If you are reading this blog, you might be wondering:
- What is FBT?
- Who pays FBT?
- How much FBT do you pay?
Apart from these questions, you may have many more questions to ask about FBT. If yes, you will receive answers to your queries from this blog. In this blog, we’ll discuss the basics of FBT that every employer needs to know. Let’s get started:
What is Fringe Benefits Tax (FBT)?
Employers are liable for paying fringe benefits tax (FBT) on certain benefits given to their employees, or to their employees’ family or other associates. It is not treated as income tax. It is calculated on the fringe benefit’s taxable value. Employers need to check their FBT liability for the FBT year (1 April to 31 March). If liability is encountered, you have to file an FBT return and pay the FBT you owe.
What is a Fringe Benefit?
A fringe benefit is similar to making a payment to an employee, but in a different form than wages or salary. There are different types of fringe benefits. Such as:
- permitting an employee to use a work car for personal use
- car parking
- paying gym membership for an employee
- providing entertainment by offering free tickets to concerts
- reimbursing an expense incurred by an employee, for instance, school fees
- giving an employee a discounted loan
- providing benefits under a salary sacrifice arrangement with an employee.
Take a look at the following section to know what can’t be considered fringe benefits:
- wages and salaries
- employer contributions to complying super funds
- rights or shares offered under approved employee share acquisition schemes
- employment termination payments
- benefits offered to contractors and volunteers
- exempt benefits, such as certain benefits offered by religious
- institutions to their religious practitioners.
Who Receives Fringe Benefits?
FBT applies to fringe benefits given to your staff, or to your employees’ families or other associates. For FBT purposes, an employee includes a:
- past, current, or future employee
- Director of a company
- beneficiary of a trust who works in the business.
If you are a partner in a partnership or a sole trader, you are not an employee. Benefits you provide to yourself are not liable for FBT. Your clients are not employees. Benefits you provide to clients, such as entertainment, are not liable to FBT.
Who is Liable to Pay FBT?
The employer needs to pay an FBT. This is the scenario, even if the benefit is given by a third party under an arrangement with the employer.
How Much FBT Do You Pay?
You gross-up the taxable value of the benefits you’ve given to work out how much FBT to pay. This equals the gross income your employees would have to earn, at the highest marginal tax rate, to buy the benefits themselves. The Fringe Benefits Tax (FBT) you owe is 47% of the grossed-up value of the fringe benefits.
Can You Claim GST Credits and Deductions?
As an employer, you may be eligible to claim:
- an income tax deduction and GST credits for the expense of providing fringe benefits
- If you can claim GST credits, you may claim the GST-exclusive amount as an income tax deduction
- If you can’t claim GST credits, you may claim the full amount as an income tax deduction
- an income tax deduction for the FBT you need to pay.
Record Keeping for FBT
You need to keep records that:
- show how you calculated the fringe benefits’ taxable value
- support any fringe benefits tax concessions, or exemptions you used.
You need to keep the following records for entertainment-related benefits:
- The date when you offered the entertainment
- Who received the entertainment?
- The cost involved for the entertainment
- the type of entertainment offered
- where the entertainment was provided.
These records should be in English. If your records are stored electronically, make sure they are in a format that can be accessed.
Conclusion
This basic guide on fringe benefits tax can help employers know what records they need to keep, how much they need to pay, and what can be considered fringe benefits. For more information, you can get in touch with Tax Consulting Partners.
