It’s hard to imagine, but there was a time in Australia when a boozy business lunch, an employer provided car and a free trip to the Grand Prix were common ways of doing business. Some might accuse the Tax Office of being fun police, but as 31 March draws closer, I thought it would be a good time to remind every one about fringe benefits tax (FBT). Nowadays, I think we all know that employers can’t give you benefits that aren’t taxed. But how does FBT work? What’s included? And does FBT mean that there’s no point to employers giving their staff non-salary perks? In this first post, I’m going to try and answer some of the common FBT FAQs. Over the next couple of weeks, we’ll look at some of the more common benefits in depth.
What is Fringe Benefits Tax?
FBT is a tax that employers pay on certain perks they provide to their employees. It may be a documented part of the employee’s employment package or an extra benefit informally provided at the discretion of the employer. It is separate to income tax and is paid based on a year that runs from 1 April to 31 March.
How is FBT calculated?
First you identify the value of all fringe benefits provided to employees. Then you multiply by the relevant “gross up” rate. If the employer was entitled to a GST input tax credit the gross up rate is 2.0802. If the employer was not entitled to a GST input tax credit, the gross up rate is 1.8868.
Add both amounts and apply the FBT rate which for 2019 is 47%.
Who is an employee?
An employee is a person who receives salary and wages or is paid under a contract in return for work which is wholly or mostly for the person’s labour. So, it includes the usual definition of an employee but it also includes a contractor who is employed on the basis of hours worked.
Can FBT be avoided by providing a benefit to a family member rather than the employee?
No. FBT extends to “associates” of the employee such as a spouse or child and even extends to closely connected companies or trusts.
What is a benefit?
The Australian Taxation Office (ATO) guide states that a benefit “Includes any right, privilege, service or facility”. Common examples are: motor vehicles, car parking, loans at a reduced rate of interest, waiving of debts, housing, living away from home allowances, property, entertainment and expense payments (eg school fees, private health insurance, computers, home internet etc). It also includes benefits which are generated “in-house” – for example a soft drink manufacturer still provides a fringe benefit if it gives soft drinks to employees at no charge. In other words, just about everything which is provided by an employer at reduced or no cost.
Are any organisations exempt from FBT?
Yes. Concessions are available to certain not for profit organisations, registered charities, public ambulance services and public or non-profit hospitals. These organisations which must be approved by the ATO are exempt up to a threshold. Certain religious organisations are also exempt for specific categories of employees.
Are all fringe benefits taxed?
There are some exemptions. For example, if a fringe benefit is provided irregularly and is minor (less than $300). Also, if an item is provided that is used for business purposes and would be deductible if the employee had paid for the item themselves, it is exempted. For example, an employee who is provided with a mobile phone which is almost exclusively used for work, would not be liable to FBT.
I’m an employee, does it affect my taxable income?
No. However, if you receive fringe benefits and their taxable value is more than $2,000, the amount must be reported on your annual payment summary. Your Reportable Fringe Benefits are included in Adjusted Taxable Income. Adjusted taxable income is used to calculate whether you are required to pay Medicare levy surcharge, the rate at which you receive the private health insurance rebate as well as certain other means tested government payments such as the child care subsidy.
Need to sort your FBT ASAP? I offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances!