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Fringe Benefits Tax (FBT): An explainer
Being an employer carries with it a number of additional taxes. Beyond withholding tax from an employee’s individual income, you may also have to pay tax on any additional incentives you offer. This is known as the fringe benefits tax (FBT), which is a tax employer must pay when they provide certain ‘fringe benefits’ to employees.
The FBT is separate to income tax and is calculated on the taxable value of the fringe benefits provided to employees. In this article, we’ll discuss what the FBT is and how to know when you’re liable to pay it.
What are fringe benefits?
Fringe benefits are non-income related benefits businesses can provide to their employees. They are a common form of reimbursement used by businesses to attract and retain employees. These benefits may be part of or be in addition to, an employee’s salary or wages package.
Fringe benefits are generally defined as not including salaries, wages or other cash remunerations included in employment. Items needed for employment such as mobile phones and clothing are not generally considered fringe benefits but may be claimable.
Examples of fringe benefits classified as being taxable by the FBT include:
- Car fringe benefits – for example, a car available for private use by an employee
- Entertainment fringe benefits – provision of recreation, food and drinks
- Expense payments fringe benefits – paying for an employee’s private expenses either by direct payment or reimbursement
These benefits are normally included in the terms of employment offered under an employment contract.
Why offer fringe benefits?
Fringe benefits are fundamentally perks that can attract, retain or motivate employees. These incentives, such as free food, coffee bars, or discount gym membership can make employees feel valued and can create a better workplace environment for staff.
Additionally, businesses may receive some tax benefits themselves. Fringe benefits are often included through salary sacrifice or as part of salary packaging. This may push employees down into a lower tax bracket, which is especially beneficial for higher income earners.
What are the FBT requirements?
Employers are required to self-assess their FBT liability each FBT year (1 April to 31 March) and lodge an FBT return before the due date. To assist with this, the Australian Tax Office (ATO) provides a comprehensive guide on calculating FBT.
Businesses providing fringe benefits to employees will need to:
- Calculate how much FBT you need to pay
- Register for an FBT
- Keep the necessary FBT records
- Report fringe benefits on employee payment summaries
- Lodge a return and pay FBT to the ATO
- Understand which benefits are exempt from FBT
It is essential that employers are aware of their liabilities and obligations when providing fringe benefits to their employees. It is worth having any employment contracts reviewed by a business taxation lawyer to ensure that you have properly accounted for any fringe benefits you may offer.
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