Work perks – every employee loves them, but as an employer how do you know exactly what constitutes reportable fringe benefits tax (FBT)?
To help you meet your fringe benefits obligations, we’ve put together a list of essentials every employer needs to know about FBT and review every year, such as:
• Should I be registered for FBT?
• What items are FBT exempt?
• How can I reduce my FBT liability?
• How do I calculate FBT?
What is FBT?
Before we jump into these four questions, let’s recap what exactly FBT is. Fringe Benefits Tax refers to tax paid by employers on specific benefits they provide to their associates, employees, or even employees’ families. The ATO explains a fringe benefit as a ‘payment’ to an employee but in a different form to salary or wages. This might include:
• allowing an employee to use a work car for private purposes
• giving an employee a discounted loan
• paying an employee’s gym membership
• providing entertainment by way of free tickets to concerts
• reimbursing an expense incurred by an employee, such as school fees
• giving benefits under a salary sacrifice arrangement with an employee.
1. Do I need to be registered for FBT?
Generally speaking, if you have employees and you provide them with cars, car parking, entertainment (food and drink), employee discounts, reimburse private expenses etc, then you are likely to be providing a fringe benefit and you will need to register your business for FBT.
You can register for FBT through any of the following:
• online – if you already have an Australian business number (ABN) using the Australian Government Business Registration ServiceExternal Link
• by phone – if you’re an authorised contact for the business, phone us on the business enquiries line
• through your registered tax agent
• complete the paper form Application to register for fringe benefits tax
• by lodging your annual FBT return.
2. What items are FBT exempt?
Items such as mobile phones, laptops, portable printers, software, protective clothing, briefcases and tools of trade are exempt from FBT.
3. How can I reduce my FBT liability?
You can reduce the amount of FBT you pay by:
• 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 benefits themselves (the ‘otherwise deductible’ rule)
• providing benefits that are exempt from FBT
• using employee contributions – generally a cash payment by the employee to the employer or the person who provided the benefit. However, an employee can also make an employee contribution towards a car fringe benefit by paying for some of the operating costs (such as fuel) that the employer does not reimburse.
4. How do I calculate FBT?
These steps below are provided by the ATO to help you calculate your FBT:
Step 1: Total it up
Work out the taxable value (pre-gross up) of all fringe benefits you provide to employees.
Step 3: Grossed-up taxable value
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.
Step 5: Grossed-up taxable value, 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.
Step 7: Total FBT amount to pay
Multiply the total Fringe Benefits Taxable amount (from step 6) by the FBT rate. This is the total FBT amount you are liable to pay.
Step 2: GST credits
Identify from 1, the total taxable value of fringe benefits you provide for which you can claim a GST credit (Type 1 benefits).
Step 4: Total taxable value with no GST credit
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).
Step 6: Total FBT amount
Add the grossed-up amounts from steps 3 and 5. This is your total Fringe Benefits Taxable amount.
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