What is a fringe benefits tax?
The fringe benefits tax is a tax applied within the Australian tax system by the Australian Taxation Office. The tax is levied on most non-cash benefits that an employer provides “in respect of employment.” The rate of FBT is 47%.
FBT is separate to income tax and is calculated on the taxable value of the fringe benefit. The employer must self-assess their FBT liability for the FBT year (1 April to 31 March) and lodge an FBT return.Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. Employers can also generally claim GST credits for items provided as fringe benefits.
What is a fringe Benefit?
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
- exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.
Some benefits are exempt from fringe benefits tax (FBT) or receive concessional treatment (for example, living-away-from-home allowances). Specific exemptions and concessions apply to some not-for-profit organisations.
How do I avoid it or reduce it?
One way to avoid a car fringe benefit is to pay your staff an amount of money instead of giving them a car. This has the impact that the car allowance is simply taxable income to the employee and the employee then enjoys an income tax deduction for the money they spend on the car. And the payment of a car allowance is not liable to fringe benefits tax. Contact your accountant to discuss your business and ensure you avoid FBT through proactive tax planning.