In today’s competitive landscape retaining talented employees can be difficult, and businesses need to work extra hard to keep them on board.
This is where Fringe Benefits Tax (FBT) comes into play and may be the solution for your business.
A fringe benefit is essentially a non-cash incentive that can be paid to your employees on top of their salary.
Sounds simple, doesn’t it?
Well, it is. However, there are some things you need to consider as an employer if you do choose to offer it.
This is where we have come to assist you. Our post will cover everything you need to know relating to FBTs so that you’re always on top of your business’s legal and tax obligations.
Read along!
Table of Contents
What is a fringe benefit?
A fringe benefit is a non-cash incentive paid to an employee on top of their salary. This is given on top of their base salary and is a way to attract quality staff to your business.
Common examples include:
- Company cars
- Entertainment benefits
- Telephone reimbursements
- School fees
The advantage of a fringe benefit is immense. Below are a few reasons why companies choose this for their employees:
- It is a way to provide incentives to your employees without having to increase their wages
- Employees can exclude fringe benefits from their taxable income
- Positive for employees as they don’t have to include them in their taxable income
One important thing to remember is that a fringe benefit is different from a fringe benefits tax.
So if you’re an employer considering fringe benefits for your employees, you need to be aware that there are specific tax implications.
What is fringe benefits tax (FBT)
What is the FBT? Good question.
FBT is a tax that employers pay on benefits paid to an employee in addition to their salary of wages. In other words, it’s noncash benefits you provide to your employees.
It is calculated by determining the taxable value of the benefits you choose and then multiplying it by the fringe benefits tax rate.
You must register and keep track of your FBT records, as this will be important for tax purposes at the end of the financial year (EOFY).
It is also essential to keep track of the FBT as it will be necessary to add this information to your employee’s fringe benefits on their payment summaries.
How do fringe benefits offer employers an advantage?
Although fringe benefits appear to be a bunch of extra perks for employees to enjoy, they can be an advantage to you as an employer!
Here are the key benefits:
- Fringe benefits are an effective tool in attracting and retaining the best talent for your business.
- In a competitive landscape, additional benefits can be the difference in an employee choosing your business over a competitor
- They can act as recognition for high performing staff and an incentive to stay on
- There can be an overall financial advantage for your business.
- There are several fringe benefits that are more cost-effective than increasing an employee’s wages or salary.
- Provides staff with a reward for their efforts but does not hit your business’ bottom line as hard.
- The tax concessions available on certain benefits also offer another saving opportunity.
- You can generally claim an income tax deduction for the cost of providing fringe benefits to your employees
If you provide fringe benefits to your employees, you need to register for FBT online through the Business Registration service.
If you have registered, there are 13 recognised benefits that you can provide your employees.
What are the different types of fringe benefits?
Did you know that you can provide 13 different fringe benefits you can offer your employees?
That’s right. The ATO recognises all the 13 benefits. They are:
- Cars (using statutory formula)
- Cars (using operating cost method)
- Loans
- Debt Waiver
- Expense Payments
- Housing
- Living away from home allowance
- Board
- Property
- Entertainment
- Residual
- Car Parking
- Meals
Although there are 13 fringe benefits, the following are the most popular free benefits that employers usually offer their employees.
1. Working from home – Property
You may have provided your employees with benefits you don’t usually offer because of Covid-19.
Some of these items may be exempt from fringe benefits tax if your employees usually use them for work. For example
- Laptops
- Portable printers
- Other electronic devices such as tablets, mobile phones
If this is the case and the items you provided are part of the standard work requirements, you may be exempt from paying fringe benefits tax.
Unsure whether you have to pay fringe benefits tax? You can ask yourself these questions.
- What did I provide my employees to allow them to work from home?
- If your employee received the use of the office equipment, this becomes a residual benefit
- If your employee becomes the owner of the office equipment, this is a property benefit
- Did my employees receive any form of electronic devices to conduct their work with?
Sometimes, these questions may be difficult, so it would be best to hire a lawyer for assistance.
2. Car fringe benefits
If you provide your employee with a motor vehicle for private use (personal use or private purposes) or agree to get them a car, this is a car fringe benefit.
Car Fringe benefits are one of the best ways for employers to minimise fringe benefits tax payable to the Australian Taxation Office (ATO).
The use of cars is calculated based on the ‘operating cost’ and incurs a lower fringe benefits tax.
In the operating cost method, the taxable value of the car fringe benefit is a percentage of the total cost of operating the car during the fringe benefits tax year.
For example, if you have had a car for four years as a fringe benefit, you will be eligible to apply the ⅓ reduction to your cost base.
Another factor is that you and your employees can benefit from tax savings (e.g. after-tax contributions) with a car fringe benefit. How?
Well, this is where the total cost of actually owning a car will cost less than if your employee had to buy their own vehicle.
What to ask?
So, if you have or will provide your employees with a car as a fringe benefit, you will need to answer and consider the following things:
- What cars did you provide to your employees?
- Were any vehicles purchased or sold during the year, and could they possibly be exempt?
