Is your business liable for fringe benefits tax?
Do you provide a benefit to an employee (or an associate of the employee, such as their spouse) in addition to their salary/wage? For example, do you:
provide an employee with a car that they can use for private purposes?
provide an employee with goods at a discount or for free?
provide an employee with low or no-interest loans?
provide an employee with entertainment, including food, drink and recreation?
reimburse an employees private expenses, such as school fees or a gym membership?
have an arrangement between the business and a third-party that benefits the employee?
All of the above, and more, are considered fringe benefits. This means your business might be liable to pay fringe benefits tax (FBT).
Check this list to see if you may be providing a fringe benefit.
A fringe benefit is provided to an employee in relation to employment - an employee is considered to be a current, future or former employee, a director of a company, and a beneficiary of a trust who works in the business.
When considering the term 'in relation to employment', consider if your business would have provided the benefit if the person was not an employee?
What payments are not considered fringe benefits?
Salary and wages are not fringe benefits. Neither are employer contributions to complying super funds. Benefits provided to volunteers or contractors are also not considered fringe benefits. There are also other general exceptions - view them here.
There are also exemptions that may apply, such as:
Minor and infrequent benefits under $300.
Certain work-related items, such as portable electronic devices, used primarily for work purposes.
Single taxi trips beginning or ending at the employee's place of work.
View more exempt benefits here.
I think my business provides fringe benefits to employees, what do I need to do?
Firstly, contact us to discuss so that we can confirm whether or not you provide fringe benefits. If you do provide fringe benefits then you'll need to register for fringe benefits tax.
You'll subsequently need to lodge annual FBT returns and keep hold of all records that relate to fringe benefits that you provide.
You may also need to report certain benefits for certain employees on their payment summaries (income statements) as 'reportable fringe benefits'.
How do I calculate fringe benefits tax?
Working out the fringe benefits tax that you have to pay can be quite complex. FBT is based on the 'taxable value' of the fringe benefits that you provide.
There are 13 categories of fringe benefits and each category has a different method for calculating the taxable value.
Some categories are also eligible for a reduction to the taxable value due to the 'otherwise-deductible' rule, which reduces the value of a benefit if the employee could have claimed a tax deduction had they incurred the benefit themselves.
The taxable value will also be reduced if an employee makes a contribution/payment towards the cost of providing a fringe benefit.
Additionally, the first $1,000 taxable value of some benefits may be exempt.
Once the taxable value has been determined, the aggregated values of all fringe benefits are 'grossed up' using two separate gross-up rates (type 1 - higher, and type 2 - lower).
If there was an entitlement to a GST credit for GST paid on the benefit, then the type 1 gross-up rate applies.
If there was no entitlement to a GST credit then the type 2 gross-up rate applies.
The grossed-up taxable values are then multiplied by the FBT tax rate (which is currently 47%).
(Note: Expenses related to providing fringe benefits and the amount of FBT itself are tax-deductible.)
How do I report and pay FBT?
The FBT year is different to the income tax year - the FBT year runs from 1 April to 31 March each year. Taxpayers have until the 21st May of each year to lodge their FBT returns (this date is 25 June if you lodge through a registered tax agent).
FBT will be payable annually, or you may be liable to pay FBT in instalments.
I need help understanding my FBT obligations.
Please contact us for assistance, or you can view the ATO's fringe benefits tax guide below:
The information above is general guidance in relation to FBT, you should speak directly to us or the ATO before making a decision.