However, simply labelling a worker as an independent contractor doesn’t automatically exempt them from FBT or other employment-related obligations if the terms of the contract suggest an employment relationship.

2. ATO’s Risk Categories: The ATO has also issued PCG 2023/2, which sets out four risk categories to help businesses assess the classification of their workers. Arrangements are more likely to be viewed favourably when:

•  There is clear evidence that both the employer and the worker have agreed on the classification.

• The relationship is governed by a comprehensive written agreement that outlines the terms.

• There is mutual understanding of the consequences of the classification.

• The performance of the arrangement hasn’t deviated significantly from the terms of the contract.

•  Specific advice has been sought to confirm that the classification is correct.

• Tax, superannuation, and reporting obligations have been met for both employees and independent contractors, depending on the classification.

  
  

3.   Review and Update Contractor Classifications: Businesses should regularly review their contractor relationships and ensure that they have a clear process in place for determining the correct classification. Misclassifying workers can lead to unexpected FBT liabilities, tax complications, and potential legal risks.

4.  Employment-Like Obligations for Contractors: Even if a worker is classified as a genuine independent contractor, this doesn’t mean the business is free from employment-like obligations. For example, some independent contractors may still be entitled to superannuation guarantee payments or be subject to payroll tax obligations, depending on the specifics of the arrangement.

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As businesses continue to adapt to remote work and flexible work arrangements, providing employees with the right tools is essential for maintaining productivity. Fortunately, businesses can generally avoid Fringe Benefits Tax when providing work-related items that are primarily used for work. However, it’s crucial to ensure that equipment is used correctly and that employee contributions to private use are accurately accounted for.

For businesses engaging independent contractors, it’s equally important to ensure that contractors are correctly classified to avoid tax liabilities. Regularly reviewing these classifications and consulting the ATO’s latest guidance will help businesses navigate potential risks and ensure compliance.

By staying informed and ensuring accurate classification of workers and use of equipment, businesses can continue to support flexible work arrangements while minimizing tax and compliance risks.