Business Tax Tips – Giving or Paying for Benefits for Employees – Fringe Benefits Tax (FBT)

Giving or Paying for Benefits for Employees – Fringe Benefits Tax (FBT)
Giving or Paying for Benefits for Employees – Fringe Benefits Tax (FBT)

The Australian Tax Office (ATO) explains on its site about Fringe benefits tax (FBT) as follows-

What is Fringe Benefits Tax

Fringe Benefits Tax is a tax paid on certain benefits you provide to your employees or your employees’ associates. FBT is separate from Income Tax and is based on the taxable value of the various fringe benefits you provide.

The FBT year runs from 1 April to 31 March.

What is a fringe benefit

A fringe benefit is a benefit provided in respect of employment. This effectively means a benefit provided to an employee (or their associate) because they are an employee.

You can provide these benefits, or they can be provided by:

  • An associate of yours
  • A third party under an arrangement with you.

An employee can be a current, future or former employee.

Some employers, including charities, may need to work out the status of their workers. Many will be volunteers, however, some will be contractors and employees. Generally, benefits provided to volunteers and contractors don’t attract FBT.

Benefits include:

  • Rights
  • Privileges
  • Services.

For example, you provide a fringe benefit when you:

  • Allow your employee to use a work car for private purposes
  • Give your employee a cheap loan
  • Reimburse an expense incurred by your employee, such as school fees
  • Provide entertainment by way of food, drink or recreation.

Are you providing a fringe benefit?

If you are currently an employer the following checklist will help you work out if you are providing a fringe benefit to your employees.

An explanation of each fringe benefit category is provided in the Fringe benefits categories section.

If you answer yes to any of the following questions, you may have to pay FBT.

  • Do your employees take cars home and garage them overnight, even if only for security reasons?
  • Do your employees use cars or other vehicles the business owns for private use?
  • Do you have a salary package arrangement with any of your employees?
  • Have you paid or reimbursed any employees’ expenses?
  • Do you provide entertainment, such as food, drink or recreation to your employees?
  • Have you given property, such as electrical goods, to your employees either free or at a discount?
  • Do you provide any employees with a house or unit of accommodation?
  • Do you provide loans at reduced interest rates to any employees?
  • Have you released any employee from a debt they owed the business?
  • Do you provide any employees with living-away-from-home allowances?
  • Are you a tax-exempt organisation that has provided food, drink or accommodation to employees?

For moreFringe benefits tax – what you need to know

What you need to do

If you provide fringe benefits you will need to:

  • Keep the necessary FBT records
  • Understand what benefits are exempt from FBT
  • Calculate how much FBT you have to pay
  • Register for FBT
  • Report fringe benefits on your employees’ payment summaries
  • Lodge a return and pay FBT to the ATO.

Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay.

Fringe benefits tax – exempt work-related items

A number of benefits are exempt from fringe benefits tax (FBT) under the FBT legislation. Providing certain work-related items to your employee is one of these exemptions. Your employee also does not have to pay income tax on the work-related item they receive from you.

Changes to the exemption

In the 2008 budget, changes were announced to the work-related item exemption and these changes are now law. Depending on when the item was purchased or the contract was entered into, the previous law or the amended law may apply.

For details (read carefully!) see here ATO page dated Oct 2008

For more on exempt benefits (FBT not applicable) and which ones, see here link to ATO page dated May2013.

Need help? Not sure? Call for FREE 30min advice / Strategy session today!

Call 0407 361 596 Aust and also get FREE “Avoid these GST mistakes” – there’s 18 that the Tax Office see regularly – get them right!

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