Make Sure You Understand Your Fringe Benefit Tax (FBT) Obligations
Fringe Benefit Tax (FBT) is one of the more complex aspects of our tax system and has been the cause of many people making incorrect Tax Return Lodgements as a result of not fully understanding Fringe Benefit Tax (FBT) and how it is applicable to them.
Let’s face it you run a business and don’t need to know the ins and out of the FBT rules, let us worry about that and you focus on running your business. We are business accounting specialists and understand FBT rules inside out. We can provide you with the correct advice and recommendations when you need it to ensure you are compliant when it come to Fringe Benefit Tax (FBT) requirements.
Contact us today, Let us manage you Manage and minimise your Fringe Benefit Tax (FBT) obligations!
The Fringe Benefit Tax (FBT) year runs from 1 April to 31 March. Speak to us today to seek individual advice to minimise or eliminate your FBT liability. Payment will not be required until the 28th May the following year.
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To help you get a better understanding of Fringe Benefit Tax (FBT) we have outlined some key points below.
What is a fringe benefit?
A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages.
According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The ’employee’ may even be a former or future employee.
An employee is a person who is entitled, or has been entitled, to receive salary or wages. Benefits provided in respect of someone who has died are not fringe benefits as a deceased person does not meet the definition of ’employee’ in the FBT legislation.
The terms benefit and fringe benefit have broad meanings for FBT purposes. Benefits include rights, privileges or services. For example, a fringe benefit may be provided when an employer:
- allows an employee to use a work car for private purposes
- gives an employee a cheap loan
- pays an employee’s gym membership
- provides entertainment by the way of free tickets to concerts
- reimburses an expense incurred by an employee, such as school fees
- gives benefits under a salary sacrifice arrangement with an employee.
Types of fringe benefits
- Car fringe benefits
- Car parking fringe benefits
- Entertainment and fringe benefits
- Expense payment fringe benefits
- Loan fringe benefits
- Debt waiver fringe benefits
- Housing fringe benefits
- Board fringe benefits
- Living away from home allowance fringe benefits
- Property fringe benefits (including property, goods or shares)
- Residual fringe benefits (benefits not covered by the above categories)
What is 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 super funds
- employment termination payments (for example, a company car given or sold to your employee on termination)
- payment of amounts deemed to be dividends
- exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.
FBT exemptions and concessions
Some benefits are exempt from fringe benefits tax (FBT) or receive concessional treatment (for example, living away from home allowance). Specific exemptions and concessions apply to some non-profit organisations.
Work-related items exempt from FBT
Subject to the limitations below, a number of employee benefits are exempt from fringe benefits tax (FBT), including the following work-related items:
- portable electronic device such as mobile phone, laptop, portable printer and GPS navigation receiver
- computer software
- protective clothing
- tools of trade.
The FBT exemption is limited to:
- items primarily for use in the employee’s employment, and
- one item per FBT year for items that have a substantially identical function, unless the item is a replacement item
Minor benefits exemption
Minor benefits are exempt benefits. A minor benefit is both:
- less than $300 in notional taxable value, and
- unreasonable to treat as a fringe benefit.
Taxi travel expenses exemption
Any benefit arising from taxi travel by an employee is an exempt benefit if the travel is a single trip beginning or ending at the employee’s place of work.
Any benefit arising from taxi travel by an employee is also an exempt benefit if the travel is both:
- a result of sickness of, or injury to, the employee
- the whole or a part of the journey directly between any of the following:
- the employee’s place of work
- the employee’s place of residence
- any other place that it is necessary, or appropriate, for the employee to go as a result of the sickness or injury.
Small business car parking exemption
If you are a small business employer, car parking benefits you provide are exempt if all the following conditions are satisfied:
- the parking is not provided in a commercial car park
- you are not a government body, a listed public company, or a subsidiary of a listed public company
- either your gross total income for the last income year before the relevant fringe benefits tax (FBT) year was less than $10 million, or you were a small business entity for the last income year before the relevant FBT year.
