Anyone in the workforce needs to understand the fringe benefits tax (FBT). This is not only for those in the fields of finance and business but also for employees in other fields—especially since FBT has evolved over the years to match their needs. If you find yourself still unaware of the basics of FBT, don’t worry. The ATO details all the information you need regarding FBT, but the overload of information can be overwhelming! In this blog, we will help you familiarise yourself with the essentials in bite-sized portions.
What Is a Fringe Benefits Tax?
Before we dive into the specifics of FBT, let’s first define each part in detail.
What is a fringe benefit?
A fringe benefit is similar to a payment to an employee, but it’s not given in the form of a salary. It’s something extra that employees get from their employers on top of their wages. It can also be something that employees get in return for foregoing part of their salary under a salary sacrifice arrangement.
To put it simply, a fringe benefit is not cash. It can be for the employee, their spouse, or their children. Examples of fringe benefits include car parking, a discounted loan or entertainment such as free concert tickets.
What are the types of reportable fringe benefits?
1. Vehicles, parking and tolls
An employer may have to pay FBT if they provide their employee with:
- private use of a passenger vehicle that can carry fewer than 9 individuals (This includes a 4-wheel-drive vehicle but not a motorbike)
- private use of an eligible commercial vehicle where the use exceeds limited private use
Employers may also provide a car parking fringe benefit.
If FBT applies to the employee’s private use of a vehicle and the employer pays for the road or bridge tolls, toll fees are also subject to FBT.
2. Entertainment
Food, drink and recreation can be considered entertainment depending on certain factors, such as the nature or reason why the employer is providing food or drink to the employee. If it’s done in a social event where the purpose is for the employee to enjoy, then it can be counted as entertainment.
There’s no specific category of “entertainment fringe benefit,” but entertainment can be classified as one of four types of fringe benefits, depending on the situation.
3. Expense payment
Expense payment fringe benefits only emerge from expenses that the employee incurs. Goods or services given by the employer are not considered expense payment fringe benefits.
An expense payment fringe benefit is applicable when the employee incurs an expense for their own benefit, and the employer reimburses them or directly pays a third party for that expense.
4. Loan and debt waiver
When an employer lends money to an employee at an interest rate below the statutory interest rate, it’s considered a loan fringe benefit.
A debt waiver fringe benefit is when an employer waives an employee’s loan debt.
5. Accommodation and location
This type of fringe benefit covers housing fringe benefits, board fringe benefits, living-away-from-home allowance fringe benefits, remote area FBT concessions, overseas employment FBT concessions and relocation expenses fringe benefit concessions.
A housing fringe benefit, for example, is when an employer provides accommodation for the employee at their usual place of residence at a reduced rent or rent-free.
6. Property
In the context of FBT, property includes the following:
- goods (e.g., items of clothing or a television)
- real property (e.g., land and buildings)
- financial assets (e.g., shares, bonds or crypto assets)
7. Residual
A residual fringe benefit applies when the employer provides the employee with a benefit that doesn't fall into one of the specific types of fringe benefits. This could be a right, privilege, service or facility.
What is FBT?
A fringe benefits tax (FBT), therefore, is a tax paid by employers on certain benefits they give to their employees. These benefits can also be provided to the employee’s family or other associates. It’s important to note that FBT is different from income tax.
Who Receives Fringe Benefits?
Employees, their families or other associates can receive fringe benefits. FBT applies to fringe benefits provided to them.
An employee can be a:
- Past, present or future employee
- Director of a company
- Beneficiary of a trust who works in the company
Sole traders, partners in a partnership and clients are not considered employees.
Who Pays FBT and How Does FBT Calculation Work?
The employer pays FBT.
Calculating FBT involves “grossing up” the taxable value of the benefits that were given. This is equal to the gross income that the employees would have to earn (at the highest marginal tax rate) to buy the benefits themselves.
It’s advisable for employers to offer fringe benefits so they could attract the best workers for their business. It's completely legal to provide fringe benefits as long as the employer meets their FBT obligations.
How Do I Make FBT Management Easier?
FBT can be easily managed with fringe benefits tax software that has a tax wizard designed for Australian FBT and GST. It can also be used globally with configurable tax options.
ProSpend has an FBT management module that allows businesses to accurately track and record FBT-linked expenses. Some features include:
1. 50/50 method — This method calculates FBT on half of the total taxable value of fringe benefits that were incurred, for example, through meal entertainment during the FBT year.
2. Actual method — With the actual method, users can nominate the attendees with a smart wizard that accurately calculates the FBT.
3. Groups — Users can save any number of groups and favourite FBT splits for easy updates.
4. Multiple tax rates — Users can edit the entire tax amount or apply different rates for different items.
FBT doesn’t have to be difficult to understand. With the right expense management tool, employers can easily manage their taxes and FBT.
Manage your Fringe Benefit Tax better with our automated solution. Book a demo with us to try it out.
