Posted on 6th March 2018 by Ashley Dawson
With the end of the Fringe Benefits Tax (FBT) year fast approaching on the 31st of March, we have provided below some FBT basics to help you determine if this applies to your business.
The FBT year runs from the 1 April through to 31 March.
Where a business has taxable fringe benefit a FBT return is required to be lodged by the 25th of June and paid by the 28th of May.
A fringe benefit is a right, privilege or service provided to a current, future or former employee, and/or the employee’s associate. This benefit could have been provided by the employer, an associate of the employer or a third party.
Benefits that are excluded from the definition of a ‘fringe benefit’ are salary, wages, eligible termination payments (ETPs), employer superannuation contributions and shares purchased under approved employee share acquisition schemes.
Where a benefit is ‘Otherwise Deductible’, that is, if the employee would have been entitled to claim an income tax deduction for the expense if the employer had not paid for the expense, then no FBT is payable for the benefit. For example, an employee drives to a customer’s business premise and pays for parking while attending to business matters at the site. The reimbursement of the parking fee would not incur FBT liability as the expense would have been ‘otherwise deductible’ to the employee if no reimbursement had been claimed.
Common fringe benefits include:
- Employees taking business vehicles home and garaging them overnight
- Employees using business vehicles for private use
- Salary package arrangements
- Paying or reimbursing any employees’ expenses
- Entertainment, such as food, drink or recreation for your employees and/or their associates
- Car parking provided for employees
- Gifting of property, such as electrical goods, to your employees either free or selling them to the employee at a discount
- Providing an employee with a house or unit of accommodation
- Providing loans at reduced or no interest rates to any employees
- Releasing an employee from a debt they owed the business
- Providing employees with living-away-from-home allowances
Exempt Benefits include:
- Laptops or other portable electronic devices provided to employees for work use
- Membership fees and subscriptions
- Property given in the ordinary course of business and consumed on premises that day (e.g. a bakery that gives baked goods to employees consumed on the business premises)
- Relocation expenses
- Recreational or leisure facilities if they are provided on business premises (e.g. child minding facilities or gym located on premises)
However, there are traps for the unwary business owner, for example, holding a fitness class at the office for employees and/or associates to attend does not fall under the recreational or leisure facility exemption.
FBT is separate tax from income tax and is levied at 47% for the 2018 FBT year.
To work out the amount of tax payable, the fringe benefit amount is grossed-up and then the tax rate is applied.
The grossing-up is applied to increase the taxable value of benefit provided to reflect the gross salary the employee would have earned at the highest marginal tax rate, including Medicare levy, if they had paid for the benefit themselves after paying tax.
FBT gross up rates that have applied from 1 April 2017 (2018 FBT year) are:
- For Type 1 Benefits – gross up rate of 2.0802
- For Type 2 Benefits – gross up rate of 1.8868
Type 1 Benefits are benefits that are entitled to have a GST credit claimed by the business for GST paid.
Type 2 Benefits are benefits that can have no GST credit claimed.
Where the total taxable value of reportable fringe benefits for an employee is more than $2,000 for the current FBT year, the employer must include the grossed-up value on the employee’s PAYG payment summary.
However, regardless of whether the benefit provided is Type 1 or Type 2 benefit, for the purposes of Reportable Fringe Benefits on an employee’s PAYG Payment Summary, only the lower gross up rate is applied.
GeersSullivan will be sending out FBT checklists and documentation to our clients at the end of March. If you have any FBT questions please do not hesitate to contact our office.