Fringe Benefits Tax for Employers
Also referred to as FBT for short, fringe benefits tax is paid by employers in relation to benefits or other non-income payments or concessions made to employees, as well as the families of employees or associates of the enterprise. Fringe benefits may be incorporated into the wages or salary paid to employees, or they may be offered as extra incentives or bonuses. Another example of circumstances in which an FBT liability exists is when the director of a trust or company receives benefits, bonuses, etc.
Fringe benefits tax is not the same as or included in income tax, they are separate taxes. FBT is only calculated in accordance with the monetary value of whatever fringe benefits are provided, without relation to other income.
Do I Need to Pay Fringe Benefits Tax?
If you provide your employees or their associates with fringe benefits, you might be required to register for and pay FBT. For FBT purposes, the employee in question may be past, current, or future in relation to their employment with you. They may also be the director of a trust or company.
FBT also applies to benefits that are not provided directly by you, but by a third party through an arrangement you have made.
The following are all examples of fringe benefits which may attract an FBT liability:
• Giving an employee or their associate a loan at a discounted rate
• Paying the cost of a gym membership for an employee or their associate
• Allowing employees to make private use of work cars
• Reimbursing an employee or their associate for an expense that does not relate to their employment with you, such as school or medical fees
• Giving an employee or their associate access to paid entertainment by giving them free tickets to events
• Making a salary sacrifice arrangement with an employee which includes benefits.
For FBT purposes, it is important to determine a worker’s employment status. Whether someone is employed as a volunteer, contractor, or employee is what determines their employment status in this context. Contractors and volunteers usually do not attract an FBT liability on benefits provided by their employer. Those engaged in ongoing, formal employment are likely to attract an FBT liability if they are provided with such benefits.
If you think you may need to pay fringe benefits tax, but are unsure, speak to your accountant or registered tax agent to seek clarification. The ATO requires employers to assess their own FBT liability for each year, with the FBT year running from the 1st of April to the 31st of March.
As an employer, not all benefits you provide to employees will attract an FBT liability. If the benefit is directly related to the employee’s work or duties as part of their role, it may be assessed as a work-related item and therefore exempt from FBT. The following are examples of benefits that are likely to be assessed as work-related items:
• Tools of the trade
• Computer software or hardware
• Electronic devices including laptops, mobile phones, GPS systems, printers, tablets etc.
• Briefcases or other containers
• Protective clothing.
There are limits on work-related benefits that are exempt from FBT. If you provide a mobile phone, for example, you cannot provide the employee with another FBT exempt mobile phone until the next FBT year. If the original item is broken and a replacement is ordered, the replacement may be exempt from FBT. Exempt items must be things which will primarily be used for work, not private use.
Small businesses were recently granted an extension on the work-related item extension, allowing them to provide more than one work-related item of a particular function within a given FBT year. This means that the above requirements pertaining to the one-item-one-year exemption limit does not apply to small business employers.
Property Fringe Benefits
If you provide an employee or their associate with goods or property at a discount, or for free, this may constitute an assessable fringe benefit that attracts FBT. Examples of property fringe benefits might include:
• Real-estate/real property, such as buildings or land.
• Goods such as appliances, clothes, entertainment products etc.
• Other property, such as bonds or shares.
Residual Fringe Benefits
Residual fringe benefits are those which are the hardest to define, yet still satisfy the criteria required to attract an FBT liability. Remember that for tax purposes, benefits are defined as being any item, privilege, right, facility, service etc. that is not work-related.
Examples of benefits that might be assessed as residual fringe benefits include:
• Provision of services, such as a plumber offering their services free of charge to an employee
• Allowing an employee to make use of items or property owned by the employer, such as a camera or entertainment system
• Allowing an employee to make private use of a work vehicle which is not assessed as a car in relation to FBT, such as a motor scooter or utility.
If you are unsure whether or not you may be attracting an FBT liability through residual benefits, speak to your registered tax agent or accountant.
How Do I Reduce My FBT Liability?
If you believe that you may be providing benefits that attract an FBT liability, you may decide to replace these fringe benefits with other things that do not attract FBT liability. For example:
• By replacing or making-up for the lost fringe benefits with additional wage or salary payments
• Choosing only to provide your employees with benefits that do not attract an FBT liability, such as work-related items
• Replacing fringe benefits with other benefits that your employees would be eligible to claim as deductions on their income tax should they be required to meet the expense themselves
• By using employee contributions to offset the FBT liability. An example of this would be that you require an employee who is allowed to make use of their work car for private purposes to pay the operating costs of the vehicle. Be aware however that employee contributions may be subject to GST and may contribute to your assessable income.
Contact Kingston & Knight Accountants today on 1800 283 481 to learn more about our Melbourne tax accounting services, or email us at firstname.lastname@example.org.