Snapshot for the FBT year ending 31 March 2020
FBT rate: 47%
Benchmark interest rate: 5.37%
Car parking threshold: $8.95
Record-keeping exemption: $8,714
FBT return is due by 21 May, or by 25 June if lodged electronically through your tax agent.
Reminder why FBT exists
Fringe Benefits Tax is a tax levied on employers for certain benefits provided to employees and related parties. It exists to prevent tax leakage from businesses deducting the cost of providing those benefits but income tax is not collected on the employee side.
Business cost or part of employee’s remuneration?
From a business model point of view, there are essentially two types of fringe benefits:
- Those that are provided to employees generally, or a category of employees, and are not part of any particular employee’s remuneration. Any FBT arising is simply a cost of business.
- Those that do form part of a particular employee’s remuneration package. The FBT on the benefit is usually determined in advance, and is a component of the employee’s remuneration package. That is, the FBT is not an additional cost to the employer. See here for more on that.
The cost of a fringe benefit is “grossed up” before applying the 47% rate. For practical purposes, the amount of FBT on a fully taxed benefit works out to a little less than the cost of the benefit itself. (eg, $1,000 benefit triggers approximately $890-$970 in FBT, depending on the applicable gross-up rate.)
Main types of fringe benefits
- Car parking
- Meal entertainment
- Living away from home allowance (LAFHA)
- General property or residual
Selection of benefits exempt from FBT
Car parking, where employer’s group-wide turnover is less than $10 million (Small Business Entity – SBE).
Portable electronic device, where primarily used for employment. One per year, per employee (SBEs can provide multiple). Eg, Laptop, tablet, Surface Pro, mobile phone.
Minor, infrequent benefit worth less than $300.
Fly-in fly-out transport.
Selection of benefits not subject to full FBT
Cars, usually. Also, a simplified FBT calculation method is available for a fleet of 20 or more qualifying cars. First $1,000 of in-house benefits (eg, Insurance company providing insurance coverage to employees) is exempt (N/A under a remuneration packaging arrangement).
To the extent an employee reimburses the employer. To the extent an employee would be entitled to a one-off deduction, had they personally incurred the cost of the benefit.
Employers who are exempt from FBT, or have reduced/limited FBT exposure
Public Benevolent Institutions (eg, certain charities).
Certain not-for-profit organisations.
When a salary sacrifice arrangement is effective, and when it isn’t
Key word: prospective. That is, you can arrange to sacrifice future salary, but not retrospectively adjust for salary already earned.
Reporting on employee’s payment summary
The grossed-up amount of certain fringe benefits is reported on an employee’s payment summary. Although the employee does not pay income tax on that amount, it factors into calculating various means-tested benefits.
Office Christmas party
Whether held on or off premises, it will be subject to FBT. But generally, if the per-head cost is less than $300, it will be an exempt minor benefit. If clients attend, this will affect the FBT treatment.
Food and drink provided and consumed on-premises by current employees, on a working day, are not entertainment but a property benefit exempt from FBT.
Lunch in the office
Generally, lunches in the office are usually a simple affair (e.g. sandwiches) which are provided as sustenance so employees can complete their working day in comfort. These are exempt from FBT. However, if lunch in the office is expressly salary-sacrificed, it is subject to FBT.
Think about the possibilities in your business…
Being near the FBT year-end, there is perhaps little that can be done for this year. But think about the possibilities in your business for next year.
Talk to your trusted Nexia advisor about how we can help you better manage the provision of benefits, and get the best outcomes for you and your employees.