A detailed breakdown of fringe benefits tax for businesses and employers
Introduction:
You may have heard of fringe benefits tax (FBT) before, but what exactly is it? In a nutshell, FBT is a form of income tax that applies to certain benefits employees receive from their employers.
In Australia, FBT is administered by the Australian Taxation Office (ATO). If you're an employee and you receive any fringe benefits from your employer, it's important to understand how this tax works and how it may impact you.
This article will provide an overview of FBT in Australia, including who is liable for paying it and what types of benefits are taxable. We'll also take a look at some examples of fringe benefits and show you how to calculate your FBT liability. So, let's get started!
Key takeaways
Fringe Benefits Tax (FBT) is a tax that employers pay on certain benefits provided to their employees, their employees' families, or other associates.
The FBT tax year runs from April 1 to March 31. Employers are responsible for calculating and paying their FBT.
The FBT rate for the period ending March 31, 2020 to March 31, 2024 is 47%.
There are different types of fringe benefits, including car, entertainment, expense payments, debt waiver, and more.
What is the fringe benefits tax?
A fringe benefits tax (FBT) is a tax that is levied on certain benefits that employers provide to their employees, employees’ families, or other associates. It is applicable for:
- Current, future, or past employee
- Company's director
- The beneficiary of a trust who works in the business.
FBT is different from income tax and is calculated by employers on the taxable income of the fringe benefit. The employer must self-assess their FBT liability for the FBT year (i.e. April 1 to March 31), and accordingly lodge an FBT return.
The employers are allowed to claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay to their employees. They are even allowed to claim GST credits for all the items provided as a fringe benefit.
What are the different types of fringe benefits tax?
The different types of FBT benefits provided to employees in Australia include the following:
- Car fringe benefits
- Car leasing, and car parking fringe benefits
- Entertainment-related fringe benefits
- Expense payment fringe benefits
- Debt waiver fringe benefits
- Loan fringe benefits
- Housing fringe benefits
- Living away from home allowance fringe benefits
- Property fringe benefits
- Residual fringe benefits
What procedure do businesses need to follow if they choose to provide fringe benefits to their employees?
If your business chooses to provide FBT to employees, in such a case, you need to:
- Register for FBT
- Calculate how much FBT your business needs to pay.
- You should keep a record of all the records related to your benefits, including how you calculated any FBT that's due.
- Lodge your return and pay the FBT to the Australian Taxation Office (ATO) by May 21st to avoid interest penalties.
- Make sure to include reportable fringe benefits on your employees' payment summary or Single Touch Payroll (STP) income statement
How to register for FBT?
Employers must register for FBT and file an FBT return if they're liable to pay during an FBT year i.e. April 1 to March 31. Registration for FBT can be done using the following modes:
- You can register online if you already have an Australian business number (ABN) using the Australian Government Business Registration Service.
- By phone
- Through your registered tax agent
- By lodging your annual FBT return
You can even complete a paper form application to register for FBT.
How to lodge your FBT return?
The ATO has made it easier to lodge your FBT return. You can now either do so electronically using SBR-enabled software or by submitting a paper FBT return to ATO.
Lodgement made through paper proceeds within 50 business days whereas the electronic version takes 14 days on average to process. However, if your returns are due, they will proceed within 28 days.
Fringe benefits tax rates
The FBT rate applicable for the period ending March 31, 2020 to March 31, 2024 is 47%. You will need to pay 4 quarterly installments if your FBT liability for the last year was $3,000 or more.
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FBT gross up rates:
FBT gross up rates are split into type 1 and type 2.
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Type 1: Higher gross-up rate
This rate is used where the benefit provider can claim a GST credit for their provided goods and services. The FBT's type 1 rate for the year ending March 31, 2020, to March 31 2024 is 2.0802%.
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Type 2: Lower gross-up rate
This rate is used where the benefit provider cannot claim a GST credit. The FBT's type 2 rate for the year ending March 31, 2020, to March 31, 2024 is 1.8868%.
