Fringe Benefits Tax
What you need to know
As an employer who may be providing fringe
benefits to your employees, you need to know
how Fringe Benefits Tax (FBT) works.
To understand how FBT works, you need to
know:
What is FBT?
Who pays FBT?
The different types of fringe benefits; and
What to do if you provide fringe benefits.
Certified
Practising
Accountants
What is Fringe Benefits Tax?
Are you providing a Fringe Benefit?
FBT is a tax paid on certain benefits you provide to your
employees or your employees’ associates. FBT is separate from
income tax and is based on the taxable value of the various fringe
benefits you provide.
If you are currently an employer the following checklist will
help you work out if you are providing a fringe benefit to your
employees.
The FBT year runs from 1 April to 31 March.
If you answer YES to any of the following questions, you may be
liable to pay FBT.
Do your employees take cars home and garage them
overnight, even if only for security reasons?
Do your employees use cars or other vehicles the business
owns for private use?
Do you have a salary package arrangement with any of your
employees?
Have you paid or reimbursed any employees’ expenses?
Do you provide entertainment, such as food, drink or
recreation to your employees?
Have you given property, such as electrical goods, to your
employees either free or at a discount?
Do you provide any employees with a house or unit of
accommodation?
Do you provide loans at reduced rates to any employees?
Have you released any employee from a debt they owed the
business?
Do you provide any employees with living-away-from-home
allowances?
Are you a tax-exempt organisation that has provided food,
drink or accommodation to employees?
Although this information refers only to fringe benefits
provided to employees, fringe benefits can also be
provided to employees’ associates (such as a family
member). Fringe benefits can also be provided by an
associate of the employer or a third party by arrangement
with the employer.
What is a fringe benefit?
A fringe benefit is a benefit provided in respect of employment.
This effectively means a benefit provided to an employee (or
their associate) because they are an employee.
You can provide these benefits, or they can be provided by:
An associate of yours;
A third party under an arrangement with you.
An employee may be a current, future or former employee.
Some employers, including charities, may need to work out the
status of their workers. Many will be volunteers; however, some
will be contractors and employees. Generally, benefits provided
to volunteers and contractors don’t attract FBT.
Benefits may include:
Rights; or
Privileges; or
Services.
Items not subject to FBT
The following are not fringe benefits:
Payments of salary or wages;
Shares purchased under approved employee share
acquisition schemes;
Your employer contributions to complying superannuation
funds;
Employment termination payments (eg. a company car given
or sold to an employee on termination);
Certain benefits provided by religious institutions to their
religious practitioners.
For example, you provide a fringe benefit when you:
Allow your employee to use a work car for private purposes;
Give your employee a cheap loan;
Reimburse an expense incurred by your employee, such as
school fees;
Provide entertainment by way of food, drink or recreation.
Items exempt from FBT
When working out if a benefit is provided in respect of
employment, ask yourself if you would have provided the
benefit if the recipient had not been your employee.
Some of the common benefits that are exempt from FBT are:
Most minor benefits valued at less than $300 where it would
be unreasonable to treat the benefit as a fringe benefit;
Certain work-related items such as:
>>A portable electronic device;
>>An item of computer software;
>>An item of protective clothing;
>>A briefcase;
>>A tool of trade.
The work-related items exemption is limited to:
Items primarily for work-related use;
One item per FBT year for items that have a substantially
identical function unless the item is a replacement item.
Providing fringe benefits
to yourself
Salary sacrifice
arrangements
If you are a director and conduct your
business through a company or a trust,
you may be an employee of the company
or trust. This may mean you are actually
providing fringe benefits to yourself and so
you need to understand your company’s or
trust’s FBT obligations.
A salary sacrifice arrangement is an
arrangement between you and your
employee, where your employee agrees
to forgo part of their future entitlement
(such as salary or wages) in return for you
providing benefits of a similar cost.
Who pays FBT?
As an employer, you have to pay FBT, even
if the benefit is provided by an associate
or by a third party under an arrangement
with you. For example, you may deal with a
supplier who, in turn, provides free goods
to your employees.
It makes no difference whether you
are a sole trader, partnership, trustee,
corporation, unincorporated association or
government body or whether you have to
pay other taxes such as income tax.
