A guide to Fringe Benefits Tax
Employers have to pay Fringe Benefits Tax (FBT) on some benefits they give to their employees or their employees’ family. If you're thinking of offering some benefits or perks, you should think about whether they're subject to FBT first.
This guide will cover:
- What are fringe benefits
- When to report fringe benefits
- How to register for fringe benefit tax
- How to calculate fringe benefit tax
- Giving gifts to employees and customers
What are fringe benefits?
A fringe benefit is something offered to an employee by their employer on top of their salary. It can be used to incentivise and reward employees without increasing wages.
Fringe benefits must be non-cash incentives paid on top of salary. Even if the benefit is provided by a third party the employer must pay FBT. Employees can exclude fringe benefits from their taxable income.
Types of fringe benefits:
- The private use of a company car
- Car parking and maintenance expenses
- Lifestyle benefits (e.g. gym memberships)
- Payment of personal expenses (e.g. school fees)
- Certain types of entertainment (e.g. tickets to events)
- Low interest loans used for personal purposes
The following are not fringe benefits:
- Salary and wages
- Benefits given to volunteers and contractors
- Shares purchased in approved employee share acquisitions
- Employer contributions to super funds
- Employment termination payments or gifts (e.g. a company car gifted to an ex-employee)
- Work-related personal items (e.g. mobile phones and laptops)
When to report fringe benefits
You need to report the fringe benefits you provide to employees if the total taxable value in an FBT year (1 April to 31 March) exceeds $2,000. The due dates for lodgement of FBT returns for tax agents are:
- 21 May if the return is lodged by paper
- 25 June if the return is lodged electronically
Be aware of changes to fringe benefits
There are regular changes to fringe benefits and how they're reported, so it's important to stay updated. Be sure to check the current rates and rules on the ATO's website.Check for changes
How to register for fringe benefit tax
You need to register for FBT and lodge an FBT return with the Australian Taxation Office (ATO) if you give any fringe benefits to employees during an FBT year (1 April to 31 March).
You can register:
- online if you have an Australian Business Number (ABN)
- by phone on 13 72 26
- by mail using this paper form
- or through a registered tax agent
If you're registered for FBT but don’t need to lodge an FBT return for the year, you'll still need to complete a notice of non-lodgement.
How to calculate fringe benefit tax
To help calculate FBT fringe benefits are split into two types of benefits.
- Type 1 benefits can give the benefit provider GST credits
- Type 2 benefits can not give the benefit provider GST credits
Here's a step-by-step guide to calculating your FBT.
- Work out the taxable value of each benefit you gave to employees during an FBT year.
- Work out your Type 1 benefits by identifying how much of the total taxable value of the benefits you gave to employees that you can claim GST credits for.
- 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 2.0802).
- Work out your Type 2 benefits by identifying how much of the total taxable value of the benefits you gave to employees that you cannot claim GST credits for.
- 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 1.8868).
- Add the grossed-up amounts from steps 3 and 5. This is your total Fringe Benefits Taxable amount.
- Multiply the total Fringe Benefits Taxable amount (from step 6) by the FBT rate (currently 47 percent). This is the total FBT amount you are need to pay.
Here's an example:
If you provide an employee with a car benefit with a taxable value of $7,000 during the 2019/20 FBT year. The $7,000 car benefit tax is calculated like this:
|Multiplied by Gross-up rate x||2.0802|
|Grossed-up taxable value||$14,561|
|FBT Payable (rounded)||$6,843|
Before you start your sums make sure you're up to date with the fringe benefits rates on the ATO’s website.
Giving gifts to employees and customers
Non-entertainment gifts under $300 are fully tax deductible with no FBT to pay. Non-entertainment gifts can include skincare and beauty products, flowers, wine, gift vouchers and hampers.
If the gift costs over $300, a tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 47 percent on the grossed-up value.
Entertainment gifts, such as tickets to a musical, movie, sporting event or holidays, are more expensive for businesses than non-entertainment alternatives.
If the cost for each employee is less than $300 each (including GST), you won't have to pay FBT, but you won't be able to get a tax deduction or GST credit .
However, if the cost for each employee is over $300 GST inclusive each, a tax deduction and GST credit can be claimed – but FBT is payable at the rate of 47 percent on the grossed-up value.
Office parties also fall under entertainment-related gifts, so keep in mind that you won't be able to claim your next Christmas party on tax unless it's over $300 a person - and then, you'll be paying FBT.
Giving gifts to customers and clients
Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules as they are not considered your staff. In these instances, a tax deduction and GST credit can be claimed provided the claim is not excessive.
If you plan on giving an entertainment gift to a client, the gifts provided are not subject to FBT, and no tax deduction or GST credit can be claimed.
Can I gift myself?
Sadly not. Favourable tax rules don’t apply to gifts for sole traders and partners in a partnership, as you can't be an employee of yourself. It's a shame, we know.
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