Fringe benefits tax – huh?
This isn’t a made-up tax.
Its purpose is to prevent employers providing non-cash perks outside of their salary to their employees and associates/family members without anyone being taxed on these benefits.
It applies even when the benefit is provided by a third party to the employer.
For example, work cars used for private purposes, parking provided at work, work Christmas parties, client gifts to staff are all subject to Fringe Benefits Tax.
These benefits are taxed at the highest marginal rate of 47% to ensure they are being taxed at the maximum amount possible if an employee was paid wages instead.
Due to the wide definition of benefits, most businesses will be subject to Fringe Benefits Tax. There may be some exemptions available – best to check with your accountant about these.
The FBT year runs from 1 April – 31 March, deliberately set by the ATO to reduce the mayhem of reporting requirements that is 30 June!
This means we’re edging closer to the end of the FBT year and it’s time to prepare how much your FBT obligations are going to be, as well as plan for the FBT year ahead. The due date for lodging and paying the FBT you owe is 25 June.
The extensive list of fringe benefits includes:
- Car fringe benefits
- Car parking fringe benefits
- Entertainment-related fringe benefits
- Expense payment fringe benefits
- Debt waiver fringe benefits
- Loan fringe benefits
- Housing fringe benefits
- Board fringe benefits
- LAFHA fringe benefits
- Property fringe benefits
- Residual fringe benefits
There is a new opportunity for salary packaging a car with your employer by using an ‘associate lease’. This can provide tax savings in comparison to using a traditional novated lease arrangement. It involves an associate of the employee (i.e. spouse) purchasing a car and leasing the car to an employer at arm’s length conditions. The employer makes lease payments to the associate and the employee salary sacrifices their car expenses.
This is most effective when there is a good relationship between all three parties (associate, employee and employer) and the associate is on a lower marginal tax rate than the employee.
One of the most common mistakes made with FBT: if you don’t claim a deduction for the expenses provided then it means you don’t have to pay FBT on these benefits – completely untrue.
Any benefits provided must be individually assessed in regard to paying tax on them. The general rule for entertainment benefits is:
Benefit that is subject to FBT = deductible and GST claimed
Benefit not subject to FBT = non-deductible and no GST claimed
If you’re an FBT-exempt or FBT-rebatable employer then there may be some salary sacrifice arrangements available to your staff which are effective tax minimisation strategies – again, best to speak to your accountant if you’re unsure.
Our thoughts on FBT: Yes, it’s yet another tax. But don’t think of it as a disincentive not to treat your staff well or provide them with benefits. It’s best to be proactive and find out what exemptions/salary packaging options are available instead of waiting until after the fact. And fringe benefits tax paid is tax-deductible – aww yeah!
FBT may seem daunting if you are attempting to work it out for the first time. If you need help with the process, lets chat.