Fringe benefits are additional provisions that are given to an employee outside of their basic salary and entitlements. These can include perks such as use of a car, health insurance, life insurance coverage, employee stock options, discounts and allowances. Offering fringe benefits can help employers attract and retain workers, and is an effective way of keeping employees satisfied with their jobs.
Providing free perks is not free for employers however, and if you’re a small business planning to offer additional benefits to employees, you may have to pay fringe benefits tax (FBT) on top of other tax requirements.
What is FBT?
According to the Australian Taxation Office (ATO), FBT is tax that employers pay on certain benefits that they are giving their employees, whether they are current, future or past employees. Even if the benefit is provided to an eligible family member or associate of the employee, and even if the benefits are provided by a third party entity under an agreement, an employer will still need to pay FBT.
The current FBT law includes various categories of fringe benefits, each category with its own valuation rules to be used for FBT calculation:
- Car fringe benefits
- Car parking fringe benefits
- Entertainment fringe benefits
- Expense payment fringe benefits
- Loan fringe benefits
- Debt waiver fringe benefits
- Housing fringe benefits
- Board fringe benefits
- LAFHA fringe benefits
- Property fringe benefits
- Residual fringe benefits
If any of the benefits that you provide fall under at least one of these categories, then you need to register for FBT and lodge a return if you have a liability within an FBT year, which starts on April 1 up until March 31 the year after.
Calculating and reporting FBT
FBT is dependent on the taxable value of all fringe benefits that an employee received, and is calculated separately from income tax. The ATO website has a page that provides a step-by-step guide on how to calculate FBT.
In addition to this, you must also indicate on your annual FBT return the value of the fringe benefits that you have given your employees. For fringe benefits exceeding $2,000 in a given FBT year, the grossed-up taxable value of the said benefits must also be included in the payment summary of an employee for the current income year.
Not all benefits are considered fringe benefits, and thus are exempt from FBT. These exemptions include:
Providing fringe benefits to your employees is a great way of saying that you value them. But doing this entails paperwork, and knowing about the basics of FBT can save you time and energy when you take care of your taxes at the end of the financial year.