A fringe benefit is a non-cash incentive paid to an employee on top of their salary. For example, an employer may offer a salary package that includes a company car on top of the base remuneration to attract applicants. The advantage of a fringe benefit arrangement is two-fold: it provides employers with a way to incentive employees without increasing wages; and employees can exclude fringe benefits from their taxable income.
However, employers become liable to pay fringe benefit tax (FBT) on the taxable value of the fringe benefit provided to their employee. It is important then that you determine whether there are any tax advantages in offering fringe benefits to your employees. We will discuss below, ways to minimise your FTB.
Note: FBT does not apply to sole traders/partner in a partnership, they are benefits you provide to your employees and not yourself.
The ATO recognises 13 different types of fringe benefits.It is important to note that mobile phones, laptops, iPads etc. are usually exempt from FBT.
3 Tips to Minimise FBT
Before looking into calculating your FBT make sure you are aware of the current rate, see here. Although you will liable for fringe benefits there are ways you can minimise it.
Want to speak to a Tax Lawyer about Fringe Benefits Tax? Lawpath connects you to an expert lawyer to help you understand your tax obligations. Submit a quick quote request.
This is the most popular fringe benefit to minimise FBT payable to the ATO for providing entertainment and meals.
To work out whether it is an entertainment expenditure, the most common entertainment fringe benefits are christmas parties, events, and team lunches. There are other expenditures that can be categorised as a fringe benefits however, it’s best to select the one that did benefit your business the most.
Car Fringe Benefit
If you provide your employee a car for private use or agree to get them a car, this is a Car fringe benefit.
Car Fringe benefits are one of the best ways for employers to minimise FBT payable to the ATO. The use of cars are calculated based on the “operating cost” and incurs a lower FBT. See here for the valuations of car fringe benefits. If you have had a car for four years as a fringe benefit, you will be eligible to apply the ⅓ reduction to your cost base.
In addition, both you and your employees can benefit from tax savings (eg. after-tax contributions) with a car fringe benefit where the total cost of actually owning a car will cost less than if your employee had to buy their own car.
Carpark Fringe Benefit
If your office is in the Central Business District, parking can become very expensive and take up a considerable amount of your employee’s yearly income. Car parking fringe benefit is another way to minimise FBT payable and allows you to give your employees free or subsidise parking.
However, take into account the following;
- The commercial car park should be located within 1km radius where the carpark provides an all-day parking fee that costs more than $8.37 (according to 2015/16 threshold)
- Determine how many car fringe benefits you have by doing the valuation
- Find out if any other exemptions apply
How to submit an FBT?
Fringe Benefits Tax (FBT) tax year runs from 1st of April to 31st of March.
If you are providing FBT to your employees, you must:
- Register for FBT
- Keep track of your FBT records.
- Calculate the taxable value of the benefits
- Report fringe benefits on the employee’s payment summaries
- Lodge a FBT return to the tax office. See on how to lodge a FBT return.
Unsure about Fringe Benefits Tax? LawPath can connect you to an expert lawyer who can help you understand and advise on your tax obligations for a fixed-fee. Submit a quote request and receive up to 3 fixed-price quotes in 24 hours.