Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits they provide to their employees or their employees associates. It is calculated based on the taxable value these benefits. For FBT purposes, an employee includes a current, future or past employee, a director of a company or beneficiary of a trust who works in the business. Note that FBT is a separate tax to income tax and is payable by the employer (not the employee). FBT paid is also an allowable income tax deduction.
When calculating your FBT liability, the taxable value of the benefits provided must be grossed up. There are two gross-up rates. The type 1 rate is used where the employer is entitled to a GST credit for GST paid on benefits provided to an employee. The type 2 rate is used where there is no entitlement to a GST credit. Currently the type 1 gross up rate is 2.0802 and the type 2 rate is 1.8868. Grossing up the taxable value of benefits reflects the gross salary an employee would have to earn at the highest marginal tax rate to buy the benefits after tax.
The tax payable is then the grossed up taxable amount multiplied by the FBT rate. Currently this rate is at 47%.
Common examples of fringe benefits include vehicles that are available for employee’s private use, providing entertainment by way of free tickets or paying for an employee’s membership fees.
Some types of benefits are exempt from fringe benefits tax and others receive concessional treatment. Below are some of the most common FBT exemptions and concessions.
Work-related items exemption
This exemption is limited to items that are primarily for use in the employee’s employment. Examples include:
- Portable electronic devices (phones, laptops, tablets etc)
- Computer software
- Protective clothing
- Tools of trade
Minor benefits exemption
This exemption is applicable where the benefit provided is less than $300 in notional taxable value and unreasonable to be treated as fringe benefit. The notional taxable value of the benefit is its value if it was taxable. When looking at whether a benefit is unreasonable to be treated as fringe benefit, there are 5 main criteria to be looked at:
- The frequency and regularity of the benefit – the more frequent and regular a benefit, the less likely it will be an exempt benefit
- The total of the notional taxable values of minor benefits – the higher the total, the less likely they will be exempt benefits
- The likely total of the notional taxable values of benefits provided in association with the minor benefit – the greater the total value of associated benefits, the less likely it will be an exempt benefit. For example, a meal in isolation might be a minor benefit. If that meal is connected with a hotel stay and tax travel, it might not be considered minor anymore.
- The difficulty in determining the notional taxable value
- The circumstances under which the minor benefit and any associated benefits were provided – was it the result of an unexpected event or is considered principally as remuneration?
Small business car parking exemptions
Employers who meet the criteria for a small business entity are generally exempt from FBT for car parking benefits. For the exemption to apply, all of the following criteria must be met:
- Parking provided is not in a commercial car park
- The employer is not a government body, listed public company or subsidiary of a listed public company
- The employer qualifies as a small business
Taxi travel expenses exemption
For taxi travel that is a single trip which begins or ends at an employee’s place of work, the benefit arising from the taxi travel is considered an exempt fringe benefit. This travel includes travel that is part of sickness or injury to an employee or travel to an employee’s place of residence.
Living away from home allowance fringe benefits
Employers can choose to pay employee’s an allowance to cover any additional expenses or disadvantages suffered as a result of them being required to temporarily live away from their normal residence in the course of performing their employment duties. This is called a living-away-from-home-allowance (LAFHA).
The taxable value of LAFHA fringe benefits can be reduced by amounts relating to food, drink and accommodation expenses where the following applies:
- The employee maintains a home in Australia at which they usually reside;
- The employee provides a declaration about living away from home; and
- The fringe benefits relate to the first 12-month period at a work location
If the above conditions are not met, the taxable value of the fringe benefit will equal the amount of the allowance paid.
Should you have any queries regarding the above information, please do not hesitate to contact us on (08) 9316 7000.