As the Fringe Benefits Tax year comes to a close, below is some handy information on Fringe Benefits Tax and the essentials that every employer needs to know.
What is Fringe Benefits Tax?
A Fringe Benefit is a payment to an employee – but is different from Salary and Wages. According to the ATO, “a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The employee may even be a former or future employee.”
Always note that Fringe Benefits are only paid to persons who are considered an employee. If the benefit is paid to someone who is not an employee, this will not be considered a Fringe Benefit
Under Fringe Benefits, employees include current, future, or past employees, directors, or beneficiaries of a trust who works within a business.
Examples of fringe benefits include:
- a work car used for private purposes
- Discounted loans for employees
- Covering the cost of an employee’s gym membership
- providing entertainment by way of free tickets to concerts
- reimbursing an expense incurred by an employee, such as education fees
- giving benefits under a salary sacrifice arrangement with an employee.
The following are not fringe benefits:
- salary and wages
- Employee share acquisition schemes
- employer contributions to complying super funds
- employment termination payments
- payment of amounts deemed to be dividends under Division 7A (Private Company Benefits)
- benefits provided to volunteers and contractors, who are therefore not considered employees
- exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.
What are the responsibilities of employers that provide Fringe Benefits Tax?
Fringe benefit tax is paid by employers on specific benefits that are provided to their employees or employees’ families – This applies if the benefit is provided by a third party under an arrangement with an employer, such as a salary packaging company.
It is an employer’s responsibility to self-assess their FBT Liability for the FBT year (1 April – 31 March), and lodge an FBT return. Employers can also claim an income tax deduction for providing fringe benefits to their employees, and also for the FBT that they pay, along with GST credits for items provided as fringe benefits.
Employers must also ensure that the grossed up taxable value of reportable fringe benefits are reported on an employee’s income statement for the tax year – i.e., the RFBA for financial year ending 30 June will cover the reportable benefits provided from the previous 1 April to 31 March period.
FBT Resources for Employers
Registering for FBT
Employers must be registered for fringe benefits tax, and lodge a return if they are required to pay FBT during an FBT year. For more information on registering for FBT, find here.
Fringe Benefit Calculations
To work out your FBT Liability you must gross-up the taxable value of the benefits that have been provided to your employees. The calculation used is dependant on if there is an entitlement for a GST credit:
- A Higher gross-up rate (type 1) is used where you (or other benefit providers) are entitled to a GST credit for GST paid on benefits provided to an employee (known as GST-creditable benefits).
- A Lower gross-up rate (type 2) is used where there is no entitlement to a GST credit.
Reporting and Paying FBT
Employers must lodge an FBT return if they have liability by the 21st of May following the FBT year (or the 25th of June if you have a tax agent that lodges your return electronically). If there is no FBT to lodge for the year, but you are registered for FBT you must also file a notice of non-lodgement. For more information on reporting and paying for FBT, find here.
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Employment Innovations is one of Australia’s leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium sized employer needs – including workplace advice, legal services, payroll solutions, migration, human resource management and HR software.
The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.