A fringe benefit is like a payment to an employee, but in a different form to salary or wages. Fringe benefits tax (FBT) can be slightly confusing to understand for business owners, so let’s break it down!
What is a fringe benefit?
A fringe benefit is a benefit to employees that is available on top of their normal salary and means they get a similar after tax income. In most cases however, it forms part of the salary and the employee receives less after tax income due to the fringe benefit repayment.
Fringe benefits are usually seen as ‘perks’ of a job. It can be a great way for companies to attract and retain employees. This is particularly useful in competitive industries – having fun perks can make your company stand out.
FBT applies to fringe benefits provided to your employees, or to your employees’ families or other associates. For FBT purposes, an employee includes a current, future or past employee, director of a company or a beneficiary of a trust who works in the business.
A fringe benefit is paid by the employer, not the employee. This is the case even if the benefit is provided by a third party under an arrangement with the employer.
What are examples of fringe benefits?
There are many fringe benefits that employees can be offered, such as use of a work car for private purposes, car parking, taxis or rideshare travel, gym membership, private health insurance, entertainment and travel.
Employees can also be reimbursed expenses such as school fees, discounted interest rates or interest free loans, salary sacrifice arrangements, accommodation, living away expenses, housing, board or mortgage repayments.
While fringe benefits can include many things, they don’t include salary and wages, employer contributions to complying super funds, or shares or rights provided under approved employee share acquisition schemes.
Employment termination payments, payments deemed to be dividends under Division 7A and benefits provided to volunteers and contractors are also not fringe benefits.
Why would I provide my employees with fringe benefits?
Implementing a range of fringe benefits can lead to increased employee satisfaction and a positive company culture, helping to retain your existing workforce and leading to less turnover.
As an employer, there are potential tax savings for your business as you can claim some deductions for certain benefits.
How much does it cost to provide fringe benefits?
First of all, we need to work out if you provide fringe benefits to your employees already. If you do,, you may need to pay FBT.
To work out how much you need to pay, you ‘gross-up’ the taxable value of the benefits you’ve provided. This is equivalent to the gross income your employees would have to earn, at the highest marginal tax rate (including the Medicare levy), to buy the benefits themselves. The FBT you pay is 47% of this ‘grossed-up’ value of the fringe benefits.
Sounds confusing? It is definitely one area that is harder to understand! We encourage employers to identify the types of fringe benefits you provide and check for FBT concessions and ways you can reduce FBT. Some benefits are exempt from FBT, such as work-related items. You can reduce your FBT liability by using alternatives to fringe benefits or providing benefits that are eligible for a concession.
After working out the taxable value of fringe benefits you provide you can calculate your FBT liability. It is important that you keep records, including employee declarations where needed.
The FBT year runs from 1 April of the previous year to 31 March of the current year, with the standard FBT due date for lodging and paying being 21 May of the current year. You’ll need to report each employee’s fringe benefits in their end-of-year payment information, if required.
How to find out more info
FBT is a complex subject, and we can help you better understand the implications and concessions for your company. Contact our office on office@ultimate-tax.com.au to chat with us about FBT questions.
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