Fringe Benefits TaxWhat you need to know

As an employer who may be providing fringe

benefits to your employees, you need to know

how Fringe Benefits Tax (FBT) works.

To understand how FBT works, you need to

know:

What is FBT?

Who pays FBT?

The different types of fringe benefits; and

What to do if you provide fringe benefits.

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aCCounTanTs

What is Fringe Benefits Tax?FBT is a tax paid on certain benefits you provide to your employees or your employees’ associates. FBT is separate from income tax and is based on the taxable value of the various fringe benefits you provide.

The FBT year runs from 1 April to 31 March.

although this information refers only to fringe benefits

provided to employees, fringe benefits can also be

provided to employees’ associates (such as a family

member). Fringe benefits can also be provided by an

associate of the employer or a third party by arrangement

with the employer.

What is a fringe benefit?a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit provided to an employee (or their associate) because they are an employee.

You can provide these benefits, or they can be provided by:

an associate of yours;

a third party under an arrangement with you.

an employee may be a current, future or former employee.

some employers, including charities, may need to work out the status of their workers. Many will be volunteers; however, some will be contractors and employees. generally, benefits provided to volunteers and contractors don’t attract FBT.

Benefits may include:

rights; or

Privileges; or

services.

For example, you provide a fringe benefit when you:

allow your employee to use a work car for private purposes;

give your employee a cheap loan;

reimburse an expense incurred by your employee, such as

school fees;

Provide entertainment by way of food, drink or recreation.

When working out if a benefit is provided in respect of

employment, ask yourself if you would have provided the

benefit if the recipient had not been your employee.

are you providing a Fringe Benefit?if you are currently an employer the following checklist will help you work out if you are providing a fringe benefit to your employees.

if you answer YES to any of the following questions, you may be liable to pay FBT.

do your employees take cars home and garage them

overnight, even if only for security reasons?

do your employees use cars or other vehicles the business

owns for private use?

do you have a salary package arrangement with any of your

employees?

Have you paid or reimbursed any employees’ expenses?

do you provide entertainment, such as food, drink or

recreation to your employees?

Have you given property, such as electrical goods, to your

employees either free or at a discount?

do you provide any employees with a house or unit of

accommodation?

do you provide loans at reduced rates to any employees?

Have you released any employee from a debt they owed the

business?

do you provide any employees with living-away-from-home

allowances?

are you a tax-exempt organisation that has provided food,

drink or accommodation to employees?

items not subject to FBTThe following are not fringe benefits:

Payments of salary or wages;

shares purchased under approved employee share

acquisition schemes;

Your employer contributions to complying superannuation

funds;

employment termination payments (eg. a company car given

or sold to an employee on termination);

Certain benefits provided by religious institutions to their

religious practitioners.

items exempt from FBTsome of the common benefits that are exempt from FBT are:

Most minor benefits valued at less than $300 where it would

be unreasonable to treat the benefit as a fringe benefit;

Certain work-related items such as:

>> a portable electronic device;

>> an item of computer software;

>> an item of protective clothing;

>> a briefcase;

>> a tool of trade.

The work-related items exemption is limited to:

items primarily for work-related use;

one item per FBT year for items that have a substantially

identical function unless the item is a replacement item.

Providing fringe benefits to yourselfif you are a director and conduct your business through a company or a trust, you may be an employee of the company or trust. This may mean you are actually providing fringe benefits to yourself and so you need to understand your company’s or trust’s FBT obligations.

Who pays FBT?as an employer, you have to pay FBT, even if the benefit is provided by an associate or by a third party under an arrangement with you. For example, you may deal with a supplier who, in turn, provides free goods to your employees.

it makes no difference whether you are a sole trader, partnership, trustee, corporation, unincorporated association or government body or whether you have to pay other taxes such as income tax.

some employers providing fringe benefits may be eligible to receive concessional FBT treatment.

These include:

Public benevolent institutions;

Public and non-profit hospitals and

public ambulance services;

religious institutions;

other non-profit entities.

