When rewarding your team with perks beyond their salary, it's important to consider the implications of Fringe Benefits Tax (FBT). This tax, governed by the Australian Taxation Office (ATO), applies to various non-salary benefits provided to employees and their families. As an employer, understanding FBT is crucial to ensure compliance and make informed decisions about your employee benefits strategy. This article will guide you through the essentials of FBT, helping you navigate its complexities.

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What is Fringe Benefits Tax (FBT)?

When you're running your own business, understanding the tax implications of various fringe benefits is crucial. These can include perks such as car and parking allowances, tuition discounts, and employee discounts. Housing, food provisions, entertainment benefits, loans and debt forgiveness, and even employee stock options also count as taxable benefits. Additionally, health benefits, achievement awards, and access to facilities like gyms can have tax implications.

Each of these benefits, while valuable for employees, carries tax implications that employers need to manage.

While all fringe benefits are subject to taxation, there are exceptions for most benefits that affect what is considered as pay. The calculation of Fringe Benefits Tax (FBT) is based on the taxable value of the fringe benefit. For example, if an employer provides achievement awards, up to $1,600 can be exempted when it comes to qualified plan awards.

What is not considered a fringe benefit?

According to the Australian Taxation Office (ATO), certain types of payments are not considered as fringe benefits. These include an employee's salary, employer contributions to a super fund, termination payments, and shares purchased through a share acquisition scheme.

Additionally, dividends paid to shareholders, benefits provided to volunteers or contractors, and specific benefits offered by religious institutions don't count as fringe benefits. This is important for both employers and employees to understand, as it impacts the tax treatment of these payments.

Furthermore, a business doesn't face FBT liability for providing an employee with a benefit that would be tax-deductible for the employee if they had incurred the expense themselves. This rule helps businesses in planning their employee benefits programs, ensuring they can provide valuable perks without incurring additional tax liabilities.

Why do companies offer fringe benefits?

Offering fringe benefits can help companies attract, retain, and motivate top talent. These benefits can enhance the overall compensation package, making positions more attractive to prospective employees.

Who pays Fringe Benefits Tax (FBT)?

If a company's assets are used by its employees for personal enjoyment and enrichment, the business will be liable to pay Fringe Benefits Tax (FBT).

How do I calculate Fringe Benefits Tax?

In this section, we will outline the process of calculating, reporting, and paying Fringe Benefits Tax (FBT) in Australia.

To begin, it's important to understand that fringe benefits are classified into two types: Type 1 and Type 2. The ATO provides the following steps to help you calculate your FBT:

Step 1: Calculate the total taxable value

• Calculate the taxable value (before grossing up) of all fringe benefits provided to employees.

Step 2: Identify Type 1 benefits

• Identify the total taxable value of Type 1 benefits, for which you can claim a Goods and Services Tax (GST) credit.

Step 3: Gross up Type 1 benefits

• Multiply the total taxable value of Type 1 benefits by the Type 1 gross up rate (currently 2.0802) to determine the grossed-up taxable value.

Step 4: Identify Type 2 benefits

• Identify the total taxable value of Type 2 benefits, for which you cannot claim a GST credit. These may include supplies that were either GST-free or input taxed.

Step 5: Gross up Type 2 benefits

• Multiply the total taxable value of Type 2 benefits by the Type 2 gross up rate (currently 1.8868) to determine the grossed-up taxable value.

Step 6: Calculate the total FBT taxable amount

• Add the grossed-up amounts from steps 3 and 5 to determine the total FBT taxable amount.

Step 7: Calculate the FBT amount to pay

• Multiply the total FBT taxable amount (from step 6) by the FBT rate (currently 47 percent) to determine the total FBT amount you are required to pay.

FBT exemptions – and how to know if you’re exempt

Employers may be eligible for exemptions or concessional treatment for benefits provided to their employees, depending on the circumstances. Some of the exemptions that may be applicable include:

• Work-related items exemption, which applies to items that are primarily used for employment purposes by employees.
• Retraining and re-skilling exemption, which applies to employers who provide training or education to employees who are or will soon be redundant.
• Minor benefits exemption, which applies when the value of the benefit is less than $300.
• Taxi travel expenses exemption, which applies when the travel is a single trip beginning or ending at the employee’s workplace.
• Car parking exemptions, which may apply when certain conditions are met.
• Living-away-from-home allowance reduction in some cases.
• Emergency assistance exemption, which applies when benefits are provided to employees affected by natural disasters, accidents, serious illness, or other serious civil conflicts.

Recent law change on electric vehicles

From 1 July 2022, the provision of electric vehicles by employers for private use by employees is exempt from Fringe Benefits Tax (FBT), provided the vehicles adhere to specific conditions. These conditions include the vehicle being zero or low emissions, first held and used by the employer on or after 1 July 2022, not subject to luxury car tax, and used by an employee or their associates. Despite this exemption, the taxable value of the electric car benefits should still be factored into the employee's Reportable Fringe Benefits Amount (RFBA). Employers seeking to leverage this exemption should consult the Electric cars exemption details and the associated Fringe Benefits Tax fact sheets for comprehensive guidance on compliance.

