Find out what the hype on fringe benefits tax for business is all about. If you’re a small business owner looking to explore the best sources, avenues, and ways to understand your business liabilities and maximise your tax returns, you’re in the right place.
We will break down fringe benefits tax for business or FBT in simple terms —how it operates and impacts your company.
From company cars to gym memberships, we’ll cover the common fringe benefits and show you how to calculate your FBT liability. And we’ll also share tips to cut down on endless expenses.
What is Fringe Benefits Tax (FBT)?
As a business owner, it’s crucial to understand the ins and outs of Fringe Benefits Tax (FBT). This tax applies to certain benefits you provide to your employees, in addition to their regular salary or wages.
FBT is separate from income tax and is based on the taxable value of the fringe benefits you offer. It’s essentially a way for the ATO to ensure that employers aren’t avoiding paying tax on wages by providing non-cash benefits instead.
Definition of fringe benefits tax
The ATO defines FBT as a tax paid by employers on certain benefits provided to employees or their associates, such as family members. These benefits can include things like company cars, health insurance, or even entertainment expenses.
It’s important to note that FBT applies to fringe benefits provided to both current and former employees, as well as future employees who have already agreed to work for your business.
How FBT works for businesses
As an employer, you’re responsible for calculating the taxable value of any fringe benefits you provide and paying the appropriate amount of FBT.
The tax is calculated using a gross-up rate, which essentially means that the taxable value of the benefit is increased to reflect the gross salary that would have been required to provide the same benefit after tax.
For the FBT year ending March 31st, the FBT rate is 47%. This means that if you provide a fringe benefit with a taxable value of $1,000, you’ll need to pay $470 in FBT.
FBT reporting requirements
If you provide fringe benefits to your employees, you’ll need to register for FBT and lodge an FBT return each year.
This return is separate from your business’s income tax return and must be lodged by the due date, which is usually May 21st.
You’ll also need to report any fringe benefits you provide on your employees’ payment summaries or income statements. This is known as a reportable fringe benefit and is used to determine your employees’ eligibility for certain government benefits and concessions.
Calculating and paying fringe benefits tax
Calculating and paying FBT can seem daunting, but with a bit of planning and organization, it doesn’t have to be a headache. Here’s what you need to know:
Determining FBT liability
The first step in calculating your FBT liability is to determine the taxable value of each fringe benefit you provide. As mentioned earlier, this will depend on the type of benefit and how it’s provided.
Once you’ve calculated the taxable value of each benefit, you’ll need to gross-up the total value using the appropriate gross-up rate. For the 2022-2023 FBT year, the Type 1 gross-up rate is 2.0802, and the Type 2 gross-up rate is 1.8868.
Lodging FBT returns
If you provide fringe benefits to your employees, you’ll need to lodge an FBT return each year. The due date for lodging and paying FBT is generally May 21st, unless that date falls on a weekend or public holiday.
You can lodge your FBT return electronically through the ATO’s Business Portal or by using a paper form. If you use a tax agent to prepare your return, they can also lodge it on your behalf.
Payment due dates and methods
Once you’ve lodged your FBT return, you’ll need to pay any FBT liability by the due date.
You can pay electronically through the ATO’s website or by BPAY, credit card, or direct debit.
If your total FBT liability for the year is more than $3,000, you’ll also need to pay quarterly FBT installments throughout the year. These installments are due on April 21st, July 21st, October 21st, and January 21st.
Strategies for minimising FBT for businesses
While providing fringe benefits can be a great way to attract and retain talented employees, it’s important to be mindful of the potential FBT implications. Here are some strategies you can use to minimize your FBT liability:
Implementing salary packaging arrangements
One way to reduce your FBT liability is to implement salary packaging arrangements with your employees.
This involves allowing employees to choose to receive certain fringe benefits in lieu of a portion of their salary.
By doing this, you can reduce the taxable value of the fringe benefits provided and, in turn, reduce your FBT liability. However, it’s important to ensure that any salary packaging arrangements are properly documented and comply with ATO guidelines.
Offering exempt fringe benefits
Another strategy for minimizing FBT is to offer fringe benefits that are exempt from the tax. Some examples of exempt benefits include:
- Work-related items like laptops, mobile phones, and protective clothing
- Minor benefits valued at less than $300
- Certain types of employee training and professional development
- Benefits provided to employees working in remote areas
By focusing on providing exempt benefits where possible, you can reduce your overall FBT liability while still offering valuable perks to your employees.
Seeking professional tax advice
Finally, it’s always a good idea to seek independent professional tax advice when it comes to managing your FBT obligations. A qualified tax agent or accountant can help you navigate the complexities of FBT and develop strategies to minimize your liability.
They can also assist with preparing and lodging your FBT return each year, ensuring that you meet all your reporting requirements and avoid any potential penalties or interest charges.
Fringe benefits tax and employee income tax
While FBT is a tax paid by employers, it’s important to understand how it interacts with your employees’ individual income tax obligations. Here’s what you need to know:
Reporting fringe benefits on employee payment summaries
If you provide fringe benefits to your employees, you’ll need to report the grossed-up value of those benefits on their end-of-year payment summary or income statement. This is known as the employee’s reportable fringe benefits amount (RFBA).
The RFBA is used by the ATO to determine an employee’s eligibility for certain government benefits and concessions, such as the Medicare levy surcharge and family tax benefits. It’s important to ensure that you calculate and report the RFBA correctly to avoid any potential issues for your employees.
Impact on individual tax returns
While the RFBA is reported on an employee’s payment summary, it’s not included in their assessable income for tax purposes. This means that employees don’t pay income tax on the value of the fringe benefits they receive.
However, the RFBA can impact an employee’s tax return in other ways. For example, it may affect their eligibility for certain tax offsets or deductions, such as the low-income tax offset or the private health insurance rebate.
Interaction with family tax benefits
The RFBA can also impact an employee’s eligibility for family tax benefits, which are payments made by the government to help with the cost of raising children.
The amount of family tax benefits an employee is entitled to receive may be reduced if their RFBA exceeds certain thresholds. As an employer, it’s important to be aware of these potential impacts and to communicate them clearly to your employees.
You may also want to consider offering financial advice or support to help employees understand how fringe benefits may affect their individual tax situation.
Key takeaway:
Understanding Fringe Benefits Tax (FBT) is key for business owners. It applies to perks given on top of salaries, like company cars or health insurance. You need to calculate its taxable value and lodge FBT returns annually. Strategies like offering exempt benefits or salary packaging can help reduce your FBT bill.
Conclusion
Fringe Benefits Tax for business can be a tricky beast to wrangle, but now you’re armed with the knowledge to tame it. So, you’ve got the lowdown on FBT and can easily spot an everyday fringe benefit for a financial year.
Remember, offering fringe benefits can be a fantastic way to attract and retain top talent, but it’s crucial to understand the tax implications. If you run a small business in Australia, and need guidance with registering, accounting or tax compliance, explore Sleek – your go-to partner for all your business accounting needs.
Frequently asked questions
What are the ATO requirements for reporting fringe benefits tax?
You need to lodge an FBT return if you provide taxable benefits. The deadline’s 21 May after the end of the FBT year.
How much fringe benefit tax do I pay?
The amount varies based on the value of benefits given. Use the ATO’s calculator to get precise figures.
How do I avoid fringe benefits tax?
Pick exempt perks like certain work-related devices or offer salary packaging arrangements instead.
What employers are exempt from the FBT?
Certain non-profits, public hospitals, and charities often dodge this bullet, but check specifics with your advisor.
