Not every perk qualifies as a taxable fringe benefit; it must have a clear connection to employment. Some benefits, known as “exempt benefits,” are FBT-free, while “minor benefits” may have lower FBT rates. Salary sacrifice arrangements, where employees trade salary for benefits, can also carry FBT implications. Employers, especially those in specific sectors like public benevolent institutions, should be knowledgeable about FBT so they can manage their tax obligations effectively.
Examples of fringe benefits
Here are some examples of taxable fringe benefits, which can impact an employer’s FBT liability:
- Educational fee reductions
- Vehicle-related costs and parking facilities
- Discounts offered to employees on products or services
- Accommodation and meal provisions
- Recreational activities and events
- Loan waivers or debt cancellations
- Options to purchase company shares
- Medical and health-related benefits
- Recognition awards for accomplishments
- Access to sports and fitness centers.
What does not qualify as a fringe benefit?
In addition, dividends from investments, benefits extended to volunteers or independent contractors, and certain benefits dispensed by religious institutions are also excluded from the classification of fringe benefits.
It’s worth noting if a business provides a benefit to an employee that would have been tax-deductible had the employee paid for it themselves, then the company does not incur the FBT liability for that benefit.
Why do employers offer fringe benefits?
Beyond the financial incentives, providing fringe benefits can contribute to a more supportive and engaging workplace culture. When employees feel valued and well-cared for, it can positively impact productivity. In specific cases, fringe benefits can also yield tax advantages for employees, potentially reducing their overall income tax burden.
Reasons why companies offer fringe benefits
Understanding the liability of Fringe Benefits Tax (FBT)
The classification of a perk as a fringe benefit can be complex, especially if it’s not explicitly employment-related. Complexity rises when the recipient has multiple roles, like being an employee as well as a shareholder or a beneficiary of a trust linked to the provider.
Determining your Fringe Benefits Tax (FBT) obligations in Australia
Follow these steps to calculate your FBT liability:
Step 1: evaluate the total taxable value
Step 2: isolate type 1 benefits
Identify the sum of Type 1 fringe benefits’ taxable value. For these benefits, employers are entitled to claim a Goods and Services Tax (GST) credit.
Step 3: apply type 1 gross up rate
Step 4: isolate type 2 benefits
Step 5: apply type 2 gross up rate
Step 6: compute the overall FBT taxable sum
Step 7: determine the FBT payable
Make sure to keep up-to-date records and consult the Fringe Benefits Tax Assessment Act for any changes in rates or procedures.
Understanding FBT exemptions: are you eligible?
Below are some common FBT exemptions that may be relevant:
- Employment-Related Items Exemption: This pertains to items predominantly used by employees for work-related purposes.
- Skills Enhancement Exemption: This exemption is for employers investing in training or educational opportunities for employees facing redundancy or those anticipated to be made redundant soon.
- Low-Value Benefits Exemption: Benefits valued under $300 might be eligible for this exemption.
- Taxi Journey Expense Exemption: This is applicable if the taxi ride begins or concludes at the employee’s official place of work.
- Parking Benefit Concessions: Exemptions related to car parking might be available under specific criteria.
- Living-Away-From-Home Allowance Concession: In certain scenarios, there may be a potential reduction.
- Emergency Aid Exemption: This covers benefits given to employees in the aftermath of natural calamities, accidents, serious health concerns, or significant civil disturbances.
Examples of fringe benefits
The following types of organisations generally qualify for this exemption:
- Public benevolent institutions: organisations of this type are often eligible for FBT exemptions.
- Health promotion charities: such entities focusing on public health matters may also be exempt.
- Public or not-for-profit hospitals: institutions providing healthcare services to the public can also be eligible.
- Public ambulance services: services dedicated to public emergency transportation often qualify for this exemption as well.
Reporting and payment procedures for Fringe Benefits Tax (FBT)
Typically, the FBT return must be submitted by 21 May. However, if you’re working with a tax agent, you may qualify for an extended submission deadline. For those who are new to paying FBT, or if last year’s FBT payment was below $3,000, a single annual payment is required upon filing your FBT return.
On the other hand, if your FBT liability exceeds $3,000, quarterly payments will be required through your activity statements for the subsequent FBT year.
FBT reporting obligations in year-end income statements
Importantly, the RFBA is not considered taxable income for the employee and does not impact their income tax or Medicare levy directly. However, the presence of Reportable Fringe Benefits can have a ripple effect on other financial considerations. These may include: family tax benefits, Medicare levy surcharge, private health insurance rebates, child support obligations, superannuation co-contributions, Higher Education Loan Program (HELP) repayments, and various tax offsets.
If an employee anticipates that Reportable Fringe Benefits could adversely affect their financial situation, an arrangement can be made with the employer to offset their FBT liability. In such cases, the employee can contribute a corresponding amount from their post-tax salary to cover the fringe benefits, thereby reducing their own Reportable Fringe Benefits and the employer’s FBT obligation.
Impact of Fringe Benefits Tax on salary sacrificing
While some items like superannuation are typically FBT-free, others like cars are not. In such cases, employers often pass on the FBT costs to employees. As the current FBT rate is 47%, salary packaging a car might not be beneficial unless you’re in the highest tax bracket. Therefore, even though FBT is the employer’s liability, it may reduce your salary to cover these costs as part of your salary sacrifice agreement.
Both employers and employees should consult with tax experts to maximise the benefits and minimise the drawbacks of salary sacrifice arrangements.
FBT and superannuation contributions
Employees should ensure the sum of their salary-sacrificed contributions and other pre-tax contributions, such as regular employer contributions and personal contributions, do not exceed this cap. If they do, the Australian Taxation Office (ATO) warns that additional tax may be imposed.
Strategies for employers to lower FBT obligations
Alternatively, employers can opt to increase salaries in lieu of providing fringe benefits. There are also various FBT exemptions and concessions previously discussed that can mitigate or eliminate the need to pay FBT.
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