What is Fringe Benefits Tax or FBT?
A fringe benefit is a benefit provided in respect of employment, essentially a benefit provided to an employee (or their associate) because they are an employee.
An example of a fringe benefit being provided to an employee may be one of the following:
- Allowing your employees to use a work car for private purposes
- Giving your employee a cheap loan
- Reimbursing an expense incurred by your employee, such as school fees
- Providing entertainment by way of food, drink or recreation.
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 providing fringe benefits to yourself and so you need to understand your company or trust FBT obligations.
Types of Fringe Benefits
To clarify there are nine types of fringe benefits listed by the ATO as listed below:
- Car fringe benefits
- Car parking fringe benefits
- Entertainment 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
How to Reduce Your FBT Payment
There are a few strategies to reduce the amount of FBT you (employer) pay, we have listed some below:
- 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.
Consult a Specialist Accountant
You should always consult a specialist accountant when considering your options for reducing liability in your business. The ATO usually do not notify you of how much FBT you (employer) must pay. Rather, you self-assess 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’. If you are looking at giving your employee a cheap loan it is important to ensure that you declare it on FBT and that it is correctly documented between employee and employer as well as your FBT return.
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.