Wondering if your business is liable to pay fringe benefits tax (FBT)?

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Do you offer your employees benefits in addition to salary and wages? If so, you may need to report FBT to the Australian Taxation Office. Providing employees fringe benefits can offer incentives and help them reduce their taxable income, but as a business owner & employer, you need to be aware of what is required of you.

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What is Fringe Benefits Tax (FBT)?

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Certain benefits provided to employees or their associates in addition to salary or wages are known as fringe benefits. These fringe benefits are paid for by the employer from pre-tax earnings, making the provision of benefits attractive to employees as it may reduce their taxable income while receiving payment in other forms.

FBT is a tax paid, based on the type of fringe benefits provided. Tax is payable because the benefits are a different form of payment by an employer instead of salary and wages.

The tax is calculated on the taxable value of the fringe benefits, which reflects the grossed-up salary the employee would have had to earn to pay for the benefits from post-tax earnings.

Employers can generally claim a tax deduction for the fringe benefits and related FBT payable.

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Types of Benefits

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There are many different types of fringe benefits employers may provide to employees. These may include:

• Motor vehicle owned by the business provided for private use;
• Motor vehicle lease arrangements;
• Car parking;
• Entertainment, such as golf club membership or tickets to major events;
• Expense payments, such as credit cards or health insurance;
• Other types include debt waiver, living away from home allowance, or property benefits.
• A salary sacrifice arrangement involving the provision of certain benefits.

Some fringe benefits provided to employees don't attract fringe benefits tax. If you pay for expenses that an employee would otherwise have been able to claim as a work-related tax deduction, fringe benefits tax won't apply. For example, if you pay for employees to attend a professional development course, there won't be any FBT liability on this benefit.

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Can an employer reduce their FBT liability?

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Legally reduce the taxable value of reportable fringe benefit amount.

It is possible for employers to minimize or completely avoid their Fringe Benefits Tax (FBT) liability by asking employees to contribute financially towards the cost of a given benefit. This way, every dollar that the employee pays will correspondingly reduce the taxable value of the benefit being provided.

Employers can also opt to offer higher salaries instead of fringe benefits as an alternative method of avoiding FBT payments.

Fringe benefits provided by employers to employees are not considered taxable income, and thus there is usually no direct effect on the employee's income tax or Medicare levy. However, receipt of fringe benefits can have an indirect impact on a number of other circumstances and obligations, such as family tax benefits, Medicare levy surcharge, private health insurance rebate, child support payments, superannuation co-contributions, Higher Education Loan Program (HELP) repayments and various tax offsets.

This means that fringe benefits do not pass through the employee's pay packet untouched; instead, fringe benefits will be taken into account when determining eligibility for certain payments or deductions (eg. payments from Services Australia).

If fringe benefits are creating a negative financial outcome for an employee, they may agree with their employer to reduce their company's fringe benefit tax liability by making a dollar-for-dollar contribution from their post-tax salary, which will go towards payment for the fringe benefit provided to them. This allows employees to receive their fringe benefit without incurring any additional tax burden. Additionally, the arrangement could also improve their eligibility for certain payments or deductions. It is important to remember that this arrangement must be agreed upon between both the employer and employee; otherwise, it may not provide the desired outcome.

Additionally, some benefits, such as public transport fares, may qualify for complete exemption from FBT provided certain conditions – such as eligibility requirements – are met.

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Some examples of exempt fringe benefits which the ATO will provide an exemption or concession.

• Electric cars exemption;
• Minor benefits exemption;
• Taxi travel expenses exemption;
• Concessions for non-profit organisations.

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What is a Reportable Fringe Benefits Amount (RFBA)?

When the taxable value of fringe benefits paid to an employee in an FBT year exceeds $2,000, then it is considered a Reportable Fringe Benefit Amount (RFBA).

This amount must be reported on the employee's end of financial year income statement or payment summary.

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Do you pay fringe benefits tax on superannuation contributions?

When it comes to fringe benefits tax (FBT) and superannuation contributions, salary-sacrificed amounts are not considered fringe benefits when associated with an employee's complying fund. However, if these payments are made to an associate, such as the employee's spouse or a non-complying superannuation fund, then FBT will apply.

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Superannuation caps

It is also worth noting that salary-sacrificed amounts do count towards the concessional (before-tax) superannuation contribution cap of $27,500 per annum. Therefore, employees need to be mindful that their total concessional contributions — including their employer's normal contributions plus any personal contributions they want to claim an income tax deduction on — do not exceed this limit.

Should they exceed it, the Australian Taxation Office (ATO) cautions they may incur additional tax liability. To avoid this, individuals should pay particular attention to their overall concessional superannuation amount and ensure their salary-sacrificed amount does not push them over the stipulated threshold.

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How is a fringe benefit calculated?

Fringe benefits tax is calculated based on the highest tax bracket regardless of whether the employee is in a lower tax bracket.

When working out its FBT liability, the employer must gross-up the taxable value of fringe benefits provided to reflect the gross salary employees would have to earn at the highest marginal tax rate (including the Medicare levy) to buy the benefits after paying tax.

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Calculation types:

There are two different types of gross-up rates used to calculate fringe benefits tax amounts.

1. The first applies to benefits where the employer is entitled to a goods and services tax (GST) credit for GST paid. The second applies when there is no GST credit entitlement.
2. The tax payable is the taxable amount multiplied by the fringe benefits tax rate, which is currently 47 per cent.

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Fringe Benefits Tax Administration

The fringe benefits tax year runs from 1 April to 31 March. You must then include the reportable amount for each employee on their Single Touch Payroll finalisation by 14 July, so it flows through to their annual income statement.

As with all business transactions, keeping accurate records is essential to determining whether fringe benefits tax applies or not and how much needs to be included on the employee's income statement, if any.

We can provide tax advice on the types of benefits available, how much tax is payable or how to reduce the FBT liability. We'll also get your accounting software set up to make record keeping easy.

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Need to find out more?

For more detailed information visit the ATO at https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)

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