A Primer on Fringe Benefits Tax
Employers providing benefits to hard-working employees is a great way to demonstrate appreciation and recognition. If you're thinking of implementing some benefits or perks, you should first consider whether they're subject to Fringe Benefits Tax (FBT).
Fringe Benefits Tax is paid by employers on a specific set of benefits they offer to their employees. These must be non-cash incentives paid on top of their salary.
A fringe benefit can be used to incentivise employees without increasing wages. Employees can also exclude fringe benefits from their taxable income.
Taxable Fringe Benefits include things like:
- The private use of a car
- Car parking expenses
- Gym memberships
- Low interest loans used for private purposes
- Payment of private expenses
- Certain types of entertainment, such as meals at social functions
- Other benefits if the cost is above certain thresholds
As a non-cash incentive, a fringe benefits can be used in a huge variety of ways by an employer.
For example: Fringe benefits may be used as a way to entice job applicants with a salary package that includes a business car, or they may be simply covering the cost of food and drinks at a Christmas party.
What is not included as part of Fringe Benefits:
Work-related personal items are usually exempt from FBT. These include:
- Business mobile phones
- Business laptops
- Business tablets.
FBT does also not apply to sole traders and partners in a partnership, as fringe benefits are provided to employees, rather than yourself.
How do I register for FBT?
You need to register for FBT and lodge an FBT return if you have a liability during an FBT year (1 April to 31 March).
You can do so through the following means:
- Through your registered tax agent
- Via phone (you must be an authorised contact for the business)
- Lodging an application to register for fringe benefits tax.
When do I need to report on fringe benefits?
Fringe benefits are reportable if the total taxable value of the fringe benefits you provided in the FBT year 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
Changes to Fringe Benefit Tax (FBT)
There are regular changes being made to how fringe benefits are reported on payment summaries, so it's important to stay up-to-date - check the ATO's website every year for FBT-related updates so you don't get caught out.
Before calculating your FBT, you can check the current rates on the ATO website.
How to calculate fringe benefits tax
Fringe Benefits are split into Type 1 and Type 2 benefits. The Type 1 rate is used when the benefit provider is entitled to GST credits, while Type 2 rate is used when the benefit provider is not entitled to GST credits.
- Work out the taxable value of each fringe benefit you provided to employees during the FBT year.
- Identify from step 1, the total taxable value of fringe benefits provided for which you can claim a GST credit (these are your Type 1 benefits).
- 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).
- 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).
- 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 liable to pay.
For example: Assume you pay a staff member $100,000 p/a and provide a car benefit with a taxable value of $10,000 during the 2019/20 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||2.0802|
|Grossed-up taxable value||$20,802|
|FBT Payable (rounded)||$9,777|
Want to learn more about STP?
If you're unsure about how STP will affect your business?
Check out the range of resources available on our site.
Giving gifts as a business owner and FBT
Deciding what to gift staff on holidays such as Christmas can be difficult, but there are at the very least ways to make it more affordable (so you can give better gifts, of course!)
Give staff non-entertainment gifts
Non-entertainment gifts under $300 are fully tax deductible with no FBT payable, making them the most cost efficient solution. Non-entertainment gifts can include skincare and beauty products, flowers, wine, perfumes, 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.
What about entertainment-related gifts?
Entertainment gifts, such as tickets to a musical, theatre shows, movies, sporting events or holidays, are more expensive for businesses than non-entertainment alternatives.
If the cost for each staff member and their associate is less than $300 each (including GST), you won't have to pay FBT, but the kicker is you can’t claim tax deduction or GST credit.
However, if the cost for the staff member and their associate 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?
If you're thinking of giving yourself an extra special gift this Christmas (perhaps that blender you've been eyeing is on sale...), we've got some sad news.
Favourable tax rules don’t apply to gifts for sole proprietors and partners in a partnership, as these individuals can't be employees of themselves. It's a shame, we know.
Getting help with Fringe Benefits Tax
It's easy to be overwhelmed with Fringe Benefits Tax, but there's help out there if you need it. Your accountant is an excellent place to start, but if you have MYOB software, our Approved Partners are accredited by MYOB to provide onsite support for MYOB products.
Software-related support includes:
- Advanced reporting
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