As part of our Payroll/HR Series, we have spent the last few weeks talking about all we need to know and understand before we engage workers. So far we have covered Pay As You Go Tax and Superannuation. We next need to cover Fringe Benefits Tax, this is quite a ‘heavy’ subject and it goes for a few weeks, but I feel its really important for you to understand it so you don’t get caught out at tax time and have to pay a huge amount of Fringe Benefits Tax.
Fringe Benefits Tax
Quite often when Business Owners employ staff they offer their employees or their employees’ associates (typically family members) benefits in addition to their salary or wages. These benefits attract a tax called Fringe Benefits Tax (FBT).
Examples of a benefit paid to employees are:
- Personal use of a work car for private purposes
- A cheap loan to an employee
- Paying for an employee’s gym membership
- Providing entertainment by the 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
FBT is separate from income tax and is based on the taxable value of the fringe benefit. As the employer you are required to pay FBT irrespective of whether you are a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.
You don’t have to be the one providing the fringe benefit, it can be provided by an associate or under an arrangement you have with a third party, it is still your responsibility to pay the tax on that benefit.
FBT is payable whether or not you are liable to pay other taxes such as income tax.
Are you providing fringe benefits to your employees?
You need to be very clear about Fringe Benefits Tax, below is a check list that the Australian Tax Office provide that will help you work out if you are already providing or will be providing a fringe benefit to your employees. If any of the following apply, you may have an FBT liability and need to talk to your accountant.
- Do you make cars or other vehicles owned or leased by the business available to employees for private use, including a car garaged at the employee’s place of business?
- Do you provide loans at reduced interest rates to employees?
- Have you released an employee from an owed debt?
- Have you paid for, or reimbursed, a non-business expense incurred by an employee?
- Do you provide a house or unit of accommodation to your employees?
- Do you provide employees with living-away-from-home allowances?
- Do you provided entertainment by the way of food, drink or recreation to your employees?
- Do any of your employees have salary package arrangement in place?
- Have you provided your employees with goods at a lower price than they are normally sold to the public?
Types of Fringe Benefits
Fringe Benefits have been categorised into 13 different types so that specific valuation rules can be used. We will look at these in more depth in the coming weeks, but for now you need to know what those categories are:
- Car Fringe Benefit
- Debt Waiver Fringe Benefit
- Loan Fringe Benefit
- Expense Payment Fringe Benefit
- Housing Fringe Benefit
- Living-away-from-home Allowance Fringe Benefit
- Airline Transport Fringe Benefit
- Board Fringe Benefit
- Tax-Exempt Body Entertainment Fringe Benefit
- Car Parking Fringe Benefit
- Property Fringe Benefit
- Residual Fringe Benefit
Exemptions from Fringe Benefits Tax
There are a number of benefits that are exempt from Fringe Benefits Tax. Exempt benefits are not only exempt from FBT, they are also (with the exception of one) exempt from income tax in the hands of the employee to whom they are provided.
- Transport Exemptions
- Dual Cab Vehicles
- Residual Exemptions
- Recreational facilities, child care facilities – residual benefits
- Living-away-from-home accommodation – expense payments
- Religious and non-profit organisation exemptions
- Registered Religious Institutions
- Remote Area Exemptions
- Remote Area Housing
- Certain meals provided to primary production employees
- Other Exemptions
There are also a range of concessions available. Some concessions reduce the taxable value of the fringe benefit to zero, and others provide only a partial reduction.
Reduction in Fringe Benefit Taxable Value
There are a number of fringe benefits that attract a reduction in the taxable value that results in a reduction in the amount of fringe benefits tax that needs to be paid, or even resulting in a zero payment.
This is where things get really heavy and I would suggest that you make an appointment with your Accountant if you want to know more details on this. But some examples of where you can get a reduction in Fringe Benefit Taxable Value are:
- When the Value of the benefit can be reduced
- Remote Area Reductions
- Residential Fuel
- Transport reductions
- Overseas employment holiday transport
- Relocation reductions
- Where transport by employee’s car
- Other Reductions
- Personal Services Entities
So that wraps up part 1 of Fringe Benefits Tax, I hope you are not feeling too overwhelmed. If you have any questions around Fringe Benefits Tax or anything else we have talked about in previous blogs, you can email me or contact me on Facebook or Twitter.