Fringe Benefits Tax: Quick Guide For 2022
Fringe benefits relate to all the extra advantages an employer can provide to employees and their connections and it is important for employers to understand what they are and the implications they have on the business. Fringe benefits tax can be costly but if considered properly there are ways to manage it to create benefits for both employers and employees.
This quick guide outlines what fringe benefits tax (FBT) is, who pays it, what is exempt, how to calculate it and some specific examples of how it works.
What is fringe benefits tax?
A fringe benefit is something extra an employee gets from their employer — in addition to their wage or salary — or in return for foregoing some of their salary under a salary sacrifice arrangement.
It doesn’t normally include wages, salary or cash and the benefit can be something for the employee, the employee’s spouse or the employee’s children.
Fringe benefits can include:
- Private use of an entity motor vehicle
- Novated leases
- Car parking
- Loan and debt waiver
- Entertainment (e.g. Christmas parties, cinema tickets)
- Gym/health memberships
- Private health insurance
- Expense payments and reimbursements of non-work expenses
- Housing
- Living-away-from-home-allowance (LAFHA)
- Childcare costs and school fees
- FBT is separate to income tax and goods and services tax (GST).
What is the fringe benefits tax year?
The FBT year runs from 1 April to 31 March and an FBT return is required to be lodged if the entity is registered for FBT and a taxable benefit is paid. The annual FBT return and payments are due by 21 May each year, unless lodged electronically by a tax agent where they are due on 25 June
Who pays fringe benefits tax?
The employer is liable for the tax (FBT) that may apply to the benefits that the employee and/or the employee’s family may receive.For the purpose of FBT, an employee includes:
- Current, future or past employees
- Director of a company
- Beneficiary of a trust who works in the business
- Associates and relatives of the above
What is not a Fringe Benefit?
The following are either exempt or not considered fringe benefits:
- Salary, wages, termination payments, bonuses
- Employee Share Scheme purchases
- Work related items (including computers, work phones, tools of trade and protective clothing)
- Superannuation contributions (including salary sacrificed)
- Minor benefits incurred irregularly and infrequently valued at less than $300
- Commercial vehicles where private use is minor, infrequent and irregular
What is a Reportable Fringe Benefits Amount (RFBA)?
If the total taxable value of the fringe benefits provided to your employee and/or their family in a FBT year (1 April to 31 March) exceeds $2,000, the employee will have a reportable fringe benefits amount (RFBA) in their end of financial year income statement (payment summary).
While an RFBA isn’t deemed taxable income, depending on your employee’s personal circumstances, it will be used to determine whether they’re entitled to, or liable for, a number of benefits and obligations. These include Family Tax Benefits, Medicare Levy Surcharge, private health insurance rebate, child support payments, superannuation co-contributions, Higher Education Loan Program (HELP), tax offsets and Financial Supplement repayments.
Fringe benefits tax calculator
At the end of each FBT year, employers need to self-assess the amount of fringe benefits tax they will need to pay when lodging their FBT return.
The FBT liability is calculated by grossing up the taxable value of benefits provided to employees and associates. There are two types of factors:
Type 1 – higher gross-up rate: used when the employer is entitled to a GST credit
Type 2 – lower gross-up rate: used when there is no entitlement to a GST credit
The FBT rate is equivalent to the top marginal rate plus Medicare levy.
If the fringe benefit received has a taxable value over $2,000 it is required to be reported on their payment summary.
The following are the steps to calculate a fringe benefits tax liability for an employer:
| Step 1 | Work out the taxable value of each fringe benefit provided to employees |
| Step 2 | Work out total taxable value for benefits where a GST credit can be claimed and multiply by the Type 1 gross up rate |
| Step 3 | Work out the taxable value for benefits where a GST credit cannot be claimed and multiply by the Type 2 gross up rate |
| Step 4 | Add Step 2 and Step 3 together to calculate the total fringe benefits taxable amount |
| Step 5 | Multiple Step 4 by the FBT rate which equals an employer’s FBT liability. This can be reduced by any instalments paid throughout the year |
Fringe benefits examples:
Example 1
Ben Smith is employed by 123 Pty Ltd. During the 2022 FBT year, in addition to receiving his wage, 123 Pty Ltd pay his annual gym membership of $550 including GST.