Fringe Benefits CategoriesFBT law identifies various categories of fringe benefits and specific valuation rules for each category.

some types of the most common categories which can attract Fringe Benefits Tax are:

1. Car fringe benefits;

2. Loan fringe benefits;

3. debt waiver fringe benefits;

4. expense payment fringe benefits;

5. Housing fringe benefits;

6. Board fringe benefits;

7. airline transport fringe benefits;

8. Living-away-from-home allowance

fringe benefits;

9. Providing entertainment;

10. Tax-exempt body entertainment fringe

benefits;

11. Car parking fringe benefits;

12. Property fringe benefits;

13. residual fringe benefits;

salary sacrifice arrangementsa salary sacrifice arrangement is an arrangement between you and your employee, where your employee agrees to forgo part of their future entitlement (such as salary or wages) in return for you providing benefits of a similar cost.

under an effective salary sacrifice arrangement:

Your employee pays income tax on the

reduced salary or wages;

You may be liable to pay FBT on the

fringe benefits provided, and

if the arrangement involves receiving

superannuation contributions in lieu of

forgone benefits, these contributions

are classified as employer

superannuation contributions (rather

than employee contributions) and are

taxed in the superannuation fund.

If you are providing fringe benefits:

How much FBT you have to payThe aTo usually don’t notify you of how much FBT you have to pay. rather, you self-assess your FBT payable when you lodge your FBT return.

The rate of FBT is levied on what is commonly referred to as the ‘grossed-up amount’

.

grossing-up

means increasing the taxable value

of benefits you provide to reflect the

gross salary employees would have to

earn at the highest marginal tax rate

(including Medicare levy) to buy the

benefits after paying tax.

reducing your FBT liabilityYou can reduce the amount of FBT you pay by:

replacing fringe benefits with cash

salary;

Providing benefits that your employees

would be entitled to claim as an

income tax deduction if they had

paid for the benefits themselves (the

‘otherwise deductible’ rule);

Providing benefits that are exempt

from FBT;

using employee contributions.

generally, this payment is a cash

payment made to you or the person

who provided the benefit. However, an

employee can also make an employee

contribution towards a car fringe

benefit by paying for some of the

operating costs (such as fuel) that you

do not reimburse.

Keeping FBT recordsYou need to keep sufficient records so your FBT liability can be assessed. You need to keep all records related to providing the benefit, including how you worked out the taxable value of benefits. These records need to be kept for five years from the date of the relevant transaction.

register for FBTWe recommend that you register once you have established that you have to pay FBT. Your FBT number is the same as your tax file number (TFn). once you are registered, the aTo will send you additional information to help you lodge your return.

Employment payment summariesif you provide fringe benefits with a total taxable value of more than $2,000 to an employee in an FBT year, you need to report the grossed-up taxable value of the fringe benefits on the employee’s payment summary for the corresponding income year (1 July to 30 June). These are called reportable fringe benefits.

You need to allocate benefits to the relevant employee and include any fringe benefits provided to associates of the employee. The amount reported on the payment summary will not be included in an employee’s assessable or taxable income or affect the amount of standard Medicare levy payable. The total will, however, be included in a number of income tests relating to certain government benefits and obligations (for example Centre Link).

Lodging an FBT return and paying FBTan FBT return covering the FBT year that begins on 1 april and ends 31 March, should be lodged by 21 May each year.

if you haven’t previously paid FBT or if your FBT liability for the previous year was less than $3,000, you only make one payment for the year when you lodge your annual FBT return. in subsequent years, the aTo may ask you to make quarterly FBT instalments through your quarterly activity statements.

We hope that the above summary helps you to understand

when a FBT liability may arise. should you have any further

queries, please do not hesitate to contact our office.

suite 6, First Floor 49-54 douglas street noble Park Vic 3174

Po Box 331 noble Park Vic 3174

Tel: 03 9547 5022 Fax: 03 9547 0595

Email: admin@zjl.com.au Web: www.zjl.com.au