What is Fringe Benefits Tax (FBT)?

FBT, as the name suggests is another tax which employers may need to assess and remit to the ATO annually.

The legislation states that FBT, is payable by Employers who provide taxable Benefits to Employees, or their Associates, in respect of Employment.

 

It’s probably the one tax that business owners find most difficult to get right (or even consider), because it’s quite broad in the items that it can apply to.

 

What does it apply to?

FBT can apply to anything that an employer has provided to workers or their associates, in addition to normal salary and wage remuneration arrangements.

This includes non-monetary items like cars, housing, parking, expense payments, loans, entertainment and meals

A Fringe Benefit exists where there is a:

• Benefit
• Provided by an employer (or associate)
• To an employee (or their associate) – this includes Directors
• In respect of employment

 

How is it calculated?

The amount that we pay tax on is called the taxable value and can be calculated differently depending on the type of benefit – ie there are different rules for cars, loans, expense payments, housing and entertainment.

We also need to consider if we are able to apply an exemptions or reductions to the amount to reduce the amount of tax payable.

• if the expense would ordinarily be deductible to the employee – we may not have FBT.
• If the employee contributes for the private use of an asset we may be able to reduce the amount of FBT.
• If the benefit provided is minor, infrequent and irregular – we may not have any FBT.

 

As each of the above exemptions or reductions apply to different types of benefits, we need to be careful to make sure we are getting it right.

 

Once we have established the taxable value we need to gross up the amount (the amount varies depending on GST) and calculate the tax.

The FBT tax rate is currently 47% – so sometimes the tax paid might outweigh the positives of providing these benefits – you may need to reconsider your employees package and how best to reward them while getting a reasonable tax outcome.

 

Common Misconceptions:

We often hear the following comments by business owners who think that FBT does not apply to them:

• “I only use it a little bit for private purposes – so no problem, right?”
• “But I’ve got a ute, so it’s an exempt vehicle, right?”
• “I didn’t use the car as I was away, it was parked at work, I have another car”
• “It was a business trip – yes, I took my wife, but we only did a little bit of skiing”
• “Sure we had lunch, but we were discussing business the whole time”
• “The Christmas Party and Staff Presents are just a reward for everyone doing a good job”

Whilst FBT may not apply to you, most of these statements are misnomers and you should discuss these kinds of expenses with your accountant, just to make sure you are getting it right.

 

Why Does it Matter?

If you get it wrong, not only will you need to pay the FBT, but chances are there will also be fines or interest.

The ATO have been on rolling audit programs over the past 5 year, specifically targeting non-compliance in FBT.

Historically around $4bn of the overall Tax Revenue raised by the Government stems from FBT

They expect as a matter of course, that almost every employer provides some level of Fringe Benefit to employees (including directors)

With their improving data matching capabilities, the ATO have been having great success in identifying issues and recovering funds

The additional funds from tax and penalties is far in excess of their outlays, so the Government is happy to keep funding the Audit protocols (ie Bang for Buck is high)

 

When is it Due?

• The FBT year runs separate to the ATO Financial Year
• FBT is calculated between 1st April and 31st March each year
• Submissions and payments for FBT Returns are due 21 May
  • Or 25 June for Tax Agents

 

Is there any Good News?

If you consider these benefits early and keep the correct substantiation, you may be able to reduce your FBT liability though reductions or exemptions.

Alternatively, you may wish to restructure your remuneration packages to ensure that benefits do not attract FBT.

If you do get stung with an FBT bill, Fringe Benefits Tax paid to the ATO can be treated as a tax deduction in a similar manner to land tax or payroll tax – a small win.

 

 

How Can Alto Help?

If you believe that you may be paying your employees additional benefits that fall under the FBT rules and need guidance on how this may impact on your business, please do not hesitate to contact the Alto Team

 

Author: Steve Payne