As a part of your employees’ employment contracts, do they receive benefits such as a car space, gym membership or even a car to drive?
These are what’s known as fringe benefits, which is a ‘payment’ to an employee that takes a different form to salary or wages. This incurs a specific kind of tax separate from income tax known as fringe benefits tax, which is based on the taxable value of the fringe benefits provided. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.
Knowing what is and what isn’t deemed as a fringe benefit will assist you in working out what you might provide to your employees as a benefit for working with you.
Examples Of Items That Are Fringe Benefits
- Allowing an employee to use a work car for private purposes
- Giving an employee a discounted loan
- Paying an employee’s gym membership
- Providing entertainment by way of free tickets to concerts
- Reimbursing an expense incurred by an employee, such as school fees
- Giving benefits under a salary sacrifice arrangement with an employee.
Examples Of Items That Are Not Fringe Benefits
The following are not fringe benefits:
- Salary and wages
- Shares purchased under approved employee share acquisition schemes
- Employer contributions to complying super funds
- Employment termination payments (including, for example, the gift or sale at a discount of a company car to an employee on termination)
- Payment of amounts deemed to be dividends under Division 7A
- Benefits provided to volunteers and contractors
- Exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.
Employees don’t have to worry about paying the tax on these items, but it is an area of concern that employers need to be careful of. Employers must self-assess their FBT liability for the FBT year (which ends 31 March) and lodge an FBT return.
Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. However, there are ways in which you may be able to reduce your liability when it comes to FBT.
These methods include:
- providing benefits that are income tax-deductible
- If your employee is given a benefit that they could otherwise have claimed themselves.
- using employee contributions
- If your employees contribute to the cost of the FBT themselves through cash payment to the provider of the benefit, the taxable value of the fringe benefit can be reduced by that amount
- by providing a cash bonus
- If you provide your employee with a cash bonus instead of a benefit you won’t have to pay FBT, and the employee will pay income tax on the amount.
- providing benefits that are exempt from FBT.
FBT exemptions can sometimes be changed by the Australian Taxation Office (ATO), which can affect your FBT liability.
One such change was the FBT Retraining & Reskilling Exemption. Under this change, if you are an employer who is providing to their employees who are redundant (or soon to be made redundant) a benefit that encompasses training or education.
The exemption can be applied to retraining and reskilling benefits provided on or after 2 October 2020. This exemption is not to be included in your 2022 FBT return or in your employee’s reportable fringe benefits amount. If you have already lodged your 2021 FBT return though and paid any FBT owing, you can amend your 2021 FTB return to reduce the FBT paid for retraining and reskilling that is exempt.
It’s advisable to consult with a tax agent (such as us) if you need to amend an FBT return (as we are equipped with the tools and skills to negotiate what can be a tricky area filled with complexities and traps). Now’s the best time to speak with us about your FBT liability, what you might need to include in your return and more. Start a conversation with us today.