Fringe Benefits Tax (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.
Examples of fringe benefits:
- allowing an employee to use a work car for private purposes
- 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 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
FBT is separate to income tax and is calculated on the taxable value of the fringe benefit. Employers must self-assess their FBT liability for the FBT year (1 April to 31 March) and lodge an FBT return. The FBT rate for the years ending 31 March 2018 to 31 March 2024 is 47%.
Due dates for lodgement and payment of FBT returns
If you prepare your own FBT return, you’ll need to lodge your return and pay any liability by 21 May 2024.
If you have a tax agent that lodges your return electronically, the due date to lodge and pay is 25 June 2024.
To help you meet your fringe benefits obligations, we’ve put together a list of essentials every employer needs to know about FBT and review every year.
When should you register for FBT?
Generally, if you have employees (including directors) and you provide them with cars, car parking, entertainment (food and drink), employee discounts, reimburse private expenses etc, then you are likely to be providing a fringe benefit and you or your tax agent will need to register your business for FBT.
As an employer, you must keep all records relating to the fringe benefits you provide to your employees or your employee’s family or other associates, including how you calculated the taxable value of benefits. You must also keep records if you want to take advantage of various exemptions or concessions that reduce your FBT liability. If you need help setting up a record keeping system or accounting for FBT, our bookkeepers are able to assist.
What items are exempt from FBT?
Work-related items, used primarily in the employee’s work activities, are exempt from FBT. Examples of such are:
- portable electronic devices such as mobile phones, laptops, tablets, portable printers and GPS navigation receivers
- computer software
- protective clothing
- briefcases
- tools of trade
- minor and infrequent benefits (read more on this below)
Minor and infrequent benefits exemptions
Minor and infrequent benefits are exempt from FBT where they are both:
- less than $300 in notional taxable value (that is, the value if it was taxable), AND
- unreasonable to be treated as a fringe benefit.
Note that the benefit must be BOTH minor (less than $300) and infrequent. An incorrect interpretation of this is how employers find themselves in trouble.
Most commonly, mistakes are made in the provision of ‘Meal Entertainment’.
Meal Entertainment applies predominantly to the provision of food or drink to employees and they are not consumed on the employer’s business premises.
The provision of meal entertainment is defined as:
- providing entertainment by way of food or drink
- providing accommodation or travel related to, or to facilitate the provision of, such entertainment.
- paying or reimbursing expenses incurred by the employee for the above.
Considering this, some of the more common practices that are included as meal entertainment would be:
- taking your employees out for an elaborate lunch
- meeting with clients at a café or restaurant for a meal.
- social functions, such as Christmas parties, where food or drink is supplied.
Where the value of the food or drink is less than $300 per person the exemption can be claimed, provided the employee only receives this benefit infrequently throughout the year.
Importantly, to access this exemption the employer must value meal entertainment using the Actual Method. The exemption is not available if the employer values meal entertainment using the 50/50 Method.
Working out whether a meal entertainment benefit is minor is straightforward – you just need to check the receipt. Where employers find themselves in trouble is working out if the benefit is infrequent enough to satisfy that condition.
As a guide, we recommend that you only provide meal entertainment benefits for an employee no more than 5 to 10 times in a given FBT year. Once the benefit you are providing exceeds the infrequent condition, all benefits of that type for that employee become subject to FBT.
Taking employees out of the office to enjoy a coffee may be a form of Meal Entertainment. If you do this too often throughout the year, an employer may find themselves subject to FBT on all the Meal Entertainment benefits they provide to that employee (including any year end social functions). Failure to maintain an appropriate register of exactly which employees are receiving benefits could result in all meal entertainment benefits becoming subject to FBT.
Christmas parties, gifts and FBT
FBT applies where an employer provides a benefit to an employee other than their regular salary or wage. Depending on the circumstances, Christmas parties and gifts may be considered such a benefit. You can find out about the specifics of FBT as it relates to the silly season in this article we wrote about Christmas parties and gifts.
Are you aware of the safe harbour provisions for workhorse vehicles?
A workhorse vehicle is a panel van, ute or other commercial vehicle (that is, one not designed principally to carry passengers) such as a dual cab ute with a carrying capacity of more than one tonne.
Workhorse vehicles are generally exempt from the car fringe benefit rules, provided the private use of that vehicle is restricted to only minor, infrequent and irregular use. For example, dropping off/picking up children to school on the way to/from work. Where the private use is more than minor, infrequent and irregular a residual fringe benefit has been provided and there is a different method to work how much FBT is payable.
The ATO has released safe harbour guidelines for employees that are provided with workhorse vehicles. In a nutshell, the ATO has provided that where the vehicle first meets the definition of a workhorse vehicle, and provided that the private use of the vehicle satisfies the following conditions that car will be exempt from FBT. For more information on the safe harbour provisions please refer to our Workhorse Vehicles article.
Why you should you lodge an FBT return even if no FBT is payable
You have no legal obligation to lodge an FBT return if no FBT is payable.
However, we recommend that even where no legal obligation exists, you should lodge a nil FBT return. The primary reason for this is that it turns on a three-year deadline for the ATO to commence audit activities.
Without an FBT return being lodged, the ATO has the discretion to launch an audit into activities as far back as a business has had employees. Without the evidence (e.g. signed declarations, logbooks, meal entertainment records, etc.) that FBT was NOT payable in each year, the ATO is likely to raise FBT liabilities – even when the employee who enjoyed the benefit no longer works for the business.
Read more about why you should lodge a nil FBT return.
Read more about what triggers an FBT audit.
Ways to reduce your FBT liability
Here are some ways in which you can reduce your FBT liability:
- replace your fringe benefits with cash salary;
- provide benefits that your employees would be entitled to claim as an income tax deduction if they had to pay for the benefits themselves;
- look at providing benefits that are exempt from FBT; and
- use employee contributions, for example, an employee paying for some of the operating costs of car fringe benefit such as fuel that you don’t reimburse them for. Though you should note that employee contributions may be deemed assessable income to you and subject to GST.
We’re here to help
This article is general information only and doesn’t constitute specific advice for your business. For more information and guidance on meeting your FBT obligations, please contact us. With our expert help, you’ll have peace of mind that you are ticking all the right boxes and avoiding any risk of non-compliance.
You can find out more about working with Marsh & Partners here. As your Absolute.Account.Ability partner we’re on a mission to make your business life better. We’ll help you set goals for your business, devise an Action Plan to make them happen and meet with you regularly to ensure you stay on track.
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