Understanding how Fringe Benefits work in tax (FBT): Learn about the application of FBT, your responsibilities as an employer, and the potential deductions you can claim.
Covered Topics:
- Explaining Fringe Benefits Tax
- Identifying Fringe Benefits
- Beneficiaries of Fringe Benefits
- FBT Payer Information
- Calculating FBT Amount
- Possibility of Deductions and GST Credits
- Required Actions
- Comprehensive Guide for Employers on FBT
Explaining fringe benefits tax
Fringe Benefits Tax (FBT) is a tax that employers pay for certain perks given to employees or their families and associates.
Unlike income tax, FBT is distinct and is calculated based on the value of the benefit.
As an employer, you are responsible for evaluating your FBT liability for the FBT year (from 1 April to 31 March). If you owe FBT, you need to submit an FBT return and settle the owed amount.
Identifying fringe benefits
A fringe benefit is a type of compensation for employees, but it comes in a different form than regular salary or wages.
Various kinds of fringe benefits exist. For instance:
- Allowing an employee to use a work vehicle for personal use
- Providing parking spaces
- Covering an employee’s gym membership
- Offering free concert tickets for entertainment
- Reimbursing expenses, such as school fees
- Providing discounted loans to employees
- Granting benefits through salary sacrifice arrangements
However, the following are not considered fringe benefits:
- Regular salary and wages
- Employer contributions to approved super funds
- Shares or rights issued under approved employee share acquisition programs
- Payments related to employment termination (like giving or selling a company car to an employee at a reduced rate upon termination)
- Dividend-like payments under Division 7A
- Benefits extended to volunteers and contractors
- Exempt benefits, including certain benefits from religious institutions to their religious practitioners.
Beneficiaries of fringe benefits
FBT is relevant to fringe benefits given to your employees, as well as to their families or other connections.
In the context of FBT, an employee encompasses:
- A current, former, or potential employee
- A company director
- A trust beneficiary who is involved in the business.
If you’re a sole trader or a partner in a partnership, you do not qualify as an employee. This implies that any benefits you give to yourself are not subjected to FBT.
It’s important to note that clients are not considered employees either. Hence, any benefits extended to clients, like entertainment, are not liable for FBT.
FBT payer information
The responsibility of paying FBT lies with the employer, even if a third party provides the benefit through an agreement with the employer.
Calculating FBT amount
To calculate the FBT amount, you ‘gross up’ the value of the benefits you’ve given. This involves determining the gross income that your employees would need to earn, at the highest tax rate (including the Medicare levy), in order to purchase those benefits on their own.
The FBT payment is 47% of this ‘grossed-up’ value of the fringe benefits.
Illustration: FBT Calculation for a Gym Membership Meet Jenni, who owns a small consulting business. She extends a gym membership to her employee, Anton, which comes at a cost of $1,100 (including $100 GST). This arrangement constitutes a fringe benefit. Jenni computes the FBT in the following manner: Value of the benefit ($1,100) × Gross-up rate (2.0802, for a GST-inclusive fringe benefit) × FBT rate (47%) = FBT amount of $1,075.46. Jenni is required to compile and submit an annual FBT return while settling her FBT obligation. Additionally, she might need to determine and disclose Anton's reportable fringe benefits sum in his year-end payment records. Since the gym membership is subject to FBT, Jenni can assert: An income tax deduction and GST credit for the gym membership's cost An income tax deduction for the FBT paid.
Possibility of deductions and GST credits
In your role as an employer, you are eligible to request:
- An income tax deduction along with GST credits for the expenditure on providing FBT
- If GST credits can be claimed, the deduction is applicable for the GST-exclusive amount
- In situations where GST credits cannot be claimed, the entire amount qualifies for an income tax deduction
- An income tax deduction for the FBT obligation that you need to fulfill
Required actions
As an employer, it is essential to:
- Identify the types of fringe benefits you provide.
- Check for FBT concessions and ways you can reduce FBT. Some benefits are exempt from FBT, such as work-related items.
- You can reduce your FBT liability by using alternatives or providing benefits that are eligible for a concession.
- If you’re a not-for-profit employer, you may be eligible for an exemption or rebate for not-for-profit organisations.
- Work out the taxable value of fringe benefits you provide.
- Calculate your FBT liability.
- Keep records, including employee declarations where needed.
- Lodge an FBT return and pay the FBT you owe.
- Report each employee’s fringe benefits in their end-of-year payment information, if required.
Comprehensive guide for employers on FBT
“Fringe Benefits Tax Guide for Employers” serves as an extra tool to assist you in fulfilling your obligations regarding FBT as an employer. This guide provides insights into:
Your responsibilities in relation to FBT as an employer, steps to recognize and assess various types of benefits (along with available concessions), and clear explanations of terms used within the guide.
If you would like to know more about how you can take advantage of the FBT, feel free to contact us. We will be more than happy to help in any way we can.