Providing perks or benefits are possibly the best way to reward and acknowledge the contributions and loyalty of your employees.
But in Australia, when you offer such benefits, you are subjected to Fringe Benefits Tax or FBT.
In this article, we’ll let you in on all the critical information you need to know about this tax.
Fringe Benefits Tax – What Is It?
By definition, Fringe Benefits Tax is a separate tax that employers pay on specific benefits (aside from salary or wages) provided to their employees and their associates.
In Australia, FBT has its own law Fringe Benefits Tax Assessment Act (FBTAA) 1986, which is different from the Income Tax Assessment Acts (ITAA) 1936 & 1997.
FBT was introduced in Australia to help improve the fairness around the benefits paid out from companies to their staff – which previously went untaxed & effectively created an unfair tax benefit. Every year, the FBT fiscal year starts from April 1st and continues till March 31st.
Types of FBT
There are a number of taxable perks, and each type has its own valuation rules. The types of additional privileges that are subject to FBT include:
Car and Parking Fringe Benefits
As an employer, you’re offering a car fringe benefit if you’re making a car available or lease to your employee for personal use.
- For FBT purposes, the car must be:
- A station wagon or sedan.
- Any goods-carrying automobile that has a carrying capacity of not more than one tonne.
- Any passenger-carrying vehicle that can’t carry more than nine people.
By the ATO’s definition, a car is regarded as an additional benefit or fringe benefit if it is available or used for private use. This includes scenarios where:
- It is kept near or at their private residence (excluding listed emergency vehicles.)
- An employee has control of the car when not working.
- It is outside the business premises and still available for personal use.
- Exemptions – there are some situations where the use of a car is free from FBT. These exemptions include:
- Infrequent one-off car hire.
- Panel vans, taxis, utility trucks, or other vehicles designed for a purpose other than carrying passengers (< 1tonne).
- If used for work-related travel or only irregular, minor, or infrequent personal use.
- If the car is unregistered and principally used for business operations.
The parking benefit arises if an employer offers car parking to the staff. Certain conditions need to be met.
Housing Fringe Benefit
- This benefit arises if you offer rent-free accommodation to your employee. It can include the following:
- A flat, house, or home unit.
- Accommodations in a guesthouse, motel, bunkhouse, hotel, or any other living quarters (i.e. rather than for business travel <3 weeks).
- Accommodation on ships or any floating surface.
- Mobile home or a caravan.
Loans and Debt Waivers
A loan benefit may arise if you provide your staff low-interest or interest-free loans.
If you waive off your employee’s debt (without requiring a repayment), you’re offering a debt waiver privilege.
For example, if you offer an item to your employee (that your company sells) and later tell him that he doesn’t have to pay for it, you’re offering an additional benefit.
However, some types of bad debts can’t be regarded as fringe benefits.
For more information on debt waivers and loan benefits, check out the ATO’s guide.
Some other privileges which are regarded as fringe benefits include entertainment expenses, expense payments, board benefits, residual, and property perks.
Who Needs To Pay FBT in Australia?
If your staff members make use of the Company’s assets/funds for personal purposes, then your company might be liable for FBT.
- Some of the common examples include:
- using a company car for private use.
- paying for entertainment packages or gym memberships.
- reimbursing school fees.
- offering low-interest loans.
- There are also some perks that aren’t liable for FBT, and they include:
- work-related items (briefcases, software, laptop).
- salary sacrificed super.
- taxi expenses.
How Do I Register For FBT in Australia?
You’ll be able to register for Fringe Benefits Tax if you have provided taxable benefits during the FBT year (April 1st-March 31st).
You can do your registration either by phone or online, via the FBT return or your tax agent. Reach out to Fullstack if you need assistance here.
How to Calculate My FBT?
When you lodge your FBT return, you or your tax agent needs to determine how much FBT you need to pay for the expenses and items.
Here are the steps to calculate your FBT payable:
- Determine the taxable values of every additional perk you have provided to your employee.
- Determine the total chargeable value of all the additional benefit (which will earn you GST credit) you have provided.
- Calculate the grossed-up payable value by multiplying the amount you get from step 2 with the gross-up rate of Type 1, which is 2.0802 at present.
- From step 1, find out the net payable value of perks for which a GST credit isn’t available (e.g., GST free supplies or input taxed).
- Calculate the grossed-up chargeable amount by multiplying the net value you obtained from step 4 with the gross-up rate of Type 2, which is currently 1.8868.
- Sum up the net grossed-up values from steps 3 & 5. The value you get from this is your net FBT amount.
- Finally, multiply the value from step 6 with the current FBT rate (which is 49%). This is the net amount you need to pay.
ATO tends to change the rate for FBT every few years, so it’ll be worthwhile to check their official website every now and then.
How to Report, Lodge, and Pay FBT?
Once the calculations are done, you can report your net amount via the FBT return at the end of the FBT year. You can do that through post, tax agents like Fullstack or by using enabled software.
The payment and lodging of your FBT needs to be done before May 21st unless a tax agent is preparing your FBT. In such cases, other lodging arrangements might apply.
How Can I Reduce my FBT Liabilities?
- There are a few steps you can follow to minimise your FBT payable:
- Replace the additional perks with a cash salary.
- Have employee contribute back to the cost of the benefit.
- Provide benefits that are free from FBT – i.e. light in-house lunches or snacks, work-related equipment.
- Provide your employees with benefits that can be claimed as income tax deductions.
Need support with your FBT?
By now, you should have a clearer grasp on the concept of FBT, including how to calculate your FBT and how to make your FBT liability more manageable.
That said, FBT can become quite complicated as you start introducing more layers of employee benefits, and it’ll do you good if you consult a trusted tax advisor like Fullstack to scope out your FBT exposure beforehand.