FBT – and what you need to know before the silly season
What is Fringe Benefits Tax?
Fringe Benefits Tax or FBT is a tax employers are required to pay when they or their associates provide fringe benefits to their employees or to associates of their employees.
Well then what’s a fringe benefit?
Basically, it’s any kind of benefit that you get as an employee that isn’t money like your salary. Common fringe benefits include cars provided for private use, lap tops, staff parties, other events and gifts.
What about Christmas events?
Office Christmas parties and gifts to staff are all fringe benefits, however they are usually always exempt from FBT if they cost less than $300 per person.
What about gifts or benefits I give to my clients?
FBT only applies to benefits provided to employees so there’s no FBT consequence of giving gifts to clients or inviting them to events.
What does it mean?
As the employee, you don’t pay any tax on those benefits, like you do on your salary.
FBT discourages employers from giving large amounts of tax free benefits to employees instead of providing them with just a salary which is taxed in the employee’s hands.
For instance, without a liability to pay FBT on fringe benefits, instead of giving their staff a taxable salary, employers could pay their staff by way of paying their mortgage repayments directly to their bank, giving them vouchers for the supermarket, paying their utilities bills and providing them with an all-expenses paid car. The employee would get all those benefits completely tax free when they would normally have pay for those expenses out of their post-tax earnings.
How does FBT work?
Each type of benefit is valued according to legislation and then FBT of 47% is levied on that amount. At its most basic, if a benefit costs the employer $110 including GST, the FBT liability will also be $110. So the total cost the employer will be $220 but they can claim $10 worth of GST input tax credits back.
There are a few exemptions and not all fringe benefits will attract FBT, so you should talk to your accountant for more information.
As an employer can I claim an income tax deduction for FBT?
Yes, you can claim a deduction for the provision of fringe benefits and for the payment of fringe benefits tax itself.
Yes. Ordinarily entertainment is not an allowable tax deduction. However, if it was provided to your employees and you’re required to pay FBT on it because it’s not exempt in any way, you can claim a deduction for both the entertainment and the FBT payable.
And what about GST?
You only claim an income tax deduction for the GST exclusive amount. Instead of a deduction you are entitled to claim back any GST input tax credits related to providing the fringe benefit, even if that benefit is entertainment.
If I’m not taxed on fringe benefits as an employee why does my payment summary include reportable fringe benefits amount and why do I include that in my tax return?
Although reportable fringe benefits don’t form part of your taxable income they are included in a number of income tests including:
- Medicare levy surcharge
- Deductions for personal super contributions
- Higher Education Loan Program (HELP)
- Your child support obligations
For instance, if you don’t have private health insurance your reportable fringe benefits are included when calculating whether or not you have to pay the Medicare levy surcharge and how much you have to pay.