FBT – More Than Meets The Eye
What Fringe Benefits Tax is
Fringe Benefits Tax (FBT) is separate from income tax. It is a tax paid on certain benefits provided to employees or employees’ associates (such as an employee’s family members), because of the employee’s employment.
Employers must self-assess their FBT liability for the FBT year which runs from 1 April to 31 March and lodge a FBT return by 21 May each year.
What a Fringe Benefit is
A fringe benefit is a benefit provided to an employee (or their associate) because that person is an employee. Benefits can also be provided by a third party under an arrangement with the employer.
An employee can be a current, future or former employee.
If you are a director and run your business through a company, you may be regarded as an employee of that company. This may mean that fringe benefits provided to yourself result in your company having FBT obligations
Examples of fringe benefits include:
- Allowing an employee to use a work car or other vehicle for the employee’s own private purposes (including taking the car home overnight)
- Giving an employee a cheap or interest free loan
- Paying an employee’s private health insurance, children’s school fees or giving them tickets to sporting events or other entertainment
- Providing food/drink determined to be meal entertainment
Example: Car fringe benefit
Michelle is the director and an employee of a company. The company owns and operates a bakery and has a car which is used for deliveries. Michelle is allowed to take the car home on the weekends.
She uses the car on the weekends for her own private use, such as going grocery shopping and taking her children to and from sporting activities. The company is providing Michelle with a fringe benefit.
Employers pay FBT, even if the benefit is provided by an associate or by a third party under an arrangement with the employer.
For example, if a supplier of goods to a business provides goods or services to their employees for free or at a reduced cost under an arrangement with them as the employer, then it is the business owner who is liable for any FBT owing.
In most cases, employers can claim an income tax deduction for the cost of providing the fringe benefit and for any fringe benefits tax they pay as a result.
There are ways of reducing the amount of FBT payable, including requiring the employees of a business to make an “employee contribution” payment back to the business to reduce the value of a fringe benefit.
Obligations if a business provides fringe benefits are
- Calculate how much FBT a business has to pay. Employers must self-assess and calculate how much FBT they must pay each FBT year.
- Keep the necessary FBT records. The FBT law requires employers to keep certain records relating to the fringe benefits they provide.
- Register for FBT. We recommend employers register once they establish that they must pay FBT.
- Report fringe benefits on employee payment summaries. Employers must report certain fringe benefits on employees’ payment summaries. Employers using Single Touch Payroll (STP) will find that their payroll software will prompt them to enter this information once a year prior to finalising year end payroll.
- Lodge an FBT return and pay FBT to the Tax Office. A FBT return covering the FBT year, which runs from 1 April to 31 March should be lodged by 21 May each year.
FBT may apply to almost all employing businesses, is a very complex system and can result is some very significant tax payments if not planned for correctly. Furthermore, with the ever-increasing use of data matching and audit activity on the rise, it’s easier than ever for the ATO to become aware of non-compliance – so it’s important to get it right.
We have several specially prepared FBT Factsheets available below to help you better understand your FBT obligations as a business owner.
Fact Sheet – Why should you lodge a FBT Return with NIL liability 2023
Fact Sheet – Minor and Infrequent Benefits 2023
Fact Sheet – Meal Entertainment 2023
Fact Sheet – Employee Business Cars Tips & Traps 2023
Fact Sheet – What is a Car Fringe Benefit 2023
Fact Sheet – How the ATO identifies potential Audits 2023
Fact Sheet – Workhorse Vehicles and Safe Harbour Provisions
Fact Sheet – Using an Associate Lease to boost family income 2023