As this benefit includes GST and 123 Pty Ltd can claim a GST credit, gross up factor type 1 is applicable.
Taxable value of fringe benefit $550
Type 1 Gross up factor 2.0802
Grossed-up Taxable Value $1,144
FBT Liability @ 47% $537.68
As the taxable value of this benefit is less than $2,000 it will not be shown on his payment summary.
Example 2
Daphne Jones is a director of ABC Family Trust. During the 2022 FBT Year, Daphne uses the business car for personal use and the personal use of this vehicle is valued at $10,000. She makes contributions towards her private use of $2,000.
As GST credits can be claimed by ABC Family Trust on the car, gross up factor type 1 is applicable.
Taxable value of fringe benefit $10,000
Less: Employee Contribution ($2,000)
Adjusted Taxable Value $8,000
Type 1 Gross up factor 2.0802
Grossed-up Taxable Value $16,641
FBT Liability @ 47% $7,821.27
As the taxable value of this benefit has a value of more than $2,000 it will get shown on her payment summary as a reportable fringe benefit.
Example 3
Richard Brown is an electrician working for Blue Pty Ltd and he is provided with a commercial vehicle as part of his employment. He uses the vehicle to travel between home and work and worksites. When travelling from home to work, he never alters his trip by more than 2km and he makes no personal trips during the FBT year.
There is no FBT liability for Blue Pty Ltd as a result of the ute provided to Richard.
Example 4
Valerie Wilson is employed by a sole trader, Lucy Bishop, as a bookkeeper for the 2021 FBT year. As part of her employment she is provided with a laptop and gets to attend a small Christmas party each year.
The laptop is provided for Valerie to use for her work as a bookkeeper and therefore it is an exempt benefit and no FBT liability will arise.
The Christmas party is held each December at a local club for employees and their family and the cost is valued at $150 per person. There will be no FBT implications for the Christmas party as the minor benefit exemption applies.
Example 5
Claire McDonald is employed by Strawberry Pty Ltd. For her Christmas Bonus each year she gets a gift card valued at $500 to spend at a local store.
As the value exceeds the minor benefit threshold of $300, there will be FBT implications.
AS GST credits cannot be claimed by Strawberry Pty Ltd, gross up factor type 2 is applicable.
Taxable value of fringe benefit $500
Type 2 Gross up factor 1.8868
Grossed-up Taxable Value $943
FBT Liability @ 47% $443.21
As the taxable value of this benefit is less than $2,000, it does not get reported on Claire’s payment summary.
Fringe benefits tax record keeping
Fringe benefits tax records can be paper or electronic and must be retained for a period of 5 years and must be in a form tax officers can easily understand and access.
Examples include:
• Logbooks for motor vehicles
• Odometer readings for motor vehicles
• Travel diaries for travel
• Receipts and invoices for expenses
• Employee declarations
A logbook is kept to determine business and personal usage of a motor vehicle. This can be electronic or a hard copy and needs to be kept for a continuous 12-week period. Generally, if a logbook has not been kept, the private use is deemed to be 100%.
It should reasonably represent your travel for the year. Once completed, a logbook is valid for 5 years but if your circumstances change you may need to undertake a new logbook.
Addison Partners has an app that is provided to clients free of charge which includes a logbook that can assist with record keeping.
Fringe benefits opportunities, traps and tips
How to reduce fringe benefits tax?
Here’s some tips to reduce your fringe benefits tax:
• Rather than providing a benefit to an employee, pay them additional salary or monetary bonus
• Get employees to contribute towards the benefit by either making a cash payment or paying the operating expenses of the motor vehicle
• Provide employees with benefits which would otherwise be deductible in their personal tax returns and therefore exempt to the employer for FBT
• Provide meals to employees on work premises during work hours rather than outside of work
• When providing a benefit, keep the value under $300 and therefore exempt to the employer for FBT, as long as it is not regular or recurring
• Maintain accurate record keeping, in particular logbooks for motor vehicles
Exempt motor vehicles – tradesman utes
Commercial vehicles include certain single cab utes, dual cab utes, panel vans, four-wheel drives and taxis (not on hire) and may be exempt from FBT if certain criteria are met.
