Far from an additional tax burden to your business, Fringe Benefits can be a useful way to attract, retain and reward employees and build a positive workplace culture. When employees receive fringe benefits tailored to their needs and interests, they are more likely to feel valued and satisfied in their work, leading to higher levels of employee loyalty and reduced turnover.
Yet recording and reporting FBT can be a difficult and daunting task for small business owners. In this article we explore a practical case study to help you understand the basics of FBT.
Related: Need help managing and calculating your FBT? Download our Essential Guide to Fringe Benefit Tax.
Let’s start by identifying common fringe benefits. These may include:
Iris Salon is a well-established beauty salon in Sydney. The salon offers a range of services, including haircuts, hairstyling, facials, massages, and nail treatments. The salon enjoys a loyal customer base and employs 10 staff members, including stylists, therapists, and support staff. Iris Salon also provides several ‘perks’ to its employees. These include:
Staff Discounts Employees are entitled to a 50% discount on all salon services, including haircuts, styling, facials, and massages.
Free Beauty Treatments Employees can enjoy free beauty treatments, such as hair styling, facials, and nail treatments, during their breaks or after work.
Company Car The salon provides a company car, which is primarily used by the salon manager for business purposes. However, the car is occasionally used by other staff members for work-related errands.
Meals and Entertainment The salon occasionally hosts staff lunches and dinners at local restaurants as a team-building activity.
Under Australia’s tax laws, the perks above would all be considered Fringe Benefits.
To meet its tax obligations, Iris Salon must prepare an FBT return to report all the fringe benefits provided to employees during the year. To work out how much FBT they have to pay, they need to ‘gross-up’ the taxable value of the benefits they’ve provided. This reflects the gross salary the salon’s employees would have to earn, at the highest marginal tax rate to buy the benefits themselves.
Once calculated, the salon will be required to pay its FBT liability at the end of the FBT reporting year. By properly recording and calculating the taxable value of the benefits it offers employees, the salon can ensure compliance with FBT regulations and avoid potential penalties for non-compliance.
Frustrated with Fringe Benefit Tax? Let us take the hassle out of it for you. Retinue can be your accounting partner offering tax compliance, bookkeeping, payroll* and financial insights with 24/7 unlimited support, for a fixed monthly fee, all backed by our guarantee. Request a quote to get started .
*Retinue’s payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.
*Retinue’s (ABN 66 658 618 449) payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.
Protection is only provided for ATO investigations notified to us during the period which you are a client and relating to any tax returns or lodgements prepared by us. Fines includes any penalties and interest that may result from any errors made by us but does not include any additional tax liability that may result from an amended lodgement.
Liability limited by a scheme approved under Professional Standards Legislation.
