Providing benefits can be a great way to recognise and reward your employees’ contribution to your business, but you should remember that some benefits or perks are subject to Fringe Benefits Tax (FBT). This is a tax employers that pay on certain benefits they provide to their employees. I’ve listed below items that apply to FBT taxable employers.
Types of taxable Fringe Benefits include:
- The private use of a car
- Low interest loans used for private purposes
- Payment of private expenses
- Certain types of entertainment eg. meals where an employee is not travelling overnight
- Other benefits if the cost is above certain thresholds
Calculating the Fringe Benefit Tax
Fringe Benefits are split into Type 1 and Type 2 benefits. The below steps provided by the ATO could help you calculate your FBT.
1. Work out the taxable value (pre-gross up) of all Fringe Benefit you provide to employees.
2. Identify from 1, the total taxable value of Fringe Benefits you provide for which you can claim a GST credit (Type 1 benefits).
3. Work out the grossed-up taxable value of these Type 1 benefits by multiplying the total taxable value by the type 1 gross up rate (currently 2.1463).
4. Identify from 1, the total taxable value of benefits for which you cannot claim a GST credit, for example, supplies you made that were either GST-free or input taxed (Type 2 benefits).
5. Work out the grossed-up taxable value of these Type 2 benefits by multiplying the total taxable by the type 2 gross up rate (currently 1.9608).
6. Add the grossed-up amounts from steps 3 and 5. This is your total Fringe Benefits Taxable amount.
7. Multiply the total Fringe Benefits Taxable amount (from step 6) by the FBT rate (currently 49 percent). This is the total FBT amount you are liable to pay.
Assume you pay a staff member $100,000 p/a and provide a car benefit with a taxable value of $10,000 during the 2015/16 FBT year. The $100,000 is taxed at the applicable PAYG withholding rate which you withhold and pay to the ATO. The $10,000 car benefit is taxed as follows:
|Multiplied by Gross-up rate x||2.1463|
|Grossed-up taxable value||$21,463|
|FBT Payable (rounded)||$10,517|
Reporting requirements for FBT on payment summaries
Where the pre-gross up taxable value of the Fringe Benefits provided to an employee exceeds $2,000 within the FBT financial year (1 April to 31 March), the grossed-up taxable value of those benefits must be included on the employee’s Payment Summary for the corresponding payroll financial year (1 July to 30 June). Some Fringe Benefits don’t need to be reported on payment summaries.
The value of the above car benefit that is included on the employee’s 2016 PAYG payment summary is as follows:
|Multiplied by Gross-up rate x||1.9608|
|FBT Reportable amount||$19,608|
Fringe benefits tax is complex and you should always consult your advisor on these matters. Get your books organised by using MYOB online accounting software. If you’d like to learn how to make your business successful, visit myob.com.au/businesstips.
The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’s circumstance will vary for end of financial year.