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Business Tax Tip – What is Fringe Benefits Tax – How it works - Australia
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Published on Friday, 06 October 2023 10:32
The Australian Tax Office (ATO) is the resource to define many business tax issues and here is some extracts explaining Fringe Benefits Tax (FBT).
What is a fringe benefit?
A fringe benefit is like a 'payment' to an employee, but in a different form to salary or wages.
For fringe benefits tax (FBT) purposes, an employee includes a:
- Current, future or past employee;
- Director of a company;
- Beneficiary of a trust who works in the business.
Examples of fringe benefits include:
- Allowing an employee to use a work car for private purposes;
- Paying for car parking spots;
- 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.
The following are not fringe benefits:
- Salary and wages;
- Shares or rights purchased under approved employee share acquisition schemes;
- Employer contributions to complying super funds;
- Employment termination payments (including for example, the gift or sale at a discount of a company car to an employee on termination);
- Payment of amounts deemed to be dividends under Division 7A;
- Benefits provided to volunteers and contractors;
- Exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.
What is fringe benefit tax (FBT)
FBT is paid by employers on certain benefits they provide to their employees or their employees’ family or other associates.
FBT applies even if the benefit is provided by a third party under an arrangement with the employer.
FBT is separate to income tax and is calculated on the taxable value of the fringe benefit.
The employer must self-assess their FBT liability for the FBT year (that is, over the period 1 April to 31 March) and lodge an FBT return.
Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay.
Employers can also generally claim GST credits for items provided as fringe benefits.
Specific concessions apply to some non-profit organisations (see Non-profit organisations and FBT).
How much FBT does the employer pay?
To work out how much FBT to pay, you 'gross-up' the taxable value of the benefits you've provided. This is equivalent to the gross income your employees would have to earn, at the highest marginal tax rate (including the Medicare levy), to buy the benefits themselves.
The FBT you pay is 47% of this 'grossed-up' value of the fringe benefits.
Can you claim deductions and GST credits?
As an employer, you can claim:
- An income tax deduction and GST credits for the cost of providing fringe benefits -
- if you can claim GST credits, you claim the GST-exclusive amount as an income tax deduction
- if you can't claim GST credits, you claim the full amount as an income tax deduction
- An income tax deduction for the FBT you are required to pay.
Read more at ATO FBT.
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