Some employers providing fringe benefits
may be eligible to receive concessional FBT
treatment.
These include:
Public benevolent institutions;
Public and non-profit hospitals and
public ambulance services;
Religious institutions;
Other non-profit entities.
Fringe Benefits
Categories
FBT law identifies various categories of
fringe benefits and specific valuation rules
for each category.
Some types of the most common
categories which can attract Fringe Benefits
Tax are:
1. Car fringe benefits;
2. Loan fringe benefits;
3.Debt waiver fringe benefits;
4.Expense payment fringe benefits;
5. Housing fringe benefits;
6. Board fringe benefits;
7.Airline transport fringe benefits;
8. Living-away-from-home allowance
fringe benefits;
9. Providing entertainment;
10. Tax-exempt body entertainment fringe
benefits;
11. Car parking fringe benefits;
12. Property fringe benefits;
13.Residual fringe benefits;
Under an effective salary sacrifice
arrangement:
Your employee pays income tax on the
reduced salary or wages;
You may be liable to pay FBT on the
fringe benefits provided, and
If the arrangement involves receiving
superannuation contributions in lieu of
forgone benefits, these contributions
are classified as employer
superannuation contributions (rather
than employee contributions) and are
taxed in the superannuation fund.
If you are providing fringe
benefits:
How much FBT you have
to pay
The ATO usually don’t notify you of how
much FBT you have to pay. Rather, you selfassess your FBT payable when you lodge
your FBT return.
The rate of FBT is levied on what is
commonly referred to as the ‘grossed-up
amount’
Grossing-up
means increasing the taxable value
of benefits you provide to reflect the
gross salary employees would have to
earn at the highest marginal tax rate
(including Medicare levy) to buy the
.
benefits after paying tax.
Reducing your FBT
liability
You can reduce the amount of FBT you
pay by:
Replacing fringe benefits with cash
salary;
Providing benefits that your employees
would be entitled to claim as an
income tax deduction if they had
paid for the benefits themselves (the
‘otherwise deductible’ rule);
Providing benefits that are exempt
from FBT;
Using employee contributions.
Generally, this payment is a cash
payment made to you or the person
who provided the benefit. However, an
employee can also make an employee
contribution towards a car fringe
benefit by paying for some of the
operating costs (such as fuel) that you
do not reimburse.
Keeping FBT records
You need to keep sufficient records so your
FBT liability can be assessed. You need to
keep all records related to providing the
benefit, including how you worked out the
taxable value of benefits. These records
need to be kept for five years from the date
of the relevant transaction.
Register for FBT
We recommend that you register once you have established that
you have to pay FBT. Your FBT number is the same as your tax file
number (TFN). Once you are registered, the ATO will send you
additional information to help you lodge your return.
Employment payment summaries
If you provide fringe benefits with a total taxable value of more
than $2,000 to an employee in an FBT year, you need to report
the grossed-up taxable value of the fringe benefits on the
employee’s payment summary for the corresponding income
year (1 July to 30 June). These are called reportable fringe
benefits.
You need to allocate benefits to the relevant employee and
include any fringe benefits provided to associates of the
employee. The amount reported on the payment summary will
not be included in an employee’s assessable or taxable income or
affect the amount of standard Medicare levy payable. The total
will, however, be included in a number of income tests relating to
certain government benefits and obligations (for example Centre
Link).
Lodging an FBT return and paying
FBT
An FBT return covering the FBT year that begins on 1 April and
ends 31 March, should be lodged by 21 May each year.
If you haven’t previously paid FBT or if your FBT liability for
the previous year was less than $3,000, you only make one
payment for the year when you lodge your annual FBT return. In
subsequent years, the ATO may ask you to make quarterly FBT
instalments through your quarterly activity statements.
We hope that the above summary helps you to understand
when a FBT liability may arise. Should you have any further
queries, please do not hesitate to contact our office.
Suite 6, First Floor
49-54 Douglas Street
Noble Park Vic 3174
PO Box 331
Noble Park Vic 3174
Tel: 03 9547 5022
Fax: 03 9547 0595
Email: admin@zjl.com.au
Web: www.zjl.com.au