Keeping your employees happy and satisfied is a great way to ensure a productive and positive work culture. Providing a mix of benefits and considerations allows you to secure and keep top talent in your company.
In Australia, offering fringe benefits is one way to show your employees how much you value them, but with the advantages of fringe benefits comes the responsibility of managing fringe benefits tax (FBT).
Why is fringe benefits tax important to be paid by employers? Let’s dive into it in this blog.
Understanding Fringe Benefits Tax in Australia
A fringe benefit is something given in addition to the employee’s salary to attract, motivate and empower high-quality talent. Having fringe benefits for your employees entails fringe benefits tax (FBT)—the tax you pay on these benefits. Note that it’s not the same as income tax and is calculated on the taxable value of the provided benefit.
To calculate the taxable value of your fringe benefits, you may refer to the FBT calculator made available by the Australian Taxation Office (ATO).
According to the ATO, employers must self-assess their FBT liability from April 1 to March 31, which is the FBT year. Employers with an FBT liability must lodge an FBT return and pay the tax that they owe.
Why Do Companies Provide Fringe Benefits and Why Does the Employer Need to Pay Fringe Benefits Tax?
1. Fringe benefits are subject to FBT under the Fringe Benefits Tax Assessment Act 1986
The most essential, non-negotiable reason why employers should pay for FBT is they are legally obligated to do so. The Fringe Benefits Tax Assessment Act 1986 ensures that employers pay taxes when they provide their employees with fringe benefits.
2. Fringe benefits attract quality talent
When you offer a salary package that includes a well-rounded set of fringe benefits, your ideal candidate will likely say yes to that job offer. Fringe benefits not only make your company more competitive in the job market but also appeal to candidates seeking a supportive and enriching workplace.
3. Fringe benefits keep and empower employees
In addition to attracting the best talent, fringe benefits also motivate employees to stay. Benefits like comprehensive health insurance and retirement plans provide employees with a sense of security and long-term stability, thus encouraging them to stay committed to the organisation. Benefits that promote work-life balance, such as gym memberships and ample paid time off, reduce employee burnout, increase productivity and remind them that you value their well-being.
When you offer holistic fringe benefits to your employees, you create a supportive environment where they feel valued and motivated to contribute their best efforts, leading to higher retention and empowerment.
4. Fringe benefits promote health and well-being
Employees are the most essential asset of your company, so it’s only a must to look after their well-being. Benefits such as gym memberships and mental health support contribute to their physical, psychological and overall health.
5. Fringe benefits enhance brand reputation
Employers that offer fringe benefits stand out from their competitors and become attractive not just to potential employees but also to stakeholders. This is because customers and clients are more likely to buy from businesses that are known for treating their employees right. No one wants to be the business that consumers boycott because of how they treat employees.
6. Fringe benefits costs can often be claimed as income tax deductions
One reason why employers pay FBT is that they can claim an income tax deduction for their fringe benefits costs and the fringe benefits tax they pay. As an employer, they can also claim goods and services tax credits for the goods and services that employees get as fringe benefits.
7. Fringe benefits tax promotes fairness and equity in Australia’s taxation system
Proper management and payment of FBT ensures that the company contributes their fair share to the public revenue. The fair payment of taxes discourages tax avoidance strategies and reinforces the integrity of the Australian tax system.
8. Fringe benefits tax management encourages employers to adopt efficient systems
FBT management encourages employers to do meticulous tracking and reporting. This requirement compels businesses to implement robust administrative processes and technologies, such as tax management software, to accurately capture and manage fringe benefits data. Such a system encourages companies to ensure compliance with FBT regulations, reducing the risk of errors and penalties. Furthermore, the need to manage FBT effectively drives employers to enhance their operational efficiency, which can positively impact their overall business performance.
What Types of Organisations Are Exempt From Fringe Benefits Tax?
The following not-for-profit organisations are eligible for FBT exemption (up to a capping threshold):
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- public or not-for-profit hospital
- public ambulance service
- public benevolent institution registered by the Australian Charities and Not-for-profits Commission and endorsed by the ATO
- health promotion charity registered by the Australian Charities and Not-for-profits Commission and endorsed by the ATO
The capping thresholds are as follows:
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- $17,000 for hospitals and ambulance services
- $30,000 for public benevolent institutions and health promotion charities
Source: Australian Taxation Office
Manage Your FBT With Tax Management Software
Managing FBT with tax management software offers businesses a comprehensive solution to streamline and automate the complex processes of FBT compliance. Tax management software provides accurate tracking and reporting of fringe benefits to reduce the risk of errors and ensure compliance with Australian tax laws. Also, the software's real-time data analytics enables businesses to make informed decisions, optimise their benefits programs and identify potential cost savings.
