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Calculating Your Fringe Benefit Tax (FBT): A Guide for Small Business Owners

18 October 2024

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If there’s one thing that puts small business owners under immense pressure, it’s navigating taxation—and the Fringe Benefit Tax is perhaps the trickiest obstacle in this obstacle course. But don’t worry, you’re not in this alone! Let’s walk through FBT step by step, so by the end, you’ll feel more confident in your calculations.

 
What is Fringe Benefit Tax?

Let’s not state the obvious, but shouldn’t you understand what Fringe Benefit Tax (FBT) is before diving into how to calculate it? FBT is a tax employers pay on certain non-salary perks they provide to employees, like company cars, gym memberships, or even that business lunch that lasted a bit longer than you expected.

Here’s where it gets a bit tricky: FBT isn’t calculated based on the value of the benefit itself. Instead, you must ‘gross-up’ the benefit, reflecting how much your employees would need to earn to pay for it themselves. Wondering how to do that?

The 7 Steps to FBT Calculation

Make sure you’ve got a calculator handy, and maybe a cup of coffee too!

  • Step 1. Work Out the Taxable Value of Each Fringe Benefit – Not all fringe benefits and their taxable value are equal. For instance, if you have given your employee a company car, you will need to refer to the ATO’s car calculator when working out its value. And remember: if GST was included in that benefit, it should also be included in your calculations.
  • Step 2. Add Up Fringe Benefits with GST – Out of all the benefits accounted for on step 1, these are the ones for which you are entitled to a GST credit. Include both reportable (those you need to tell the ATO about) and non-reportable benefits.
  • Step 3. Multiply by the Higher Gross-Up Rate – Here’s where the gross-up comes into play. You just need to multiply the step 2 amount by the higher (type 1) gross-up rate (2.0802), which accounts for the GST credit.
  • Step 4. Add Up Fringe Benefits without GST – The benefits from step 1 that were GST-free or input-taxed need their own special treatment. Again, include both reportable and non-reportable benefits in your calculations.
  • Step 5. Multiply by the Lower Gross-Up Rate –Since GST credits don’t apply to these benefits, you will have to multiply the step 4 amount by the lower (type 2) gross-up rate (1.8868).
  • Step 6. Add Up Both Amounts – Add the numbers from steps 3 and 5 to get your total fringe benefits taxable amount—the magic number we’ll be working with for the final step.
  • Step 7. Multiply by the FBT Rate – Take that total from step 6 and multiply it by the FBT rate of 47%, which has been in place since the FBT year ending 31 March 2019. That’s it! You’ve just calculated the total FBT amount you have to pay when you lodge your FBT return.

 

Still Confused?

Let’s face it, FBT is one of those tricky areas of tax law where things can get complicated fast. While this guide is a great starting point, it’s always a good idea to consult a financial expert to make sure you’re getting your FBT calculations just right.

Call us at 1800 861 566, and we’ll be happy to lend a hand!

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