Yahoo Finance Fringe benefits tax: Everything business owners need to know
The fringe benefits tax year ends on March 31, so if you think your business is liable, you need to act fast.
Many businesses look to get the best out of their staff by handing out extra perks on top of their salary. But while it might be a great way to incentivise workers, there are a few consequences when it comes to tax time.
If you provide benefits to your employees, you could find that your business is liable to pay fringe benefits tax (FBT). This is a tax paid by the employer - not the employee - on the taxable value of benefits paid to employees. It also includes any benefits given to family or friends of employees.
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Here are some of the most commonly provided benefits that can give rise to FBT:
Providing a car that can be used for private purposes
Providing free or subsidised car parking
Providing “entertainment”, such as meals, drinks, sporting or leisure pursuits (such as a round of golf or tickets to a sporting event), theatre tickets and holidays
Reimbursing or paying for an employee’s private expenses, such as utility bills
Giving your employee an interest-free or low-interest rate loan
Giving rent-free or low-rent accommodation to an employee
How is FBT calculated?
FBT is payable based on the grossed up ‘taxable value’ of the benefit provided. This grossing up process is used to reflect the gross salary employees would have to earn to buy the benefits you’re providing.
Fringe benefits are split into two categories: type one and type two. The actual calculation can be complex and is best done by your accountant, but the process can be summarised into the following six steps.
Identify the total taxable value of fringe benefits you provide for which you can claim a GST credit (these are categorised as type one benefits).
Work out the grossed-up taxable value of these type one benefits by multiplying the total taxable value by the type one gross up rate (currently 2.0802).
Identify the total taxable value of benefits for which you cannot claim a GST credit, for example, supplies you made that were GST-free (these are categorised as type two benefits).
Work out the grossed-up taxable value of these type two benefits by multiplying the total taxable by the type two gross up rate (currently 1.8868).
Add the grossed-up amounts from steps two and four. This is your total fringe benefits taxable amount.
Then, multiply the total fringe benefits taxable amount (from step five) by the FBT rate (currently 47 per cent). This is the total FBT amount you are liable to pay.
It’s a complicated calculation, so here’s an example of what it may look like.
Let’s assume you provide a car to a member of staff which they can use privately. The taxable value of the benefit is $10,000 during the 2022/23 FBT year.
Here’s what the calculation for FBT would look like:
Taxable value of the benefit is $10,000
Multiply this by the 2.0802 grossed-up rate
Your total grossed-up fringe benefits taxable value equals $20,802
Multiply this by the 47% FBT rate.
Your total FBT payable equals $9,777 (rounded).
Can my business reduce its FBT liability?
It’s possible to reduce your FBT liability, or even eliminate it altogether, by asking your employee to make a cash contribution towards the cost of the benefit provided to them. Each dollar that they pay towards the provision of the benefit reduces the taxable value of the benefit by the same amount.
Are any benefits FBT free?
Some benefits are free from FBT, such as the provision by a small business of tools or electronic devices (such as laptops) that are mainly used for work purposes.
So-called ‘minor benefits’ are also FBT free. A minor benefit is one with a notional taxable value of less than $300 and could include things like the annual staff Christmas party, provided the cost per head is less than $300.
Then there are a number of generous FBT concessions and exemptions available to certain not-for-profit organisations like charities, hospitals and religious institutions.
What are reportable fringe benefits?
I pointed out earlier that FBT is payable only by employers. But, if the amount of fringe benefits provided to an employee exceeds $2,000, it must be reported in an employees’ year end income statement which is then included on their tax return.
This isn’t taxable income so there are no direct income tax consequences for the employee, but these reportable fringe benefits can be taken into account in working out a number of other benefits and obligations, including family tax benefits, the Medicare levy surcharge, private health insurance rebate, child support payments, superannuation co-contributions, HECS-HELP repayments, and other tax offsets.
How does my business report and pay FBT?
The FBT year runs from April 1 to March 31 so now is the time to determine if your business needs to register for and pay FBT.
If you provide benefits to your employees and think you might have an FBT liability, the first step you need to take is to register for FBT with the ATO. Your tax agent can help you with the process.
If you have provided fringe benefits for your employees, you must then lodge an FBT return. The latest date for lodging an FBT return is May 21, although if you use a tax agent you may qualify for an extended deadline.
If you haven’t paid FBT before, or if the amount of FBT you had to pay for the previous year was less than $3,000, you only make one payment for the year when you lodge your FBT return. Otherwise, FBT is payable quarterly through your activity statements for the next FBT year.
Calculate the tax refund you could receive after tax deductions with H&R Block's easy-to-use, accurate income Tax Calculator.
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