Are your employees entitled to perks like a car space, gym membership, or even a company car as part of their employment contracts?
These offerings fall under the category of fringe benefits—alternative forms of payment to employees, distinct from salary or wages. Fringe benefits attract a specific kind of tax, separate from income tax, known as fringe benefits tax (FBT). This tax applies even if the benefit is provided by a third party under an arrangement with the employer.
Understanding what qualifies as a fringe benefit is crucial for employers in determining the perks they can offer their staff. Here are some examples of items classified as fringe benefits:
- Allowing an employee to use a work car for private purposes
- Providing a discounted loan to an employee
- Covering an employee’s gym membership
- Offering entertainment through free tickets to concerts
- Reimbursing expenses like school fees incurred by an employee
- Providing benefits under a salary sacrifice arrangement
Conversely, certain items are not considered fringe benefits:
- Salary and wages
- Shares purchased under approved employee share acquisition schemes
- Employer contributions to complying super funds
- Employment termination payments
- Payments deemed as dividends under Division 7A
- Benefits provided to volunteers and contractors
- Exempt benefits such as those provided by religious institutions to their religious practitioners
Employees are not responsible for paying tax on these exempt items; however, employers must self-assess their FBT liability for the FBT year, which concludes on March 31, and lodge an FBT return.
Employers can typically claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay.
Strategies to reduce FBT liability may include:
- Providing benefits that are income tax deductible
- Allowing employee contributions to reduce the taxable value of fringe benefits
- Offering a cash bonus instead of a benefit, eliminating the need for FBT
- Providing benefits that are exempt from FBT
Additionally, employers do not pay FBT for providing car parking to employees with disabilities, small businesses, or exempt employers. FBT is not applicable when an employee uses a provided vehicle that meets ATO criteria and their private use is limited (such as eligible electric cars).
Certain work-related items, like portable electronic devices and specific tools, are also exempt from FBT when predominantly used for work purposes.
Navigating FBT can be complex, and it is advisable to consult with a tax agent for assistance in amending or lodging an FBT return. If you have questions about your FBT liability or need guidance on what to include in your return, initiate a conversation with us today.