Dual cabs are eligible if they meet the definition of a utility truck and the principle purpose is not for carrying passengers.
In order to be exempt, the private use must be limited to:
- Travel between home and work with diversions not exceed 2km
- Entirely personal trips are minor, irregular and infrequent and do not total more than 1,000kms a year with no single return trip exceeding 200km
Employers need to make sure employees keep records to demonstrate the exemption applies and get them to sign declarations to indicate the criteria has been met. A valid logbook can be the easiest way to demonstrate this.
Mobile Phone and Laptops
Portable devices that are used primarily for use in employment such as phones, laptops and tablets are exempt from FBT. For those that are not considered a small business, this exemption is capped at one device per FBT year if they have substantially identical function
Gifts for clients and employees
Gifts provided to clients are not subject to fringe benefits tax, as it is considered to be a cost toward generating future income.
Gifts provided to employees and associates are generally subject to fringe benefits tax. If it is minor, irregular and infrequent and the value is under $300 then it will be exempt. All other gifts will be subject to FBT. Gifts can include vouchers, flowers, bottle of wine, hampers, tickets to an event or a holiday.
If a gift is considered entertainment in nature, such as tickets to a show or a holiday, they are only tax deductible if they are subject to FBT. If a gift is considered non-entertainment in nature such as a gift voucher or a bottle of wine, they are tax deductible even if they are not subject to FBT.
Monetary bonuses provided to employees are considered to be part of their ordinary wages and not subject to FBT.
When looking to provide gifts to employees, it’s best to keep the value under $300, irregular and non-entertainment in nature to avoid it being subject to fringe benefits but still allowing it to be tax deductible.
Meals provided to employees
If food and drink is provided to employees (not associates) during work hours on work premises it is exempt from FBT.
If food and drink is provided to employees in any other scenario, it could be subject to FBT provided the minor benefits exemption does not apply.
The exemption does not apply if it is a meal provided out of work hours or off work premises regularly, even if it is under $300. If the combined total of all the regular meals exceeds $300 for the FBT year, they will be subject to FBT due to the recurring nature of the meals.
If meals are provided for employees in the course of them travelling for work, this is an expense that is not subject to FBT as it is work related. If food and drink is provided to employees (not associates) during work hours on work premises it is exempt from FBT.
If food and drink is provided to employees in any other scenario, it could be subject to FBT provided the minor benefits exemption does not apply.
The exemption does not apply if it is a meal provided out of work hours or off work premises regularly, even if it is under $300. If the combined total of all the regular meals exceeds $300 for the FBT year, they will be subject to FBT due to the recurring nature of the meals.
If meals are provided for employees in the course of them travelling for work, this is an expense that is not subject to FBT as it is work related.
Not-for-Profit Organisations and FBT
Public benevolent institutions, health promotion charities, public hospitals and public ambulance services are entitled to FBT exemptions. If eligible, capping thresholds apply to the grossed up taxable value of a benefit for each employee.
For public benevolent institutions and health promotion charities (endorsed by the ACNC), this cap is $30,000 per employee. For public hospitals and ambulance services this cap is $17,000 per employee.
If the grossed up value of fringe benefits exceeds the cap, the excess will need to be reported and FBT will be paid on it.
Conclusion
The Australian Taxation Office targets compliance and they encourage employers to review their systems in relation to FBT.
If you are an employer, it can be useful to consider registering for fringe benefits tax and lodging a return each year, even if the liability is determined to be nil. By lodging an FBT return, the review period is limited to three years from the date the FB T return was lodged.
Fringe benefits tax is a complex area and if you are unsure whether it applies to you or what the implications are, speak with your accountant to get personalised advice to make sure you are compliant.
Should you require assistance with anything related to this article, please contact us on 02 4995 7300 or contact enquire@addisonpartners.com.au
