What is Fringe Benefits Tax and Do You Need to Pay It?
Business| By Nina Hendy | May 18, 2020
Our guide breaks down what every SME needs to know about fringe benefits tax (FBT), from whether your business might need to pay it to how to lodge an FBT return.
Providing a couple of perks, or fringe benefits, is a great staff retention tool for small business owners – but it’s crucial that you understand your fringe benefits tax (FBT) obligations.
Put simply, FBT is imposed on employers providing extra benefits above wages and salaries to staff. While you’re well within your legal right to provide these types of benefits, it’s important to ensure you meet your FBT obligations with the Australian Taxation Office (ATO). Read our helpful guide to understand fringe benefits tax and if your business might need to pay it.
What is Fringe Benefits Tax?
A fringe benefit is an extra you provide to employees that supplements their wage or salary. It might be providing team members with discounted products, a car they can use on weekends, or a discounted loan. Those types of benefits are pretty common in small businesses looking for ways to attract and retain great talent in a tight employment market.
The ATO explains that a fringe benefit could include:
- Providing a work car for private use
- Giving an employee a discounted loan
- Providing regular free yoga classes or a gym membership
- Reimbursing an expense incurred by an employee, such as school fees or childcare costs
- Providing benefits under a salary sacrifice agreement
- Corporate gifts
When Do I Need to Pay Fringe Benefits Tax?
Employers providing fringe benefits that exceed $2,000 in value during the reporting period are required to lodge an FBT return.
What you need to know
- The FBT year runs from 1 April to 31 March
- Returns must be lodged by 21 May to avoid penalties from the ATO.
- Employers need to self-assess their FBT liability and lodge an FBT return with the ATO.
- Your tax obligation will be calculated on the taxable amount of the fringe benefit.
- The fringe benefit tax rate to 31 March 2021 is 47%.
IMPORTANT: If your FBT liability for the last year was $3,000 or more, you will need to pay four quarterly instalments.
How to Calculate Fringe Benefits Tax
If you provide certain fringe benefits with a taxable value of more than $2,000 during the FBT year, you need to report the grossed-up taxable value of the fringe benefits on your employee’s payment summary for the corresponding income year.
For example, the ATO website explains, if an employee receives fringe benefits with a total taxable value of $2,000.01 for the FBT year, the reportable fringe benefits amount is $3,773.
There are two gross-up rates
- TYPE 1: HIGHER GROSS-UP RATE, used when the benefit provider is entitled to a goods and services tax (GST) credit in respect of the provision of a benefit.
- TYPE 2: LOWER GROSS-UP RATE, used when the benefit provider is not entitled to claim GST credits.
IMPORTANT: Regardless of whether the benefits provided are Type 1 or Type 2, only the lower gross-up rate is used for reporting on employees' payment summaries or through Single Touch Payroll. Find out more about FBT rates and thresholds.
Other FBT Factors to Consider
It’s not just about the rates, thresholds and dates. Bear in mind these points when preparing your FBT liability:
- FBT applies even if the benefit is provided by a third party under an arrangement with the employer. So, for example, if you’re giving staff gym memberships, access to yoga classes or free tickets to concerts, your business falls into this category.
- But, you may be exempt from FBT if, for example, you’re giving staff a free car park or allow use of a work laptop during their own time, for example.
- FBT treatment differs depending on the employer, so make sure you check how the ATO defines your small business.
- Different industries are classed in different ways. For example, those working in public hospitals have their FBT exemption capped at $17,000. Most small business operators fall into the 47% bucket.
- Employees are defined by the ATO as current, future or past employees, a director of a company, or a beneficiary of a trust working in the business.
- Check that past employees who had benefits in the previous reporting period are counted.
IMPORTANT: Spend time with your accountant to decide how best to manage your claims to reduce your tax liability.
Note: Parties Aren’t a Fringe Benefit
Small businesses need to take the time to decipher the ATO’s definition of “entertainment” so you don’t get caught out. If you like to throw amazing Christmas parties or take staff away to five-star yoga retreats as a bonus, bear in mind that the ATO is watching to make sure you don’t exploit this sort of expenditure as a loophole to avoid paying tax.
For a fringe benefits tax exemption, employers need to spend under $300 per employee, which the ATO classes as ‘minor and infrequent’ expenditure. See more exemptions and concessions.
FBT Resources to Rely On
Calculating FBT doesn’t need to be complicated, there are a huge number of fringe benefits tax calculators and receipt storage tools out there. A cloud accounting program like Reckon could make the job of keeping track of FBT obligations much easier, or you can just use a simple desktop calculator to work out what you owe the taxman.
Calculators To Try
- Casio 12 Digit Desktop Calculator Blue MS20UC
- Casio 12 Digit Desktop Calculator White MS20UC
- Casio 12 Digit Desk Calculator Light Pink MS20UC
- Casio 12 Digit Water-protected Calculator WD-220MS
- Canon 10 Digit Tax Calculator LS-100TS
- J.Burrows 12 Digit Desktop Tax Calculator Silver JBD12SR
- Casio 12 Digit Desk Calculator Mint MS20UC
- Casio 12 Digit Desk Calculator Lime Green MS20UC
- Casio 12 Digit Desk Calculator Light Blue MS20UC
- Casio 12 Digit Desktop Calculator Black MS20UC
- Canon 12 Digit Desktop Calculator TX-220TS
- Casio 12 Digit Desk Calculator Purple MS20UC
- Casio 12 Digit Desktop Calculator Pink MS20UC
- Casio 12 Digit Mini Desktop Calculator MS-20B/F
Reporting your FBT can become second nature pretty quickly for business owners. Use the ATO guide and keep up to date with changes to FBT calculations here. And, if you provide a car to an employee, this calculator will help you figure out the taxable value.
How to Register to Lodge an FBT Return
Small businesses can register with the ATO to lodge an FBT return in the following ways:
- Online if you have an Australian Business Number
- By calling the ATO on 13 72 26
- By post by completing this form
- Through a registered tax agent of your choice
And don’t forget, even if you don’t need to lodge an FBT return, if you are registered for FBT, you will still need to complete a notice of non-lodgement.
* This is general information only and does not constitute taxation or legal advice. Other requirements under the tax law apply. Seek professional tax and/or legal advice to determine whether you are eligible to claim a deduction for any purchases.