Small Business Tips

The Basics of Fringe Benefits Tax

Wrapping your head around Fringe Benefits Tax 

 
To some businesses it may seem strange to offer an employee a company car or provide them with specific allowances. They already have a salary so why are employers providing these additional perks and offers?
Essentially, these offers are fringe benefits- often non-cash incentives provided to employees on top of their current salary or wages. These benefits can both incentivize current employees or attract new and potential talent into the business, the benefits extend to the employee’s spouse and children as well. However, by no means are the employees the only ones benefitting from these offers, employers may reap tax advantages resulting from fringe benefits and also potentially motivating employees without increasing their wages. Though fringe benefits can be an effective manner to use when rewarding employees and acknowledging their efforts or the organisation, some of these benefits will require employers to pay a fringe benefit tax. Different fringe benefits will have differing methods to calculate how much FBT an employer is to pay.
 
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Types of Fringe Benefits

 
There are a variety of different fringe benefits employers can offer:
 
Car Fringe Benefit
  • When employers provide employees with a car for work or private use, it is known as a car fringe benefit. It is one of benefits that minimizes how much FBT an employee needs to pay as the tax is calculated based on the cost of operating it. A perk of having the car fringe benefit for at least 4 years will allow the employer access to a reduction to their cost base.
 
Car parking Fringe Benefit
 
  • Some organizations may not have on-site parking, resulting in hefty fees for employees daily. The car parking fringe benefit means employees receive free parking or are paying a fraction of the cost, this alleviates the financial burden some parking fees can create. It should be noted to be eligible for the car parking fringe benefit, the car park needs to incur an all-day parking fee greater than $8.37.
 
Debt Waiver
  • Debt Waiver fringe benefits if an employer has written or waives an employee’s debt or any unpaid invoices. To be considered a debt waiver fringe benefit, the debt has to be written off as a result of the employee’s employment. E.g. Debts written off because they are genuinely a bad debt would not be considered eligible as a debt waiver fringe benefit.
 
Entertainment
  • Food, recreation, drinks, accommodation and travel connected to said entertainment should be included in the entertainment fringe benefits. These will be items such as business lunches, staff functions, sporting events and sightseeing etc.
 
Housing Fringe Benefit
  • Housing fringe benefits occur when employers provide free accommodation or reduces the amount of rent paid. If accommodation is provided to your employees located in remote areas may be exempt from the fringe benefits tax.
 
Living away from home
 
  • When employers provide employees with an allowance that allows them to pay for expenses and disadvantages resulting from having to live away from their usual place of residence for work.
Loan
  • Loan Fringe Benefits occur when employers provide a loan to an employee and charges either under the benchmark interest rate or charge no interest at all.
 
Expense Payment Fringe Benefits
  •  Expense Payment Fringe Benefits are when employers reimburse the employee for expenses incurred or employers have paid a third party for the expense. These expenses can be private or work-related in nature, but must be incurred by the employee.
 
Property
  • Property fringe benefits exist if an employer provides an employee with either a property for free or at a reduced price. In this instance, property is not just land and physical buildings, it also is inclusive all goods like clothing, electronics, shares etc.
 
Exemptions
Fringe benefits which are 100% liable should be replaced with benefits with exemptions or benefits with reductions as this can minimise the overall tax payable.
There are also numerous fringe benefits which are exempt from tax and these include, but are not limited to:
 
  • Newspapers for business purposes
  • Travel for medical treatment
  • Occupational health counselling
  • Taxi/Cab travel to work
  • Infrequent benefits valued at under $300
  • Meals at the work site, paid/provided by the employers
  • Work-related goods like computers, protective clothing, briefcases etc.
 

Submitting your Fringe Benefit Tax

When completing the FBT, employers should remember the tax year is the 1st of April to the 31st of March the following year. They deadline for the lodging the FBT Is the 21st of May.
 
  1. Register for Fringe Benefit Tax
Employers can do this over the phone, by simply lodging their annual fringe benefit tax return, through their tax agent or lastly fill out an application for FBT registration and submitting it.
 
  1. Keeping a record of fringe benefits offered
They employer must keep a record of all elements relating to a fringe benefit. The perk of keeping record allows you to both justify how you calculated the FBT tax but also if there are potential reductions or exemptions for your FBT. All records relating to fringe benefits need to be kept on hand whether physical or digital for 5 years.
The types of records include:
  • Invoices
  • Receipts
  • Odometer Recordings
  • Lease Documents
  • Employee Declarations
 
  1. Calculating the FBT
Fringe Benefit Tax rates:
Change annually - these are the rates which employers use during the calculation of your tax payable so checking the ATO rates and thresholds can help employers ensure their tax payable is accurate. For the FBT year ending on the 31 March 2018 the current FBT rate is 47%.
 
Gross-up rates
There are 2 different types of gross-up rates:
Type 1: Higher gross-up rates: Employers use this rate when they are entitled to GST credits (currently 2.0802)
Type 2: Lower gross-up rates: Employers use this rate when there is no GST entitlement to claim (currently 1.8868)
 
As mentioned previously, some fringe benefits require their own calculation rates which can be found on the ATO webpage.
 
  1. Reporting FBT
If the taxable value of an employee’s fringe benefit is greater than $2000, the employer must include this value in the employee’s payment summary for that year. In the case where certain employees are sharing a fringe benefit, you must assign their shares individually when reporting. If a fringe benefit’s value does not exceed $2000, it does not need to be reported in the annual fringe benefits tax return.

It should be noted, if an employer wishes to lodge a Fringe Tax Benefit return through a registered tax agent there may be a different deadline and lodging arrangements. If this is the case, employers should consult their tax agent to confirm dates and processes.

In the circumstance where businesses are registered to Fringe Tax Benefits but there is no taxable amount to pay for the current year, they must completely a notice of non-lodgement and submit it to the ATO.

These are the basics for ensuring employers have an understanding of the fringe benefits employers can offer their employees and what implications it may have on their tax payable. For further information check out the ATO FBT webpage to gain a more comprehensive view of all of these aspects.