Due dates to lodge FBT returns to ATO
FBT returns are due to be lodged and should be paid to the ATO each year on or before May 21st. If you're submitting them electronically with the help of a registered tax agent, your deadline is 25 June.
The FBT return due date is the next business day if it falls on a weekend or public holiday.
Businesses can choose to pay the FBT in either of the following ways:
- With just one annual payment, you are not liable to pay quarterly installments.
- You can also choose to make quarterly payments with your activity statements, including an annual payment of any amount, still owing.
How to calculate fringe benefit tax?
Here, we will look at the steps that employers typically use to calculate their fringe benefits tax liability in Australia.
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Step 1:
Find the taxable value of each fringe benefit you provided to each employee.
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Step 2:
Find the aggregate taxable value of all the fringe benefits you provide to your employees for which you can claim a GST credit (including excluded fringe benefits).
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Step 3:
Find grossed-up taxable value by multiplying the total taxable value of all the fringe benefits you can claim a GST credit using Step 2 by the type 1 gross-up rate.
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Step 4:
Find the total taxable value of all those benefits for which you can't claim a GST credit.
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Step 5:
Find grossed-up taxable value by multiplying the total taxable value of all the fringe benefits you can't claim a GST credit for using Step 4 by the type 2 gross-up rate.
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Step 6:
Add the grossed-up amounts from steps 3 and 5. This would be your total fringe benefits taxable amount.
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Step 7:
Now, the last step is to multiply the total fringe benefits taxable amount using Step 6 by the FBT rate. The outcome will be the total FBT amount you have to pay.
How can employers reduce their FBT liabilities?
There are several ways in which employers can reduce their FBT liabilities. Here are some of the most common methods:
- By providing benefits to employees that can be claimed as income tax deductions.
- By providing cash bonuses to employees
- By providing benefits that can be exempted from FBT
- By replacing fringe benefits with the cash salary
Why is there a need for businesses to pay fringe benefits tax?
There are a number of different reasons why businesses may choose to pay FBT to their employees. Some common drivers include:
- To incentivize employees and improve retention rates
- To attract and retain top talent in a competitive job market.
- To stay competitive with other businesses in the same industry.
- To offer additional benefits to employees in addition to their normal salary or wages.
- To build a positive employer brand and foster good employee-employer relationships
There may be other reasons as well, depending on your specific business needs and objectives. Ultimately, the decision to pay FBT is a strategic one that should be carefully considered in light of your unique business goals and circumstances.
Reportable fringe benefit amount
If you are providing certain fringe benefits to your employees with a taxable cost of more than $2,000 during the FBT year, in such a case, you must report the grossed-up taxable value of all the fringe benefits on your employee's income statement or payment summary for the corresponding income year.
Note: Reportable fringe benefits amounts are always grossed-up using the lower gross-up rate.
This amount you can use for determining your eligibility for private health insurance rebate, determining whether you can offset your business loss against other income, calculating your Medicare levy surcharge liability, and more
For example:
If an employee receives certain fringe benefits with a taxable cost of $2,500 during the FBT year, their RFB amount would be calculated as follows:
$2,500 x 1.8868% = $47.12
Therefore, the employee's reportable fringe benefits amount would be $47.12 for the corresponding income year.
Conclusion
FBT is a tax levied on certain fringe benefits provided by employers to their employees. These benefits can include things like vehicles, loans, entertainment, loans, housing, and more.
While FBT is typically seen as an additional cost for businesses, it's important to remember that it does provide some advantages for both employers and employees.
For businesses, FBT can be used as a way to attract and retain top talent. And for employees, these benefits can be a valuable addition to their overall compensation package.
If you still have any questions about calculating or paying FBT, our team at CleanSlate can help. We offer a range of bookkeeping and taxation services to businesses all over Australia. Contact us today to learn more about how we can help you with your fringe benefit taxes.
