Fringe Benefits Tax (FBT)

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Steven Nicholson

August 4, 2023

Why is this important to me as a small business owner?

As small business owners struggle to attract and retain their best staff in times of high inflation, it may be tempting to explore alternative benefits you can offer your staff. However, it is important that you appreciate the hidden tax cost of providing such benefits. This hidden tax cost is called Fringe Benefits Tax (FBT) and in this post I will help you understand how this tax is calculated and what you must do to meet your obligations.

Why do I need to think about this now?

The FBT year runs from April 1 to March 31 of the following year, which is not the same period as an income tax year which runs from 1 July to 30 June. You must lodge an FBT return with the Australian Taxation Office (ATO) each year. Failure to lodge an FBT return can result in penalties and interest charges.

The deadline for lodging your FBT return and paying any tax liability is 21st May, which can be extended to 25th June if you have arranged beforehand with your accountant to lodge on your behalf.

It can take time to review all your expenses for the year and pull out those expenses which may attract FBT. There are also detailed record-keeping requirements for the private use of company vehicles and car parking logs that can take time to compile if these have not been done throughout the year.

I recommend that you speak with your accountant as soon as possible to ensure that you have enough support to help with this.

OK, so what exactly is Fringe Benefits Tax?

Fringe Benefits Tax is a tax on non-cash benefits provided to employees. Even though it is the employee who receives the benefit, it is the employer who is responsible for paying FBT for the benefits they provide to their employees. If you want to check out all the details on the ATO website, you can do that here.

What are non-cash benefits?

Non-cash benefits can include things like private use of company cars, car parking, gym memberships, health insurance, and entertainment expenses that a small business owner may pay for on behalf of their employees.

It gets complicated as some benefits are exempt from FBT such as portable electronic devices that are mainly used for work purposes, for example, mobile phones and laptops. Another example of an exempt benefit is any benefit given that has a value of less than $300 that is not given to your staff regularly. For example, if you give your sales rep a $300 gift card each month for doing a good job, this could be seen as a recurring benefit and be liable for FBT. Alternatively, if you offer a $300 gift card to your best employee each month and it is regularly shared between all your 10 employees, this is likely to fall under the minor benefits exemption.

As you can see, Fringe Benefits Tax is very complicated, and it is advisable that you rely on help from a good accountant to ensure that you get this right.

How much does FBT cost?

It does not get any easier when it comes to calculating the actual cost of Fringe Benefits Tax.

There are two steps to calculating the tax:

1. The gross-up amount – multiply an expense including GST by 2.0802 or an expense that was GST-free by 1.8868. This gives you the total fringe benefits taxable amount.

2. Multiply by 47% (this is the rate that applies for all years since 31 March 2019). Here’s a simple example to show you how this works:

After finishing a great quarter, you decide to reward each of your three hard-working employees with a $1,000 travel voucher from your local travel agent. You have an invoice from your travel agent for $3,000+GST totalling $3,300. Total fringe benefits taxable amount is $3,300 x 2.0802 = $6,864.66 Total FBT payable is $6,864.66 x 47% = $3,226.39 Total cost of providing the travel vouchers is $3,000 (GST can be claimed back) plus the FBT of $3,226 totalling $6,226.

As you can see from the example above, the cost of providing this benefit has more than doubled when the FBT is included. Depending on the marginal income tax rates of the employees, it is likely that it would be more tax effective to have given the employees a bonus through payroll. This is a complicated calculation best done by your accountant as it will have to take into account income tax deductions and rates for both the company and the employee.

The important thing to remember is to reach out to your accountant before you spend money on the benefit and don’t wait until your end-of-year review.

Are there any concessions for small businesses?

The only concessions not already mentioned above relate to not-for-profit organisations. If this is you, you should speak with your accountant to better understand your FBT Obligations.

Conclusion

Fringe Benefits Tax can be a complicated area for small business owners, but it’s essential to understand your obligations and manage them correctly. By keeping accurate records throughout the year and meeting your reporting obligations, you can reduce the risk of penalties and ensure that your business is compliant with Australian tax laws. If you are unsure about your FBT obligations, you should seek the support of a good accountant who can help you navigate this complex area of taxation.

Retinue Accounting helps small businesses with all their bookkeeping, payroll* and taxation needs, including Fringe Benefits Tax, for an affordable fixed monthly fee. If you are interested in finding out more about how we can help your business make better decisions, please get in touch.

*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.

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