Fringe Benefits Tax: what it is, how it works and who it affects
With the Fringe Benefits Tax (FBT) year just about to end, it’s important to beware the possible effect on you – so here’s the what, how, who and when of the FBT.
What is FBT?
The Fringe Benefits Tax (FBT) is a tax paid on certain benefits that employers provide to their employees or their employee’s associates in place of salary or wages. Payments by 3rd parties to your associates under an arrangement by the employer are also included.
What are ‘benefits’?
According to the ATO, a ‘benefit’ includes the following:
Items such as work cars provided for private use, loans to employees, reimbursement of private expenses and entertainment are all included.
Items not subject to FBT:
However the ATO has played nice, and some items provided to employees or associates of employees are not subject to FBT. These include:
- Minor benefits that are valued at less than $300 where it would be unreasonable to treat the benefit as a fringe benefit
- Certain work related items
Note that FBT exemptions only apply to items that are primarily used for work, and are limited to one item per FBT year that have a substantially identical function (unless the item is a replacement item).
Who pays this tax?
The obligation of paying the tax on a fringe benefit falls onto the employer, even if the benefit is provided by an associate or 3rd party under an arrangement with you.
When is it due?
The FBT year is from 1 April to 31 March, with FBT returns due by 21 May.
How much is it?
Like income tax, FBT is conducted on a self assessment basis. This means that you prepare and lodge an FBT return (like an income tax return) and pay the relevant tax that is calculated from the return.
In terms of what is taxed, for each fringe benefit that you provide to employees you will need to work out the taxable value and then multiply by the FBT rate.
Can I reduce my FBT liability?
Below is a list of ways that you can structure the benefits with employees in order to reduce FBT payable:
- Replacing fringe benefits with cash salary
- Providing benefits that your employees would be entitled to claim as an income tax deduction if they had paid for the benefit themselves
- Providing benefits that are exempt from FBT
- Using employee contributions
This is just a brief look at the FBT tax; if you have specific questions about your own situation, please contact your advisor at The Practice on (03) 8888 4000.