As part of our continued theme of HR/Payroll and what is involved in employing staff we look at Fringe Benefits Tax (Part 2). Last week we looked at what fringe benefits tax was, what you need to be doing to be deemed as providing a fringe benefit to your employees, what are the different types of fringe benefits, what is exempt from fringe benefits and what reduces the value of the fringe benefit.
This week we continue with learning more about Fringe Benefits Tax and how it affects you as an employer.
Reducing your Fringe Benefits Tax Liability
If you read last weeks post and are reading this going ‘I really don’t want to do FBT, it all sounds way to confusing’. Then you need to know that there are ways you can reduce you FBT liability and sometimes even eliminate it. Listed below are various ways you can reduce it.
- Replace Fringe Benefits with a cash salary
- If you paid your employees the equivalent of their fringe benefit in the form of increased salary or wages, the employee pays income tax on the salary or wages rather than you paying fringe benefits tax.
- Provide benefits that are exempt from FBT
- If you look at the list above that details the benefits that are exempt from fringe benefits and only provide those benefits, then you would not have to pay FBT
- Provide tax deductible benefits
- If you pay for or reimburse an expense an employee would otherwise have ben able to claim as an income tax deduction then you may not have an
- Use employee contributions
- In most cases, you can reduce your FBT liability by obtaining a payment from an employee towards the cost of providing the fringe benefits, this is commonly called an employee contribution. There are rules around this so you will have to look into this further
What is not subject to Fringe Benefits Tax?
Not everything you provide in regards to employment is a fringe benefit. Following is a list of certain benefits that are excluded from being fringe benefits.
- Salary or wages
- Salary or wages are the amount you pay to them as income and means that an amount of tax is withheld from it.
- Employee Share Schemes
- Any benefits arising to employees from the acquisition of shares, or rights to acquire shares, are not fringe benefits if the share acquisition scheme conforms to the necessary income tax requirements.
- The following are not fringe benefits
- Contributions you make to a complying superannuation fund for an employee.
- Contributions you make to a foreign superannuation fund for superannuation benefits for an employee where the employee is a temporary resident when the contribution was made
- Payments you make to a retirement savings account held by an employee
- If you make superannuation contributions for an associate of an employee that is subject to FBT
- The following are not fringe benefits
- Employment termination payments
- Employment termination payments are payments made as a result of terminating the employment of an employee
- Payments of a capital nature
- Payments of capital nature of a legally enforceable contract in restraint of trade, or for personal injury to person, are not fringe benefits
- First home saver account (FHSA) payments
- Reimbursements you make to an employee for their personal FHSA contribution
- Contributions you make to an FHSA for an employee
- Payments of amounts deemed to be dividends are not fringe benefits
- Payments to associates
- Certain payments made by partnerships and sole traders to relatives and other associates that are deemed not to be assessable income, are not fringe benefits
Reportable Fringe Benefits
If your employee/s receive a certain fringe benefit that has a total taxable value of more than $2,000 in a FBT year (1 April to 31 March), you must report the grossed-up taxable value of the benefits on their payment summary for the corresponding income year (1 July to 30 June). This is called the reportable fringe benefits amount.
What are the GST consequences of providing benefits?
- GST (input tax) credits
If you are registered for GST or required to be registered for GST and the benefit you provide has GST in the price then you are entitled to claim that GST. For example, if you were purchasing a new car for the employee, then the amount of GST in the purchase price can be claimed on your next BAS.
- GST on employee contributions
If you provide your employee a fringe benefit and they make a payment back to you for some of the benefit you have to pay GST on that supply as if it was a normal sale. For example, if you provide a car to your employee and they pay you back some of the expense, say half the fuel used and half the insurance and some money for personal use of the vehicle. You have to pay GST on the amount that is given to you as if it was a customer paying you for something.
- GST and the value of fringe benefits
When you are calculating the taxable value of a benefit, the value of the fringe benefit is the GST-inclusive value where applicable
So that wraps up part 2 of Fringe Benefits Tax, I hope things have become a little clearer for you around this subject. 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.