Did you know that Australian employers pay over $4 billion in Fringe Benefits Tax annually?
Among the various tax obligations in Australia, the Fringe Benefits Tax (FBT) often stands out as a complex yet significant area for employers to navigate.
But what exactly is FBT, and what does it mean for your business? This blog breaks it down for you.
What Is Fringe Benefits Tax And When Does It Apply?
Fringe Benefits Tax is a separate tax from income tax that employers must pay on certain benefits provided to their employees or their employees’ associates. The FBT year runs from 1 April to 31 March, requiring employers to self-assess their FBT liability during this period.
The tax applies to current, future, and past employees, including company directors and trust beneficiaries who work in the business. However, sole traders and partnership members are not considered employees for FBT purposes.
What Counts As A Fringe Benefit?
A fringe benefit refers to a non-monetary payment made to an employee in place of wages.
These can take many forms, including:
- Allowing the use of a company car for private purposes.
- Providing car parking facilities.
- Paying for an employee’s gym membership.
- Offering free tickets to entertainment events.
- Reimbursing personal expenses, such as school fees.
- Giving employees discounted loans.
- Benefits under a salary sacrifice arrangement.
However, not all perks qualify as fringe benefits. Items excluded from FBT include:
- Regular salary and wages.
- Employer contributions to superannuation funds.
- Shares or rights granted under approved share acquisition schemes.
- Termination payments or discounted sales of company assets on termination.
- Payments are classified as dividends under Division 7A.
- Benefits provided to volunteers or contractors.
- Exempt benefits like specific work-related items or religious benefits.
Who Receives Fringe Benefits?
FBT applies to benefits provided to employees or their associates.
Under FBT rules, an employee may include:
- Current, past, or future employees.
- Directors of companies.
- Beneficiaries of a trust working within the business.
It’s important to note that sole traders and partners in partnerships are not classified as employees, so benefits provided to themselves are not subject to FBT. Similarly, benefits given to clients or customers are not covered under FBT regulations.
Tax Deductions And GST Credits For Employers
Between genuine fringe benefits, employers can take credit on taxes. These include income tax deductions and GST credits for the cost of providing fringe benefits. When claimable for GST credits, the employer can deduct the GST-based amount only for income tax purposes.
GST credits are denied at the maximum level for which tax deductions can be utilized. To this, the organisation can enlist its tax benefit or deduction against FBT payments.
Essential Employer Obligations And Compliance Requirements
FBT obligations require action on several key responsibilities. Employers must identify all the types of fringe benefits they provide and investigate all the FBT concessions and other administrative reduction strategies available to them.
It is vital to regularly assess the taxable value of benefits provided followed by calculating the FBT liability. Proper record keeping, including employee declarations, is integral to compliance. Returns and payments of any FBT owing must be lodged by the due date.
Recording And Reporting Requirements
Employers have specific reporting obligations regarding fringe benefits; they are required to maintain sufficient records relating to all benefits provided and prepare annual FBT returns.
Upon request, employers must also report the reportable fringe benefits amount for each employee in their end-of-year payment information. Such reporting helps ensure transparency and allows both employers as well as employees to keep accurate financial records.
FBT Concessions And Exemptions
Various opportunities exist for reducing FBT liability through concessions and exemptions. Work-related items often qualify for FBT exemption, and employers can explore alternative benefit arrangements to minimise their FBT obligations. Not-for-profit organisations may be eligible for special exemptions or rebates, making it essential to understand these provisions fully.
Strategic Planning For FBT Management
Strategic planning and continuous review of the benefit arrangements are critical for effective FBT management. Employers must revisit their benefits structure in relation to their cost, with their thoughts directed toward the FBT implications.
Such an assessment provides an opportunity to identify ways of structuring employee remuneration packages that may help optimise one’s tax outcomes while still keeping competitive employee benefits.
Who Is Responsible For Paying FBT?
FBT remains the sole responsibility of the employer, even though the third party provides the benefit per the given arrangement. This means that the burden of FBT doesn’t fall onto the shoulders of the employees; it merely remains a company expense.
Steps Employers Need To Take
To meet the laws of FBT, the employer must go through some parts of exercises.
- Identify the Provided Benefits: Identify the Mobile benefits.
- Look for Concessions; Since there may be some exemptions from FBT for some benefits, it may be an FBT-exempt concession.
- Determine the Taxable Value: State the taxable value of each benefit granted.
- Minimise Liability: LED canned emissions give thought to the possibilities of minimising FBT liability through the grant of alternative benefits through exclusions. Additional exemptions or concessions may flow to the nonprofit making activities.
- Maintain Records: Maintain detailed accounts of all provided benefits, with declarations by employees wherever applicable.
- Lodge FBT Returns: Register and submit the FBT return at the end of every year with the view of making taxable benefits clear.
- Include Employee Benefits: During the preparation of this, the benefits list should be included in the end-year summaries of employees where applicable.
Simplify Your FBT Obligations With Expert Tax Accountants
Ensure your business stays on top of its Fringe Benefits Tax (FBT) obligations with expert guidance from KPG Taxation. From accurate calculations to compliance strategies, our accountants simplify the complexities of FBT, helping you save time and reduce stress. Contact us today to get tailored support for all your taxation needs!