Fringe benefits can be used as a way to attract quality staff to your business. In fact, you probably know what they are even if you don’t know the term “fringe benefits”.
They are the perks you offer to gain and retain talent in your business, for example, a car for private use, gifts, insurances, subscriptions, accommodation or loan repayments – these are all examples of fringe benefits.
Fringe Benefits Tax (FBT), as its name would suggest, is the tax associated with the benefits you offer your employees.
In this short guide, I am giving you the low down on fringe benefits tax and how it may apply to you.
What is Fringe Benefits Tax?
FBT is a tax that employers pay on benefits paid to an employee (or their associate, such as a family member) in addition to their salary or wages. FBT is calculated on the taxable value of the benefits you provide.
FBT is another tax – yes, you heard that right – it is a tax that is separate from income tax and separate from Goods and Service Tax (GST).
What’s an example of a “fringe benefit”?
A FBT liability occurs when you as employer provide a “benefit” to an employee or an associate or directors of a company or trust.
Some examples of a ‘fringe benefit’ include:
- Using a business car for private use
- Providing a non-market loan to an employee
- Giving your employees ‘entertainment’ gifts such as food, drink & tickets to sports events
- Providing free accommodation or reduced rent to your employees
Fringe benefits can be provided directly from you as an employer or through an arrangement with a third party.
What do you need to know about Fringe Benefits Tax?
If you provide fringe benefits as part of your business and to your staff, you must make sure you understand the taxation obligations.
- Calculating the tax: Calculating FBT can be difficult and there are various rules involved, which can be challenging, so having a qualified, knowledgeable and experienced taxation specialist as part of your team or extended team is essential.
- Reporting on FBT: As a business, you will need to register for FBT with the ATO. It’s also important to note that the FBT year runs from April 1 to March 31.
Type of fringe benefits subject to FBT
There is a range of fringe benefits that require tax to be paid. The three main areas include:
- Fringe benefits on car and travel benefits
A car is taken to be available for private use by an employee if it is garaged at or near an employee’s home, this is regardless of whether or not the employee has permission to use the car for private use. If the employee/director works from home the same applies.
There are two methods to calculate the fringe benefit on a car:
- Statutory Formula Method (based on the car’s cost price)
- Operating Cost Method (based on the costs of operating the car)
Some vehicle benefits may instead constitute what is called ‘Residual Fringe Benefits’.
What are Residual Fringe Benefits?
These include paying or reimbursing employee road tolls or allowing private use of a motor vehicle that is not a car, such as a ute or van.
Any taxable amount payable on a Residual Fringe Benefit will depend on whether the expense is “otherwise deductible” (meaning the employee could have claimed the expense as a tax deduction) or whether the expense satisfies one of the FBT concessions.
Fringe benefits on entertainment
There is also fringe benefits tax on entertainment including:
- Food, drink or recreation
- Accommodation or travel in connection with provision of entertainment
This can include:
- Business lunches and drinks, cocktail parties and staff social functions
- Sporting or theatre events
However, there are some exemptions.
Some entertainment can come under the ‘Minor Benefits Exemption’, which you can read about here.
Food and drink provided to and consumed by employees on business premises on a work day may be exempt.
Fringe Benefits Tax on exemptions and concessions
Exemptions and concessions include:
- Work-related portable electronic device, for example:
- Mobile phones
- Portable printers
- GPS Navigation
- Personal Digital Assistant (PDA)
- Minor benefits provided to employees with a value of less than $300
- Concessions can include benefits provided in remote areas and not-for profit organisations
What to do next about Fringe Benefits Tax
If your head is spinning, we don’t blame you! FBT and the categories can be complex (not to mention confusing!), which is why specialist advice and help is imperative.
As registered tax accountants Fringe Benefits Tax is part of the tax law we have to review regularly to ensure we understand it correctly and have ticked all the boxes.
If you need help, you can learn more about FBT on the ATO’s website here.
Otherwise, please contact us now to make an appointment to discuss your FBT concerns and how we can help.
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