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December 8, 2021

What you Need to Know About Fringe Benefits Tax (FBT)

Yes, there is no denying this may be one of the least favourite taxes going around, but if you look closely at what you are providing your employees, there’s a chance you may be in FBT territory without even intending to!

You may choose to reward your staff by providing benefits or perks over and above their normal salary and wages. If so, this is known as a fringe benefit and while it is a useful way to incentivise staff, there can be potential tax consequences that need to be considered for both employers and employees.

Keep reading for a little summary of FBT and how it may impact you and your business:

What is FBT?

As per the ATO, FBT is a tax paid by the employer – not the employee – on the taxable value of certain benefits paid to employees. The word“employees” also covers benefits provided to the family of employees or to associates (such as friends) of employees.

If you’re old enough to remember, the Hawke-Keating government introduced this tax back in 1985 putting a stop to businessmen and women taking clients, friends, or colleagues to long lunches or dinners, and writing off the cost as a business expense. The government declared it was a fringe benefit of the job and should be taxed as such. The days of the consequence-free long lunch were officially over!

Examples of Fringe Benefits

Including, but not limited to:

·      Providing a car for your employee that can also be used for private purposes

·      Providing free or subsidised car parking for your employees

·      Providing your staff with “entertainment”, such as meals, drinks, sporting or leisure (e.g. buying them a round of golf, tickets to a sporting event, or holidays)

·      Reimbursing an employee for private expenses(electricity bill, private health insurance)

·      Giving your employee a loan and charging no interest or a reduced rate of interest

Exempt Fringe Benefits

Certain benefits are excluded from the FBT rules if they are provided primarily for use in the employee’s employment.These include:

·       Tools or electronic devices (such as laptops, iPad, keyboards, etc)that are mainly used for work purposes

·      Flu shots provided to your employees at or adjacent to your workplace

·      ‘Minor-benefits’ are also FBT-free if their taxable value is less than $300 per head and considered a “once-off”. This includes a function such as the annual staffChristmas party where the cost per head is less than $300

Paying and Reporting FBT

The ‘FBT year’ runs from 1 April to 31March each year, and if you provide fringe benefits to your employees, the first step you need to take is to let us know and we can assist you with registering for FBT with the ATO.

Once you are registered, you will lodge an annual FBT return which is normally due on 21 May (or longer if you use a Tax Agent). The actual tax itself is calculated based on the ‘taxable value’ of all benefits provided, grossed up by a formula set by the ATO and then multiplied at the top tax rate 47%.

(There are ways you can reduce your liability, and certain concessions provided by the ATO but in the interest of keeping this simple we won’t bombard you with too many facts here. If you are an employer and want to read more, have a look at this handy ATO guide for employers: FBT - A Guide for Employers.

Does the Employee need to report theFringe Benefits?

We pointed out earlier that FBT is payable only by employers. Whilst this is accurate, if the amount of fringe benefits provided to an employee exceeds $2,000, the figure must be reported in their year-end payment summary statement so they can include on their tax return.

This is not taxable to them, but it is considered in calculating other payments or offsets, such as family tax benefits, MedicareLevy Surcharge, HECS, private health insurance rebate and other various offsets.

Summary

Yes, this topic may be a little dry but there can be a lot to unpack when it comes to FBT and it can sometimes affect you without you even realising it. But we are here to help, and towards the end of March, we’ll send out checklists and questionnaires for you to provide the latest relevant information to us.

If you think your business has provided fringe benefits for the first time, please let us know and we will help you get ready and stay on top of your FBT compliance.  

 

If you’d like to discuss your fringe benefit tax position, our expertise has you covered. Speak with one of the Attune team on 1300 866113 or click here to start the conversation on email.

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