Fringe benefits tax – is it really a benefit for your business?
As an employer, you may be struggling to find and keep staff. Your business offers perks to help attract, retain and motivate your employees.
But did you know some of these benefits offered by your business may come with tax implications.
This is known as fringe benefits tax (or FBT for short).
Think of your work fridge filled with cold drinks or the fruit bowl overflowing with fresh fruit, or the smell of coffee brewing from a coffee bar with all the extras. Employees are not only happier when these small things are available, but it creates a feeling of worthiness and appreciation for their work.
Fringe benefits provided include enticements of staff car parking under your building or allowing them to take home the company car, paying their private health insurance premiums or paying their children’s school fees can all be valuable incentives for employees, way beyond their take-home pay.
So which perks are subject to fringe benefits tax?
This blog will go through the finer details of fringe benefits tax – how it is calculated, what kinds of benefits are included in this tax and how and when to lodge and pay FBT.
- What is Fringe Benefits Tax?
- How much is Fringe benefits tax?
- Examples of Reportable Fringe Benefits
- Some FBT calculation examples
- Registering for FBT
- When is FBT due?
- How to reduce your fringe benefits liability?
What is Fringe Benefits Tax?
Fringe benefits tax (FBT) is a tax that employers pay on benefits paid to an employee (or a director, a family member) in addition to their wages or salary.
The tax component of fringe benefits is calculated on the taxable value of the benefits provided to the employee.
It is a complex tax and self-assessed, so careful consideration and calculations are recommended – or a tax agent like Sleek will make the whole process so much easier (and keep your business compliant!).
How much is Fringe benefits tax?
FBT is 47% for the 2022-23 financial year.
Your business will need to add a gross-up amount, and this will depend if the fringe benefit is subject to a goods and services (GST) or not.
Type 1 Gross Up Rate (if fringe benefit is entitled to GST credit) is 2.0802.
Type 2 Gross Up Rate (if fringe benefit is not entitled to GST credit) is 1.8868.
Then multiply the amount by the 47% FBT.
It’s important to check you are using the correct tax figures for the financial year.
If this sounds hard, don’t worry. We’ll show you some fringe benefits tax examples and the calculations used to work out how much the FBT will be.
To better understand FBT, you need to know the reportable fringe benefits.
Examples of Reportable Fringe Benefits
Before you decide on giving your employees perks, it is best to check first, whether the benefit is subject to the fringe benefits tax and how much the benefit will cost the business when you include FBT.
This could have huge FBT implications on your bottom line.
Some examples of benefits subject to fringe benefits are –
- School and childcare fees – Providing childcare on business premises or the payment of an employee’s childcare fees, and private school fees.
- Property – the personal use of a company car or a leased vehicle (novated lease) may be subject to car fringe benefits, as well as, providing car parking, and personal use of a business-owned holiday home or boat.
- Entertainment – perks such as movie and food vouchers, accommodation, or theatre tickets.
- Insurance – paying for their private health insurance, or other personal insurance.
- Health and well-being – gym and health club memberships, massages and yoga classes.
- Loans – offering discounted loans (not at market interest rates) or debt waiver benefits.
- Paying a Living-away-from home allowance (LAFHA)
- Property – land and buildings
- Shares and bonds
These are called reportable fringe benefits.
Some FBT calculation examples
It will help you to understand fringe benefits better if we show how to calculate the tax with some real business examples.
Fringe benefits example with GST
Let’s say, your business awarded your top salesperson of the year with a new TV and soundbar to the value of $6,500.
Your FBT calculation is:
$6,500 x 2.0802 x 47% (use Type 1 Gross Up FBT Rate as the TV and soundbar includes GST paid)
The total fringe benefits tax payable by your business is $8,560.11.
So, what is the total cost of the prize plus the FBT calculated?
The cost of the prize is $6,500
Less GST claimable on the prize – $590.90
Plus the reportable fringe benefits amount to the prize of $8,560.11.
The total cost to your business for the prize including FBT paid is $14,469.21
FBT example without GST
Your business has decided to pay its CFO’s childcare fees for the year. The total in childcare fees paid by your business in the FBT year is $20,000.
Childcare fees are GST-free and thus are considered for the Type 2 Gross Up FBT Rate (not entitled to GST credit) of 1.8868.
Your fringe benefits tax calculation is:
$20,000 x 1.8868 x 47%
The total FBT payable by your business is $17,735.92.
So, what is the total cost of the childcare plus the FBT calculated?
The cost of the childcare fees is $20,000
Less GST claimable on the childcare – $0
Plus the reportable fringe benefits amount for the childcare of $17,735.92.
The total cost to your business for the CFO’s childcare fees including FBT paid is $37,735.92.
What do you do next to lodge and pay for your FBT?
Registering for FBT
If you think you are or will be offering fringe benefits to your employees, you must register for FBT with the Australian Taxation Office.
If you are registered for FBT and do not pay any reportable benefits to employees, you simply lodge a nil return.
When is FBT due?
FBT is due for lodgement and payment for the FBT year by 21 May.
If you are lodging an electronic FBT return through your tax agent (like Sleek!) your lodgement and the payment date is 25 June.
Yes, that’s right, you get more time to lodge with Sleek!
The FBT Year is different from the financial year of 1 July to 30 June – the FBT year runs from 1 April to 31 March.
How to reduce your fringe benefits liability?
Fringe benefits tax can be a burden on business – sometimes the cost far outweighs the benefit.
So, are there some ways you can reduce your business’ FBT liability but still provide some enticements to your valued employees?
Yes, there are.
- Offer a cash bonus
You could pay the employee a cash bonus through the payroll system. The employee will pay income tax on this bonus.
- Make a deduction to recover costs
You can make a deduction to recover costs directly incurred from an employee’s private use of the employer’s property. For example, if an employee uses a work car for personal use, you can deduct an amount for car use from their pay.
- Provide benefits that are deductible in individual tax returns
You could provide benefits that would be deductible for the employee in their individual tax return. For example, you pay for an employee to attend an industry conference. There is no FBT payable on the cost of the conference because the employee would be entitled to full income tax deductions if they had paid for it themselves.
As you can see, FBT is a complex tax with many exceptions and inclusions. On the other hand, it can also be a powerful tool to offer exceptional employees some benefits, over and beyond their salary.
Sleek accountants help your business to ensure your fringe benefits tax obligations are correct and to provide advice on wise benefit offerings for your employees.
Let’s get FBT right. Call our team now on +61 2 9100 0480 or make an appointment to discuss your fringe benefits obligation in more detail here.
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