Wilson & Assoc Chartered Accountants

Frequently Asked Questions on Fringe Benefits Tax

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.

Fringe benefits are non-cash benefits that employees receive as part of their employment package, such as company cars, health insurance, gym memberships and free meals. Despite not being considered wages or salary, these benefits are still subject to taxation under certain circumstances. 

Employers are liable for paying Fringe Benefits Tax (FBT) on the value of any fringe benefits provided to employees, which can consequently impact their tax liability. Additionally, if the total value of particular fringe benefits is above a specified threshold, they may be classified as “reportable”, requiring the employee to pay taxes on them. Therefore, it is crucial to consult with an employer or a tax professional to determine how fringe benefits are treated in a particular situation.

Fringe benefits are additional incentives that employers provide to their employees to attract, retain and motivate them.  Offering fringe benefits also gives employers a competitive advantage in the labor market by distinguishing their employment packages from others. 

Fringe benefits can be provided to employees through a salary sacrifice arrangement, whereby the cost of the benefit is deducted from the employee’s base salary.

By doing so, this can result in an immediate tax reduction for the employee, and may even move them into a lower tax bracket, resulting in a significant difference in their income tax. This effect is particularly noticeable for high-income earners.

A wide range of perks are classed as fringe benefits. The most common ones are:

– Car
– 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

Apart from exemptions from registration and stamp duty (till 31 December 2023), electric vehicles (EV) are also exempt for FBT. This could save you thousands in FBT each year.

The Australian Taxation Office (ATO) distinguishes an employee’s salary, employer contributions to a super fund, termination payments or shares purchased through a share acquisition scheme from fringe benefits. These benefits are not classified as fringe benefits.

Additionally, dividends, benefits given to volunteers or contractors, and certain benefits provided by religious organisations are not considered as fringe benefits by the ATO.

Certain benefits are free from FBT. These include work tools or electronic devices such as laptops, minor benefits under $300 such as annual staff Christmas party (provided the cost per head is less than $300).

EV’s are the latest addition to the exempt benefits list. 

There are also a number of FBT concessions and exemptions available to certain not-for-profit organisations like charities, public hospitals and religious institutions.

Moreover, 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, it is classified as a Reportable Fringe Benefit Amount (RFBA).

Consequently, this amount must be disclosed on the employee’s end of financial year income statement or payment summary.

Although the RFBA is not taxable income, it may affect an employee’s entitlement to benefits like the Medicare levy surcharge, family tax benefits, child support payments, the private health insurance rebate, and superannuation co-contributions.

Furthermore, it is utilised to determine the amount an employee must repay for government loans, such as the Higher Education Loan Program (HELP), Student Financial Supplement Scheme (SFSS), and Trade Support Loan (TSL).

Nevertheless, particular fringe benefits such as car parking and remote area housing assistance do not need to be reported on the income statement or payment summary.

The FBT year is different to the financial year and runs from April 1 to March 31.

Once the taxable value of fringe benefits has been calculated, it is grossed up by the employer to determine the gross salary that an employee would need to earn in order to purchase the benefit using after-tax refunds. 

This grossed up amount is then subject to FBT. It’s worth noting that FBT is calculated based on the highest tax bracket, regardless of the employee’s actual tac bracket. As a result, the amount of FBT paid by an employer can be quite significant, especially for high-income earners.

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. Whereas, 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.

TYPE 1

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)

or

= (0.47 + 0.10) / 0.53 x 0.90 x 0.47

= 2.0802

TYPE 2

Where the employer is not registered for GST, the gross up factor is:

1 / ( 1 – FBT Tax rate )

= 1.08868

Source: ATO

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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