Understanding Fringe Benefits Tax
A fringe benefit is generally a non-cash benefit received by employees from their employers. It is provided to employees in respect of their employment. A fringe benefit is not subject to income tax in the hands of the employee. Fringe Benefits Tax (FBT) is paid by the employer on certain benefits they provide to employees or the employees’ associates. It is calculated based on the taxable value of the fringe benefit.
The provision of fringe benefits may hold advantages for employers and employees. Employers are able to claim a tax deduction for the cost of providing fringe benefits and for any FBT incurred. A benefit can include a right, privilege or service. For example, a benefit is provided when an employer allows the employee private use of a work vehicle, gives the employee a loan at a cheap rate, reimburses the employee for non-business expenses such as school fees or private health insurance, or where the employer provides entertainment by way of food, drink or recreation.
Employees are not taxed on the value of the fringe benefit they receive. Where the value of particular fringe benefits received by the employee are greater than $2,000, the amount must be shown on the employees’ payment summary for the year. Even though the fringe benefit amount does not constitute part of an individuals’ assessable income, it is included in a number of income tests for some tax offsets, surcharges and income-tested government benefits.
FBT for Small Businesses
As a small business, you need to identify and evaluate if you are providing fringe benefits to your employees. If this is the case, you may be liable for FBT. There are benefits which are exempt from FBT such as computer software, tools of trade, protective clothing or a portable electronic device, as long as they are used for work purposes. Also, most minor benefits with a value of less than $300 are exempt. There are also specific exemptions for certain types of employers eg public benevolent institutions. Certain non-profit employers may also be entitled to an FBT rebate.
Advantage of Fringe Benefits Tax
One advantage of FBT for small business is the provision of entertainment benefits. Where an employer incurs entertainment expenses for the benefit of the employee or their associate, the employer may be entitled to an income tax deduction for the expense (or part thereof) and the FBT paid, together with any GST credits. Entertainment for the purposes of FBT includes meals provided in a restaurant, use of a corporate box at a sporting event, gym memberships, business lunches and drinks, staff social functions and accommodation and travel in connection with entertaining clients or employees, just to name a few.
Another advantage to small business is the exemption of car parking benefits provided to employees. An employer will not be liable for FBT on this type of benefit if they satisfy certain conditions. These include that the car is not parked at a commercial parking station, the employer is not a public company or subsidiary of such on the day the parking is provided, the employer is not a government body, and that the employer is a ‘small business entity’.
The FBT regime can provide several benefits to small business and their employees. To understand more about fringe benefits tax, the ATO has numerous fact sheets and reference material on its website. Alternatively, our qualified accountants here at The Money Edge can provide you with assistance and help you learn about FBT for small business.