What Is Fringe Benefits Tax & How It Works?

What Is Fringe Benefits Tax and How It Works

FBT is a tax paid by employers on certain benefits supplied to their employees or employees’ families, or other associates.

FBT is distinct from income tax and based on the taxable value of the benefit.

You must self-assess your FBT liability as an employer for the FBT year (1 April to 31 March). You must file an FBT return and pay the FBT if you owe any.

What is a Fringe Benefit?

A fringe benefit is like a payment to an employee, but in a different form to salary or wages. There are different types of fringe benefits including:

  • allowing an employee to use a work car for private purposes
  • car parking
  • paying an employee’s gym membership
  • providing entertainment by way of free tickets to concerts
  • reimbursing an expense incurred by an employee, such as school fees
  • giving an employee a discounted loan
  • giving benefits under a salary sacrifice arrangement with an employee

Who Receives Fringe Benefits?

FBT applies to fringe benefits provided to your employees, or to your employees’ families or other associates.

For FBT purposes, an employee includes a:

  • beneficiary of a trust who works for the company;
  • present, former, or existing employee;
  • director of a company.

You are not an employee if you own a sole proprietorship or are a partner in a partnership. You are not required to pay FBT on any benefits you give to yourself. Client benefits you give to your customers, such as free goodies and entertainment are exempt from FBT.

How Much FBT Do You Pay?

You need to bundle up the taxable value of the benefits you’ve supplied to determine how much FBT to pay. This is the amount of gross revenue that your employees would need to make in order to afford the perks at the highest marginal tax rate (including the Medicare levy).

This value of the fringe benefits is 47% of the FBT that you pay.

Are Deductions and GST Credits Available?

Employers may make the following claims:

  • GST credit for the cost of providing fringe benefits, as well as an income tax deduction
  • If you are eligible for GST credits, you can deduct the GST-exclusive amount from your income tax
  • If you are not, you can deduct the entire amount.

What Do You Need to Do?

Being an employer, you must:

  • List the types of fringe benefits you offer.
  • Look for FBT discounts and other strategies to lower FBT.
  • Some benefits, such as those related to your job, are exempt from the FBT.
  • By employing alternatives to fringe benefits or offering benefits that qualify for a concession, you can lower your FBT liability.
  • If you work for a not-for-profit organisation, you can be qualified for a rebate or exemption.
  • Determine the taxable value of the fringe benefits you offer.
  • Determine your FBT obligation.
  • Keep track of everything, including employee declarations as necessary.
  • File an FBT return and make the necessary FBT payments.
  • If necessary, include a report of each employee’s fringe benefits in their end-of-year payment information.

Interested in knowing more about Fringe Benefits Tax and how to calculate it? Our qualified tax accountants at KPG Taxation can help you out. For more details, schedule a tax consultation today.

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