Providing benefits is a key part of attracting and retaining top employees. Employee perks, such as private health insurance, company cars and entertainment evenings, bring with them several tax implications, falling under Fringe Benefits Tax (FBT). It’s vital you get claims right to avoid any compliance issues. Some benefits require paying FBT, while others may be exempt; this article will help you decipher which side of the FBT line your perks fall.
What is FBT?
A fringe benefit is a ‘payment’ to an employee, but not in the form of salary or wages. The term ‘fringe benefit’ is fairly broad and can cover a wide range of perks, but some fairly common examples include:
- A work car
- Giving an employee a cheap loan
- Gym membership
- Paying for an employee’s kids’ school fees
A simple guide to working out whether something is a fringe benefit is to ask yourself: would you have provided a benefit if the person had not been an employee? One important note: FBT is exempt on minor benefits items or services less than $300 or is unreasonable to treat as a fringe benefit, such as a one-off, irregular perk.
Also, the FBT tax year runs from 1 April to 31 March each year – slightly different from the financial year. Providing work equipment, such as laptops and a desk, isn’t considered a fringe benefit but as necessary to employment, and you can claim such items as a deduction.
FBT and the Work Lunch
FBT law has a variety of categories for benefits and specific valuation rules for each classification. These categories include cars, parking, entertainment, expenses, loans and many others. The Australian Taxation Office (ATO) has a helpful guide you can use to determine your FBT.
If your company, for example, provided gym membership to employees costing $480 per year for each employee, it is considered recreational entertainment. Your company would have to pay FBT on the gym membership and the minor benefits exemption does not apply in this case, because it is more than $300.
However, if your company decides to host an event at work and provides employees with food and drink, then some exemptions start to kick in. For example, you throw a picnic in the office to celebrate everyone’s good work, which costs around $100 per head. The food and drink are exempt from FBT because they are consumed on-premises and during a work day. You could also provide taxis home from work after the event because travel is FBT-free if it’s directly home.
Say you decide to take everyone out to eat and drink at a nice restaurant. You’d get hit with FBT because the event is held off-premises, but if the cost per head is less than $300, then it’s FBT-free, because it would be unreasonable to treat the day out as a fringe benefit.
FBT and Cars
If you provide a car to employees for private use, it may be considered a fringe benefit. A car you own or lease that is garaged at an employee’s house, even when they aren’t allowed to use it privately, is considered private use and will be subject to FBT.
Some cars are exempt from FBT – for example, the personal use of a taxi, panel van or a utility vehicle designed to carry less than one tonne. These vehicles are exempt if their private use is limited to trips between home and work, incidental travel during employment-related journeys or minor and irregular private use.
Read more about company cars: Company Cars: The Pros and Cons.
The federal government has set up an intricate web for rewarding your employees, and you should always seek professional advice to see what falls under FBT and what is exempt.