Overview of FBT for Employers
A fringe benefit is a "benefit" ( you make to an “employee” (a living person who is entitled, or has been entitled, to receive, salary or wages) in respect of employment (i.e. the payment was made because they were/are/will be an employee) but in a different form to salary or wages and does not cover contributions to superfund's on behalf of employees. A benefit that is not provided in respect of employment is not a fringe benefit, however the benefit may be provided by another person on behalf of an employer. Furthermore certain benefits are exempt from FBT (see listing below)
The terms benefit and fringe benefit have broad meanings for FBT purposes. Benefits include rights, privileges or services. For example, a fringe benefit may be provided when an employer:
- allows an employee to use a work car for private purposes
- gives an employee a cheap loan for private use
- pays an employee’s gym membership
- provides entertainment by the way of food, drink, recreation
- reimburses an expense incurred by an employee, such as school fees, and
- gives benefits under a salary sacrifice arrangement with an employee.
Calculate GST
Where you provide taxable fringe benefits to employees, there are some distinct steps involved in calculating your FBT liability. With the introduction of the GST, there are two separate gross-up rates used to calculate fringe benefits taxable amounts – a higher (type 1) and a lower (type 2) gross-up rate.
- The higher gross-up rate is used where you (or other benefit provider) are entitled to a GST credit for GST paid on benefits provided to an employee. These benefits are known as GST-creditable benefits. (The taxable value is multiplied by 2.0647).
- The lower gross-up rate is used where there is no entitlement to a GST credit. You use the lower gross-up rate to calculate an employee's reportable fringe benefits amount. (The taxable value is multiplied by 1.8692).
The taxable value of a fringe benefit is established from a series of valuation rules. There are different categories of fringe benefit and each has its own specific rules for calculating the taxable value. It is important to keep records to substantiate the value.
To pay the FBT, Calculate the fringe benefits taxable amount by grossing up the type 1 aggregate fringe benefits amount and the type 2 aggregate fringe benefits amount and adding them together. The tax payable will then be 46.5% of the fringe benefits taxable amount.
Common Exempt benefits
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Registration
You do not have to register for FBT as with GST/PAYG, however it is recommended you do so. The ATO do not usually issue FBT assessment notices. This is because the tax is self-assessed by employers. You do not need to make your first payment until you lodge your first FBT return.
Annual Return
The FBT year runs from 1 April to 31 March each year. You must lodge your annual FBT return with the Tax Office by 21 May each year, unless you have an extension. Any returns received later than the first business day after 21 May without prior arrangement may incur an administrative penalty if you fail to lodge the FBT return on time.
As with all other taxes, there are penalties for lodging incorrect returns or late returns, or failing to lodge returns. A general interest charge applies to all outstanding amounts of FBT, including FBT installments and understatements of FBT installments.
In addition, there are substantial penalties for underpayments of tax arising from false or misleading statements.
You don’t need to lodge an FBT return if your fringe benefits taxable amount for the year is nil. If you are registered for FBT but don’t need to lodge an FBT return you must complete a Notice of non-lodgment fringe benefits tax.
Employers have to record the value of fringe benefits provided to employees. If the value of certain fringe benefits provided exceeds $2,000 in an FBT year, you will be required to record the grossed-up taxable value of those benefits on the employee’s payment summary for the corresponding income year (1 July to 30 June). You may also have to report the notional value of certain exempt benefits.
Paying FBT
If you have not previously paid FBT or if the amount of FBT payable in the previous year was less than the installment threshold (currently $3,000), you pay the tax once a year when you lodge your annual FBT return. If you had to pay FBT of $3,000 or more in the previous year, you pay the tax quarterly with your activity statement. This is the case even if you estimate you will pay less than $3,000 FBT in the current year.
Records
There is a general requirement that you must keep sufficient records to enable your FBT liability to be assessed. These records must be kept for five years in a form that tax officers can access and understand in order to determine your tax liability. You must also keep specific records if you want to take advantage of various exemptions or concessions that reduce your FBT liability
You need to keep records that show the following:
- The taxable value of each fringe benefit provided to each employee (that is, its value before it is grossed up). E.g invoices, receipts, travel diaries, logbooks, odometer records and employee declarations.
- The method of allocating the taxable value of a fringe benefit provided to two or more employees. This may include any reasonable agreement between an employer and an employee regarding the apportionment of fringe benefits.
- That 100% of the taxable value of the benefits has been allocated to employees.
