Fringe Benefits Tax (FBT) is an Australian tax imposed on certain non-cash benefits provided to employees, directors and associates of a business. It affects businesses in both the public and private sectors, and is based on the taxable value of those benefits.
The benefits themselves are taxed and not the business that is providing them. For example, if an employer offers free meals and flights for its employees, those benefits will be subject to FBT rather than being counted as business expenses.
In Australia, the FBT year ends on the 31st of March – so now is the perfect time to check that your business is up to date with its FBT obligations.
The Principles of Fringe Benefits Tax
When it comes to understanding and calculating FBT, there are a few basic principles you should be aware of:
1. All taxable fringe benefits are subject to FBT at a rate of 47%.
2. The benefit provided must be connected to a business activity. This could include:
- Non-cash benefits such as private use of a car or other motor vehicle, entertainment expenses, and living away from home allowances
- Expense payments made to employees instead of salary or wages
- Any property, benefit, service or facility provided by an employer other than cash (e.g. meals and accommodation)
- Any loans or debts forgiven by an employer
- Payments made to third parties on behalf of an employee (e.g. health insurance premiums).
3. The value of the benefit must be determined in accordance with Australian taxation law. This is usually done using the ‘cost’ method, which requires you to work out the cost of providing the benefit to your employees and paying FBT on that amount.
4. The benefit must be provided to an employee, director or associate of the business – not to customers or other third parties.
5. The taxable value of the fringe benefit is determined by its cost price and any applicable statutory adjustments.
6. You cannot deduct any payments you make for a fringe benefit from your taxable income, but there are some exceptions such as transport benefits and meal entertainment benefits.
7. As an employer, it is your responsibility to ensure that you are compliant with FBT regulations. This includes filing an annual return and paying any amounts due.
What is the minimum reporting threshold?
The minimum reporting threshold for FBT is $2,000 – so if your business provides benefits that have a total cost of less than this amount, you don’t need to report them. However, it’s important to check with your accountant or tax advisor before making any assumptions about what’s taxable and what isn’t.
You must also keep in mind grossed-up types of benefits, which are fringe benefits that have been calculated according to the value of their gross salary rather than the cost price. These types of benefits are also subject to FBT and must be reported accordingly, with the minimum reporting threshold $3,773
For advice on how to make sure your business is complying with its FBT obligations, reach out to MSI Taylor.
How is FBT calculated?
Calculating the amount of FBT you owe can be complicated, as it depends on a range of factors including the taxable value of the benefit, any statutory adjustments, and whether the benefit is provided in or out of Australia.
To make sure you are calculating FBT correctly, chat to MSI Taylor Accountants and Advisors today for tailored advice and structure for your business.
We can help you work out what benefits should be included in your calculations, and ensure that all relevant adjustments are taken into account.