Concessions, including specific concessions for non-profits
Concessions apply to some fringe benefits. The concession is a reduction in the taxable value of the fringe benefit that results in a reduced amount of fringe benefits tax (FBT), or even no FBT, being payable.
A reduction in the taxable value of the fringe benefit applies to:
- some benefits provided in remote areas
- some travel provided to employees posted overseas
- reimbursement of costs incurred by employees using their own car for relocation
- some other benefits.
Non-profit organisation concessions
Specific concessions apply to some non-profit organisations, including:
- eligible charities, such as
- charitable institutions
- public benevolent institutions
- health promotion charities
- religious institutions
- public and non-profit hospitals and public ambulance services.
Living away from home allowance fringe benefits
A living-away-from-home allowance (LAFHA) fringe benefit may arise if you pay an allowance to your employee to cover additional expenses incurred, because they are temporarily required to live away from their normal place of residence to perform their employment duties.
Access to tax concessions for LAFHA fringe benefits will generally be limited to where:
- your employee maintains a home in Australia at which they usually reside
- your employee provides you with a declaration about living away from home
- the fringe benefit relates to the first 12-month period at a particular work location
Who pays the tax?
FBT is paid by you, as the employer.
You will be an employer for FBT purposes if you make a payment to an employee, company director or office holder that is subject to withholding obligations. Following changes to income tax legislation, these withholding obligations may apply to payments made to an Australian resident employee working overseas.
If you are an international organisation and provide benefits to employees in Australia, these benefits may be subject to FBT in Australia (keeping in mind that Australia has comprehensive double tax agreements with the United Kingdom and New Zealand which currently include FBT).
As an employer, you pay FBT irrespective of whether you are a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.
This is the case regardless of whether you actually provide the benefit, or it is provided by an associate or under an arrangement you have with a third party.
This tax is payable whether or not you are liable to pay other taxes such as income tax.
You may claim an income tax deduction for the cost of providing fringe benefits and for the amount of FBT you pay.
Reducing your FBT liability
There are various ways you can reduce your FBT liability – sometimes to nil. You can reduce an FBT liability in the following ways.
Replace fringe benefits with cash salary
If you replace an employee’s fringe benefits with the cash equivalent in the form of salary or wages, the employee pays income tax on the salary or wages, rather than you paying FBT.
Provide benefits that are exempt from FBT
If you provide only exempt benefits, or benefits that are not fringe benefits, you will not have an FBT liability.
Provide tax deductible benefits
You may not have an FBT liability if you pay for or reimburse an expense an employee would otherwise have been able to claim as an income tax deduction.
Use employee contributions
In most cases, you can reduce your FBT liability by obtaining a payment from an employee towards the cost of providing a fringe benefit. The payment is commonly called an employee contribution.
Generally, the 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 a third party for some of the operating costs (such as fuel) that you don’t reimburse. Contribution of services as an employee is not considered an employee contribution for FBT purposes.
Important points to note about employee contributions are:
- the employee contribution must be paid out of the employee’s after-tax income
- an employee contribution towards a particular fringe benefit can’t be used to reduce the taxable value of any other fringe benefit
- in certain circumstances, journal entries in your accounts can be an employee contribution
- an employee contribution paid directly to you (including those received by journal entry) is included in your assessable income
- an employee contribution paid to a third party who is not an associate (for example, to a mechanic for the servicing of a car) is not assessable to you
- an employee contribution (other than a contribution of services as an employee) may be treated as consideration for a taxable supply for goods and services tax (GST) purposes. Accordingly, you would have to pay GST on the supply. However, there is no GST payable on an employee’s contribution where
- the benefit is GST-free or input taxed
- the GST is paid to a third party (for example, to purchase fuel)
- you (or another provider of the benefit) are not registered or required to be registered for GST
- the benefit is not a taxable supply.
- If you conduct your business through a company or trust, you may be an employee of the company or a trustee.
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