Electric vehicle home charging rate

The Draft Practical Compliance Guideline, released on 31 March 2023, gives guidance on calculating home electric vehicle charging costs for FBT purposes and work-related car expense claims. It offers a standard method or actual cost calculation for employers and individuals. This is applicable for calculating employee contributions and operating costs for electric vehicles, excluding plug-in hybrids. The guideline simplifies FBT management for electric vehicle charging at home.

Registered charities

If your not-for-profit organisation falls into one of the following categories—public benevolent institution, health promotion charity, public or not-for-profit hospital, or public ambulance service—it may qualify for an exemption from Fringe Benefits Tax (FBT) up to a certain capping threshold. This exemption is designed to support the work of these organisations by reducing the tax burden associated with providing fringe benefits to employees.

This tax relief can significantly aid in the financial management of not-for-profit entities, allowing more resources to be directed towards achieving their core objectives. Moreover, not-for-profit entities may be able to leverage this exemption to attract employees in situations where they are unable to match private sector wages.

It's important for organisations to understand their eligibility and the specific conditions of this exemption to fully leverage the benefits and ensure compliance with tax regulations.

How does an employer report and pay FBT?

The period for FBT is from 1 April to 31 March each year. If you provide benefits to your employees and suspect that your business may be liable for FBT, now might be a good time to determine your obligation and register with the ATO. Your accountant or tax agent can assist you in registering for FBT. Once you have provided fringe benefits to your employees, you must file an FBT return.

The deadline for submitting an FBT return is usually 21 May, but if you use a tax agent, you may be eligible for an extended deadline. If you have never paid FBT before, or if the previous year's FBT payment was less than $3,000, you only need to make one payment for the year when you file your FBT return.

Alternatively, FBT payments are made quarterly through your activity statements for the following FBT year if your liability is greater than $3,000.

Reporting requirements for FBT on income statements (formerly PAYG payment summaries)

As mentioned earlier, only employers are responsible for paying FBT. However, if the value of fringe benefits provided to an employee exceeds $2,000 in an FBT tax year, this amount must be reported on the year-end income statement given to employees and will be included in that employee's tax return as a Reportable Fringe Benefits Amount (RFBA).

This reported figure does not count as taxable income, so there are no direct income tax or Medicare levy implications for the employee. However, these Reportable Fringe Benefits (RFBs) may affect other benefits and responsibilities, such as family tax benefits, the Medicare levy surcharge, private health insurance rebate, child support payments, superannuation co-contributions, HELP repayments, and various tax offsets.

If RFBs would have a negative impact, you can agree to reduce your employer's FBT liability (and thus your RFBs) by contributing a dollar-for-dollar amount from your post-tax salary to cover the fringe benefits provided by your employer.

Does Fringe Benefits Tax affect salary sacrificing?

The primary objective of salary sacrifice arrangements, also known as salary packaging, is to provide employees with a tax-efficient mix of income and benefits that is advantageous for both the employee and the employer. The most common items that can be included in a salary packaging agreement are car fringe benefits (through a novated lease), expense payment fringe benefits (such as mortgage payments, school fees, etc.), car parking fringe benefits, and superannuation contributions.

While certain salary-sacrificed items, like superannuation, generally do not attract FBT, many others, including cars, do. For instance, novated leases result in a car benefit under the FBT rules, and employers usually transfer some or all of this extra cost to employees.

Therefore, even though FBT is the employer's responsibility, it may choose to reduce your salary by the amount of FBT it must pay as part of your salary sacrifice agreement. Because the current FBT rate is 47%, there may be little benefit in salary packaging a car unless you are taxed at the highest rate.

Do you pay Fringe Benefits Tax on superannuation contributions?

If an employee has salary-sacrificed super contributions paid into a complying fund, they are not considered as Fringe Benefits, but they can be liable for FBT if paid for an associate, such as a spouse, or paid into a non-complying superannuation fund. These contributions count towards an employee's concessional (before-tax) super contributions cap of $27,500 per year.

Employees must be cautious that their salary-sacrificed amounts, added to other concessional contributions, such as employer's normal contributions and personal contributions, do not exceed this cap. Otherwise, the ATO warns that they may be required to pay extra tax.

Can an employer reduce its FBT liability?

According to the ATO, you can decrease or completely eliminate your FBT obligation by requesting your employee make a cash contribution towards the cost of the benefit provided to them. The taxable value of the benefit is reduced by each dollar that they pay towards the provision of the benefit.

Another way to avoid paying FBT is to offer employees higher salaries instead of providing them with fringe benefits. Additionally, there are several FBT concessions and exemptions mentioned earlier in this article that can decrease or remove the need to pay FBT.