The coffee machine in the corner of the office, the free drinks on a Friday, the morning tea nobody asked for - welcome to the world of Fringe Benefits Tax (FBT), where every office perk comes with a tax surprise.
FBT is an undercover tax that exists to make sure the extra benefits provided in a workplace aren’t entirely tax free. That’s right, the tax man is everywhere. To understand FBT, who pays it, and whether an employer can claim tax deductions on it, keep reading.
But first, what is a fringe benefit?
What is a fringe benefit and what does it include?
Fringe benefits, also known as employee benefits or perks, include various types of non-wage compensation provided to employees in addition to their normal wages or salaries. They are an important part of a business and can be a useful way to attract and retain quality staff.
Examples of fringe benefits include a car for private purposes, goods at a discount, low interest loans, and reimbursement for private expenses like school fees. Examples of things that are not considered fringe benefits are salary and wages, employer contributions to complying super funds, shares or rights provided under approved employee share acquisition schemes, employment termination payments, and benefits provided to volunteers and contractors.
What is Fringe Benefits Tax (FBT)?
Fringe Benefits Tax is a tax that employers pay on benefits given to an employee or their associates, like family members, in addition to their salary or wages. FBT is calculated on the taxable value of the benefits you provide and is separate from income tax.
To put it simply - imagine you work for a company and in addition to your salary, they give you some extra perks like a gym membership, coffee, or company car. Now, the government wants to make sure they get their fair share of taxes from the perks, so it makes your employer pay the tax separately. This is FBT.
FBT is a legal practice used across Australia provided a business meets their FBT obligations. These obligations require businesses to:
- Register for FBT
- Calculate how much FBT you have to pay
- Keep all records relating to the benefits you provide
- Lodge a return and pay FBT to the ATO
- Include reportable fringe benefits on your employees’ payment summary.
Who Pays this tax?
The employer is responsible for paying FBT which is based on the taxable value of the fringe benefits provided to employees and their associates. The employer must also pay the FBT if the benefit is provided by a third party under an arrangement with the employer. However, if the employer provides only salary and wages to employees, no FBT will be applicable.
If you are an employer and want to work out how much FBT you need to pay - you ‘gross-up’ the taxable value of the benefits you’ve provided. The FBT that an employer must pay should be 47% of the total value of the fringe benefits.
Some start-ups and small businesses believe they are exempt from paying FBT - however this is a myth. Small businesses are also required to pay FBT.
Who Receives Fringe Benefits?
Employees are the recipients of Fringe Benefits. The idea behind fringe benefits is to enhance the compensation package and improve the attractiveness of the job.
Fringe benefits will vary depending on an employer’s policies and legal regulations. For the purpose of Fringe Benefits Tax, an employee can be a director of a company, beneficiary of a trust who works in the business, or a current, future, or past employee. Sole traders or partners in a partnership are not subject to FBT, nor are the benefits employers may provide to clients such as entertainment.
Can You Claim Deductions and GST Credits?
Yes, employers can claim an income tax deduction and GST credits for the cost of providing fringe benefits, as well as an income tax deduction for the FBT they are required to pay.
Some benefits that are tax deductible are if they are paid for by the employees themselves. For example self-education expenses, travel costs, clothing and laundry costs. A way to forego having to pay FBT is if employees are provided with a cash bonus rather than a benefit. Some popular tax deductible fringe benefits include:
- Work-related items
Eligibility: Items provided to employees for use in their employment such as tools, laptops, mobile phones, and protective clothing. - Car expenses
Eligibility: Car-related expenses incurred by the employees in the course of their employment such as fuel, maintenance, registration, and insurance. - Professional development expenses
Eligibility: Expenses related to professional development activities undertaken by employees to improve their skills or knowledge relevant to their current employment. This may include course fees, training materials, and travel expenses for attending workshops or conferences. - Travel expenses
Eligibility: Travel expenses incurred by employees for work-related purposes such as business trips, client meetings, or site visits. This can include expenses like airfare, accommodation, meals, and transport.
Further FBT information - a guide for employers
Some key FBT points outlined on the Australian Taxation Office website include liability, calculation, reporting, exemptions, concessions, and record keeping requirements. For further information to help you meet your FBT obligations as an employer, read Fringe Benefits Tax - a guide for employers.
- FBT rates and thresholds
The FBT rate is currently set at 47%. There are also specific thresholds and exemptions for certain types of benefits. - FBT reporting and compliance
Employers are required to register for FBT, keep accurate records of fringe benefits provided, and report and pay FBT to the ATO by specific deadlines. - Exemptions and concessions
Certain benefits may be exempt from FBT, such as work-related items provided to employees earning less than $300 in salary sacrificed contributions. - FBT concessions for small businesses
Small businesses may be eligible for concessions under the FBT law, including reduced FBT rates and simplified reporting requirements. - Employee contributions and FBT
Employee contributions towards the cost of fringe benefits may reduce the taxable value of the benefits subject to FBT. - Record-keeping requirements
Employers must maintain accurate records of fringe benefits provided to employees, including details of each benefit and its taxable value.
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