Employee benefits are a great way to recognise and reward staff. As well as improving acquisition and retention rates, they can also boost productivity. The only downside is they could leave you with an additional tax known as fringe benefits tax (FBT). This particular levy can be a tricky one to get your head around so, whether you’re wondering what employee perks it applies to, if you’re liable to pay it, or how to calculate and report it, keep reading.
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Understanding fringe benefit tax
What is fringe benefits tax?
Fringe benefits tax (FBT) is a tax paid by employers on certain benefits or non-cash incentives they give to employees. This includes benefits that extend to employees’ families and other related third parties.
What benefits does it include?
FBT applies to a range of benefits, including:
- Company vehicles and parking
- Entertainment, such as meals and drinks, staff functions, holidays etc.
- Expenses incurred by employees
- Loans and debt waivers
- Accommodation and board
- Living away from home allowance
- Salary sacrifice arrangements
Each benefit is categorised and subject to its own particular rules and exemptions. Items and payments not subject to FBT include mobile phones and laptops, as well as company shares and dividends.
Do you have to pay FBT?
If you’re an employer and you offer employees any of the benefits specified, then yes you will have to pay FBT. Directors of companies or trusts may also be liable, while sole traders and partners are exempt.
To figure out how much you need to pay, first work out the total taxable value of the benefits you’ve provided. Then multiply it by one of two specified gross-up rates:
- Higher gross-up rate (type 1): Use this for benefits where you are entitled to a GST credit for GST paid on benefits For FBT year ending March 31 2018 – 2.0802
- Lower gross-up rate (type 2): Use this where there is no GST credit entitlement For FBT year ending March 31 2018 – 1.8868 This gives you the FBT taxable amount. Then, calculate the total tax payable by multiplying the FBT taxable amount by the FBT rate.
How do you report, lodge, and pay FBT?
First, you’ll need to register in one of the following ways:
- Online via the Australian Government Business Registration Service
- Over the phone (provided you’re an authorised contact for the business)
- Through your registered tax agent
- By lodging your annual FBT return
- By filling in a paper application form
If you have an FBT liability, you’ll need to lodge an FBT return and pay the total amount owing by the due date. You can also choose to pay it quarterly with your Business Activity Statement (BAS). If you’ve registered for FBT but you don’t have a liability, then you’ll still need to complete an FBT notice of non-lodgement. You can lodge your FBT return electronically, through your tax agent or by post.
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