If you are providing perks for your employees, you may want to know if you are up for fringe benefits tax (FBT). Here’s a quick run-down of the most common questions about FBT.
A fringe benefit is something extra you get from your employer, in addition to your wage or salary or in return for foregoing some of your salary under a salary sacrifice arrangement.
It’s generally not actual salary, wages or cash, and the benefit can be something for you, your spouse or your children.
Your employer is liable for the tax (FBT) that may apply to the benefits that you and/or your family may receive – not you.
Fringe benefits are incentives employers offer to attract, retain and motivate employees. It is also gives employers a competitive edge in their employment offerings.
Fringe benefits are offered to employees in form of a salary sacrifice out of (deducted from) the employee’s base salary.
The immediate effect of reducing the tax burden on the employee. It might push the employee down into a lower tax bracket. The difference in the employee’s income tax can be substantial for a higher income earner.
A wide range of perks are classed as fringe benefits. The most common ones are:
- Discounted loans
- Gym/health memberships
- Entertainment expenses – free/discounted food, cinema tickets, accommodation
- Private health insurance
- Living-away-from-home allowance (LAFHA)
- Real Property – land and buildings
- Right to Property – shares, bonds
- Childcare costs and school fees
A major reform currently being considered by the Federal Government is to make many electric vehicles provided through a business arrangement exempt from Fringe Benefits Tax – even if they have no business usage. This will provide great tax savings, so watch this space for furthe update!
The Australian Taxation Office (ATO) does not consider an employee’s salary, employer contributions to a super fund, termination payments or shares purchased through a share acquisition scheme to be fringe benefits.
Dividends, benefits provided to volunteers or contractors, and some benefits provided by religious institutions are also not fringe benefits.
Some benefits are free from FBT, such as work tools or electronic devices such as laptops, minor benefits with a notional taxable value of less than $300 such as annual staff Christmas party (provided the cost per head is less than $300).
There are also a number of FBT concessions and exemptions available to certain not-for-profit organisations like charities, public hospitals and religious institutions.
FBT concessions and exemptions may also apply if you need to offer your employees benefits you do not usually provide because of COVID-19, such as if you’re now paying for items that allow your employees to work from home (e.g. a monitor, keyboard or internet access).
When the taxable value of fringe benefits paid to an employee in an FBT year exceeds $2000, 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.
While the RFBA is not taxable income, it can affect whether you are entitled to things like the Medicare levy surcharge, family tax benefits, child support payments, the private health insurance rebate, and superannuation co-contributions.
It is also used to calculate the amount you must repay towards government loans such as the Higher Education Loan Program (HELP), Student Financial Supplement Scheme (SFSS), and Trade Support Loan (TSL).
Some fringe benefits, such as car parking and remote area housing assistance, don’t have to be reported on your income statement or payment summary.
The FBT year is different to the financial year and runs from April 1 to March 31.
Fringe benefits tax is calculated based on the highest tax bracket regardless of what tax bracket an employee is on.
When working out its FBT liability, the employer must gross up the taxable value of the benefits provided to get back to the gross salary employees would have to earn if they were to buy the benefits themselves with after-tax monies.
Gross up is the process of calculating the taxable value of the fringe benefits on the basis the the value received by the employees are the net value after income tax has been paid, or 47 cents in the dollar
There are two different types of gross-up rates used to calculate fringe benefits tax amounts.
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.
The tax payable is the taxable amount multiplied by the FBT rate, which is currently 47 per cent.
Ending 31 March 2019, 2020,2021 2022 and 2023, the gross-up factor for type 1 (inclusive of GST) is calculated as follows:
(FBT rate + GST rate ) / ( 1 – FBT rate) x (1 = GST rate) x (FBT rate)
= (0.47 + 0.10) / 0.53 x 0.90 x 0.47
Where the employer is not registered for GST, the gross up factor is:
1 / ( 1 – FBT Tax rate )
Disclcaimer: The information provided within this article is general information only. None of the comments in these notes are intended to be advice, whether legal, financial product or professional. You should obtain specific advice regarding your particular circumstances from a tax or legal professional.
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