All you need to know about Fringe Benefits Tax
You have likely heard about Fringe Benefits Tax (FBT). Whether it is because your accountant has mentioned it, or you have seen it on your tax return, you might be very confused as to what it is. Many business owners feel the same way, wondering how it applies to you. If you are an employee or an employer, FBT will affect you. To provide clarity on FBT we have created this ultimate guide to FBT covering all you need to know about the tax.
History of the Fringe Benefits Tax
As employers like to provide benefits to employees that fall outside of their regular salary, the Australian tax system created a new tax in order to restore fairness and equity in the system. So, in 1986 the Fringe Benefits Tax was established. This blocked an opening in income tax law which allowed other benefits other than a salary to become tax-free income. With his introduction also came the ability for benefits to be claimed by the employer to reduce their employee’s taxable income.
What is Fringe Benefits Tax?
A fringe benefit is any additional benefits you provide to your employees beyond their salary or wages. These can also refer to things received in return for forgoing part of a salary in a salary sacrifice arrangement. So, Fringe benefits aren’t wages. They also may apply to benefits you provide to family.
The essential points you must know are:
- Whether you are in a partnership, company, or governmental department, it is always your responsibility as an employer to pay FBT.
- FBT remains payable on a self-assessment basis.
- Fringe Benefits Tax is lodged separately from income tax. It runs in the financial year from April 1 to March 31
- The lodgement due date is May 21. However, if you have lodged through a tax agent then this date is extended until June 25.
- Under section 8-1 of the Income Tax Assessment, an employer can claim an income tax deduction for the cost of a fringe benefit as well as the fringe benefits tax paid.
- Items that GST was paid on can provide GST credits.
- The rate of tax can vary from year to year. However, the current rebate has remained since March 31 2019 at 47%, with a capping threshold of $30,000.
- If the tax payable exceeds this threshold for an individual employee, details of items provided to all employees must be reported.
- If the gross taxable revenue of the benefits received by a single employee exceeds the threshold, the rebate cannot be claimed on the excess amount.
What is a fringe benefit?
As stated in the Fringe Benefits Tax Assessment Act 1986, a fringe benefit is defined as any right, privilege, service, or facility received by the employee from their employer. This means there is an extensive list of perks that are covered under Fringe Benefits Tax.
The most common benefits include:
- Employee gym memberships
- Childcare and education fees
- Private health insurance
- Use of company cars or other assets for personal use
- Food, cinema tickets, concert tickets, or other entertainment
- Living away from home allowances
- Discounted loans
- Certain parties
What benefits are exempt from the tax?
There are certain items which are exempt from Fringe Benefits Tax. These exemptions include:
- Salaries and wages
- Benefits supplied to contractors or volunteers
- Superannuation payments
- Employee termination payments
- Minor benefits
Minor benefits and other similarly exempt items
Beyond the above list a series of benefits that do provide an exemption to Fringe Benefits Tax in certain cases, but not in others. These can include:
- Minor benefits: any benefit under the value of $300 is generally exempt from Fringe Benefits Tax. A minor benefit must be infrequent in order to be excluded from FBT. Usually, a minor benefit includes gifts provided to your employees like birthday or Christmas presents.
- Items required by an employee to carry out their duties are exempt from Fringe Benefits Tax. These items include items like protective clothing, portable electronic devices, software, tools, and more.
- Taxi travel can be exempt if the whole or part of the journey is directly between an employee’s place of work and home.
- In the case of emergency assistance, an employer can provide benefits as emergency assistance from a natural disaster or accident. These may qualify as exempt from FBT.
- Where an employer is paying their employee to live away from their residence in order to carry out their duties, a fringe benefit exemption may apply.
While carparking can be FBT exempt there are some conditions which first must be met.
- The premise in which the employee parks their car must be leased or owned by the employer. The intention for the use of the parking must be used in respect of the employee’s employment.
- The car the employee uses is owned, leased, or provided by the employer.
- The car is parked for more than 4 hours between 7 am and 7 pm on any given day.
- The car is parked at or near the employee’s place of employment.
- The vehicle is used to travel between work and home at least once per day.
- If there is commercial parking nearby, it must charge a fee for all-day parking.
An exemption will be provided to small businesses (companies earning under $10 million per annum).
What benefits to employees does the FBT provide?
The biggest benefit for employees, aside from the perks of the benefit, is that receiving fringe benefits could push you into a lower income tax bracket. This can be extremely useful for high-income earners, or those whose income is just out of a lower tax bracket.
How do fringe benefits benefit employers
While they may be taxable the benefits to Fringe Benefits often outweigh the costs. It is vital that before you begin offering Fringe Benefits that you understand it in order to provide the best targeted benefits.
Employers who offer fringe benefits are often extremely popular with potential employees. Offering these allows you to attract better talent, often without having to promote a higher salary. Fringe benefits can be used by businesses in smaller towns to attract talent from the big cities.
Fringe benefits are also a great way to retain and motivate employees. Often your team may forgo leaving your company because of the great benefits you offer. Even simple perks like complimentary food, gym memberships, and entertainment can go a long way.
Fringe benefits provide some great incentives to employees and employers alike. Because of this, it is important to understand what exactly FBT is and how it will affect the benefits you are offering. For further assistance, it is important that you talk to your accountant or bookkeeper. Reach out to Link Books for some advice surrounding FBT.