- Were these vehicles supplied as a shared vehicle (among employees), as a part of a salary package arrangement or as a hire car?
- You also need to provide a logbook (that meets the ATO’s minimum requirements) if you’re going to use the Operating Cost Method
- Include details of any running costs
- Details of receiving payments
- Documentation that may note the changes in the pattern of use of the vehicle due to Covid-19, i.e., driving more or less for work-related reasons).
3. Carpark fringe benefits
Most small businesses are exempt from paying fringe benefits on car parking. This is one of the benefits that you can provide to your staff that is tax effective.
You will be exempt from fringe benefits tax (FBT exemption) relating to car parking if benefits if:
- You meet the conditions of the small business car parking benefits exemption
- If you are a particular research, education, religious or charitable institution
- For employees with a disability
However, you won’t be exempt from the car parking fringe benefits tax if the following apply:
- The parking is provided in a commercial car park
- For the last income year before the relevant FBT year, your total gross income is more than $10 million
- For the previous income year before the relevant FBT year, your turnover is more than $10 million
If any of the following above applies to you, you will need to provide your tax agent with the following information:
- How many car parks did you provide
- Where did you give the carpark
- Who did you offer the carpark to
- When did you give the carpark to
This will need to be proven, so a record of the timeframe (days using the parking) must be made available.
4. Entertainment
Entertainment is the most popular fringe benefit to minimise fringe benefits tax payable to the ATO for providing entertainment and meals. Entertainment benefits can include:
- Sustenance
- Entertainment leasing facilities
- Properties
- Expense payment benefits
- Meal entertainment, e.g. team lunches
- Christmas parties
- Events
If you have provided your employees with any of the benefits listed, you need to outline to your accountant the what, why, when, where, and to whom the entertainment was provided.
Tips for managing your entertainment fringe benefits tax next year include:
- Setting up an account
- Capture information at data entry
- Provide your employee with a cheat sheet – what is and isn’t available as a benefit, etc.
- Tell your accountant if you have been providing your employees with non-cash benefits and private expenses you have paid on their behalf
How to submit a fringe benefits tax?
FBT tax year runs from the 1st of April to the 31st of March. If you are providing FBT to your employees, you must:
- Register for FBT
- Keep track of your FBT records.
- Calculate the taxable value of the benefits
- Report fringe benefits on the employee’s payment summaries
- Lodge an FBT return to the tax office
How to calculate your FBT payable
- Calculate the taxable value of each fringe benefit you provide to your employees
- Determine the total taxable value of all fringe benefits you provide for which you can claim a GST credit
- Calculate the grossed-up taxable value of these benefits by multiplying the total taxable value of all fringe benefits for which you can claim a GST credit (from step 2) by the type 1 gross-up rate.
- Add up the total taxable value of all those benefits for which you can’t claim a GST credit (for example, supplies you made that were either GST-free or input taxed)
- Multiply the total taxable value of all fringe benefits you cannot claim a GST credit for (from step 4) by the type 2 gross-up rate to get the grossed-up taxable value.
- From steps 3 and 5, add the grossed-up amounts. This is your total fringe benefits taxable amount.
- Multiply the total fringe benefits taxable amount (from step 6) by the FBT rate. This is the total FBT amount you have to pay.
Frequently asked questions (FAQS)
Is fringe benefits tax different to income tax?
FBT is separate from income tax and is calculated on the taxable value of the fringe benefit.
What is the rate for FBT?
47% is the rate of the FBT for the 2018–19 to 2022–23 FBT years.
What is a minor benefits exemption?
Minor benefits are those that are worth less than $300. Generally, it is excluded from fringe benefits tax if it would be unreasonable to treat it as a fringe benefit.
What are reportable fringe benefits (RFBA)?
Employees will have RFBA amount if the total taxable value of certain fringe benefits you provide
- exceeds $2,000
- in a fringe benefits tax (FBT) year (from 1 April to 31 March)
You must gross up this amount and report it on their income statement or payment summary as an employer.
RFBA is also used to determine an employee’s entitlement, number of benefits and obligations. These include:
- Family Tax Benefits
- Medicare levy surcharge
- Private health insurance rebate
- Superannuation co-contributions
- Financial Supplement repayments
You can find out more about your reportable fringe benefits on the ATO website.
How can employers reduce their FBT liability?
You can reduce your fringe benefits tax liability by:
- providing benefits that are income tax-deductible
- using employee contributions
- providing a cash bonus
- providing benefits that are exempt from FBT
What is exempt from fringe benefits tax?
Work-related items are usually exempt from fringe benefits tax. These include:
- Computer software
- Briefcases
- Tools of trade
- Electronic devices — mobile phones, laptops, tablets, portable printers
Key takeaways
Fringe benefits are an effective tool in attracting and retaining the best talent for your business.
It is particularly useful in a competitive environment where additional benefits can determine whether an employee chooses your business over a competitor.
However, it’s always important to remember that there are certain tax obligations if you choose to provide fringe benefits to your employees.
If you want to learn about fringe benefits tax or your employer obligations, hire a lawyer to help you understand your tax obligations.
