Fringe Benefits Tax (FBT) is a tax imposed on employers who provide non-salary benefits to their employees, covering the period from April 1 to March 31 each year. The FBT rate is
47%, calculated on the taxable value of the provided benefits.
Quick Guide to FBT
Exemptions:
- Certain payments and benefits are exempt from FBT, including salaries, employer super contributions, certain work-related items, and minor benefits under $300.
Types of Fringe Benefits:
- Car Benefits: Involving private use of company cars.
- Loan Benefits: Offering low or no-interest loans to employees.
- Debt Waiver: Forgiving an employee’s debt.
- Living-Away-From-Home Allowance (LAFHA): Compensating employees who work far from home.
- Entertainment Benefits: Covering expenses for food, drinks, and recreational activities.
- Property Benefits: Providing free or discounted goods or services.
Record-Keeping Requirements:
- Employers must maintain comprehensive records to justify FBT calculations, including logbooks for vehicle use and documentation of all provided benefits.
Special Rules for Electric Cars:
- Since July 2022, certain electric cars and associated expenses are exempt from FBT, but the value must still be reported.
Employee vs. Contractor Distinction:
- FBT generally applies only to benefits provided to employees, not contractors.
Lodging a Nil Return:
- Lodging a nil FBT return, even with no liability, limits the Commissioner’s amendment period to three years.
How Fringe Benefits Tax Works
Fringe Benefits Tax (FBT) is a tax that employers pay on specific benefits they provide to their employees, their employees’ families, or other associates.
FBT is distinct from income tax and is determined based on the taxable value of the fringe benefit.
As an employer, you are required to evaluate your own FBT liability for the FBT year, which runs from 1 April to 31 March. If you have an FBT liability, you are obligated to submit an FBT return and pay the due FBT.
Example of fringe benefits:
- Allowing an employee to use a work car for private purposes
- Car parking
- Gym membership
- Entertainment such as free tickets to concerts
- Reimbursing an expense incurred by an employee, such as school fees
- Giving an employee a discounted loan
- Giving benefits under a salary sacrifice arrangement with an employee.
FBT applies to fringe benefits provided to your employees, or to your employees’ families or other associates. For FBT purposes, an employee includes a:
- Current, future or past employee
- Director of a company
- Beneficiary of a trust who works in the business.
Your clients are not employees. Benefits you provide to clients, such as entertainment, are not subject to FBT.
Exempt items from FBT:
- Payments of salaries or wages
- Shares issued under approved employee share acquisition schemes
- Employer contributions to complying super funds
- Employment termination payments
- Certain dividends
- Capital compensation for personal injury or restraint of trade
- Minor benefits valued at less than $300
- Work related items that are required by an employee for the day to day running of the business, such as a phone, certain computer software, protective clothing or tools
- Electric cars (that meet the exemption criteria)
- Membership fees eg. airport lounge membership
- In-house gymnasium for employees to use
How much FBT do employers have to pay?
To calculate the amount of FBT you owe as an employer, you need to ‘gross-up’ the taxable value of the benefits you’ve given. This ‘gross-up’ value is similar to the gross income your employees would need to earn, considering the highest marginal tax rate (inclusive of the Medicare levy), to purchase the benefits on their own.
The FBT you are required to pay is 47% of this ‘grossed-up’ value of the fringe benefits.
What do Employers need to do?
As an employer, you need to:
1- 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 to fringe benefits or providing benefits that are eligible for a concession.
2- If you’re a not-for-profit employer, you may be eligible for an exemption or rebate for not-for-profit organisations.
3- Work out the taxable value of fringe benefits you provide.
4- Calculate your FBT liability.
5- Keep records, including employee declarations where needed.
6- Lodge an FBT return and pay the FBT you owe.
7- Report each employee’s fringe benefits in their end-of-year payment information, if required.
Blackwattle Tax Tips
Even if you haven’t incurred any FBT liability for the current FBT year, it’s highly recommended that you submit a nil FBT return instead of not submitting anything at all.
This is not only a good practice for record-keeping and taxation, but also has the advantage of limiting the time frame for the Commissioner of Taxation to make amendments to the original assessment to only 3 years. If you don’t submit anything and an assessment/amendment needs to be made, the Commissioner has an unlimited time frame to take action.
Get in touch with our team at Blackwattle we can help assess your options and get you back on track to healthy operations.
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Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpretated as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.
