Fringe benefits tax was introduced in 1986 by the Australian Taxation office to combat the then growing non-cash benefit schemes that some employees where receiving.
Fringe Benefits Tax is calculated on many things and is considered the catch all provision that taxes all benefits received by an employee or an employee’s associate that isn’t in the form of a salary or wage from their employer. For FBT to exist there must be an employer and employee (or an associate of an employee) relationship. Without this relationship there can’t be a fringe benefit.
How does it work, and how is it calculated?
The Fringe Benefits Tax is levied on the employer and not the employee and is taxed in the 2016 -17 year at 49%. The 49% is added to the net fringe benefit provided so that the amount taxed is if the employer had paid the employee at the top marginal tax rate. EG: a 5,000 benefit that can be claimed by the employer with GST would be grossed up by 2.1463 = 10,731.50 (gross value). The tax payable would be 10,731.5 * 49% = 5,258.43 in tax payable by the employer to the ATO. The 10,731.50 would be shown on the employee’s payment summary as the FBT gross amount provided.
What is included in Fringe Benefits Tax?
An FBT Liability is payable on things such as:
- Motor Vehicles
- Parking Space
- Expense reimbursed
- Loan payments
- Debt waiver
- Living away from home
The Australian Taxation Office (ATO) considers some items to be FBT exempt such as:
- Vehicles capable of carrying a tonne or carrying more than 9 passengers and used in your business
- Work related items such as mobile phones, laptops, tablets, Navigation systems, Protective clothing, software, Tools of trade. These are only exempt if they are used for work and only 1 of each item per year is provided.
- Items consider to be minor and in frequent up to the value of $300
- Single journey taxi travel that begins or ends at the employees place of work
- Some living away from home allowances for the first 12 months in a new location
- remote area relocation
Can I reduce my FBT liability on a car?
An FBT liability can be reduced on a car by keeping a log book showing the amount of business kilometers driven versus personal. This log book must be kept for a minimum of 12 continuous weeks and will generally be good for 5 years as long as the use of the vehicle doesn’t change by more than 10% in any year.
Alternatively, an employee could elect to pay for some of the running costs out of their after tax salary which could reduce the amount of assessable FBT payable to zero.
How does FBT effect my personal tax?
The lower the personal use the less FBT amount that needs to be included.
FBT is calculated annually and runs between 1 April to 31 march of each year. The liability for registration and payment rests with the employer as they are liable for any FBT payable to the ATO. Further the employee must show on their payment summaries the amount of the grossed up FBT value.
This grossed up value is not included in your assessable income for taxation purposes but instead is included when calculating any government entitlements including Family Tax Benefits, Private Health insurance rebates, Medicare levy surcharge, section 293 assessments, certain rebates and child support.
Peter Carter – Certified Practicing Accountant
Peter is a Certified Practicing Accountant (CPA) and has completed an Advanced Diploma in Accounting and Bachelor of Commerce (Accounting and Finance Law).