Fringe Benefits Tax
1. 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.
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.
The recipient of a gift may be an employee, however the gift may not have been provided in respect of employment and, therefore, is not a fringe benefit.
2. Who pays the tax?
FBT is paid by you, as the employer.
3. Are you providing fringe benefits?
The following checklist will help you work out if you are already providing a fringe benefit to your employees. If any of the following apply, you may have an FBT liability.
Do you make cars or other vehicles owned or leased by the business available to employees for private use, including a car garaged at the employee's place of residence?
Do you provide loans at reduced interest rates to employees?
Have you released an employee from an owed debt?
Have you paid for, or reimbursed, a non-business expense incurred by an employee?
Do you provide a house or unit of accommodation to your employees?
Do you provide employees with living-away-from-home allowances?
Do you provide entertainment by the way of food, drink or recreation to your employees?
Do any of your employees have a salary package arrangement in place?
Have you provided your employees with goods at a lower price than they are normally sold to the public?
4. Types of fringe benefits
So that specific valuation rules can be used, fringe benefits have been categorised into 13 different types. The most common are:
Car fringe benefit
A car fringe benefit commonly arises where you make a car you own or lease available for the private use of an employee. A car is taken to be made available for private use by an employee on any day the car:
is actually used for private purposes by the employee or associate
is not at your premises, and the employee is allowed to use it for private purposes
is garaged at their place of residence, regardless of whether they have permission to use it privately.
As a general rule, travel to and from work is private use of a vehicle.
Private use of a motor vehicle that is not a car may give rise to a residual fringe benefit.
The provision of entertainment means the provision of entertainment by way of food, drink or recreation. There is no category of fringe benefit called an entertainment fringe benefit, but the following types of fringe benefits may arise from providing entertainment:
an expense payment fringe benefit – for example, the cost of theatre tickets purchased by an employee and reimbursed by the employer
a property fringe benefit – for example, providing food and drink
a residual fringe benefit – for example, providing accommodation or transport in connection with such entertainment
a tax-exempt body entertainment fringe benefit (only employers who are exempt from income tax).
Car parking fringe benefit
Broadly, a car parking fringe benefit may arise where you provide car parking for an employee at or near their place of employment, and:
there is a commercial parking station available for all-day parking within a one-kilometre radius of the premises on which the car is parked, and
that commercial car parking station charges a fee for all-day parking that is more than the car parking threshold.
The car parking threshold is indexed in line with the consumer price index. It is announced each year in a tax determination, usually published in April.
5. Reducing your FBT liability
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.
Minor and infrequent benefits exemption
Fringe benefits with a taxable value of less than $300 may be exempt from FBT if they are provided on an irregular and infrequent basis. For a benefit to qualify for this exemption, the benefit must have a GST-inclusive taxable value of less than $300.
6. FBT Rate
Fringe Benefits are currently taxed at 47%.
7. Lodgement of FBT Returns
The FBT tax year covers the period from 1st April until 31st March. The FBT return is due to be lodged by 21 May 2021 or, if lodged by your tax agent, 28 May 2021.
(Extracted from the Australian Taxation Office's 'What is fringe benefits tax?' page).
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