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What are Fringe Benefits and Fringe Benefit Tax? Fringe Benefits are payments to employees in a form other than salary and wages. These payments are usually private in nature and generally not deductible for tax purposes. Some examples include entertainment ex.....
Business, FBT, Accounting - 6 min read
Fringe Benefits are payments to employees in a form other than salary and wages. These payments are usually private in nature and generally not deductible for tax purposes. Some examples include entertainment expenses, gym membership, and car use for private travel.
Fringe Benefit Tax is the government's tax on employers who provide these types of benefits to employees.
As an employer, how do I reduce Fringe Benefits Tax?
There are a number of ways to reduce FBT.
Minor Benefits Exemption
If each benefit is less than $300 (inclusive of GST) then these types of benefits may qualify for the minor benefits exemption provided they are minor and infrequent.
Car Fringe Benefit
Employers that generally provide a company car to employees to use at work are generally taxed on the private use of the car for FBT. Employers by default must assess these benefits under the statutory method for FBT.
However, employers are eligible to use the operating method, which provides a better outcome for employers, when the car is predominately used for business purposes by the employees. This method requires maintenance of a proper logbook to substantiate the business use percentage.
Employee Contributions
Employee contributions can help reduce the taxable value of fringe benefits which you have provided in your capacity as the employer.
For example, if you are letting the employee use the car for private purposes (i.e., travel to and from home) and the employees pays for the petrol personally, this can reduce the fringe benefit tax that you are required to pay. Alternatively, employers could also withhold from the employee’s after-tax salary/wages via payroll to be treated as employee contributions to reduce any FBT incurred by the employer.
Entertainment
Employers are taxed on employee related entertainment expenses. The most common example is a staff lunch at a restaurant. This is usually treated as meal entertainment and taxable for FBT.
Where proper records have not been maintained then employers can apply the 50:50 method which generally taxes half the value of all meal entertainment expenses, which may result in more FBT to pay than otherwise required.
However, where there are clients in attendance at the lunch meeting, then you may adopt the actual method by keeping tracking of who is in attendance. Even though the employee portion of the lunch is taxable, the client portion is exempt, which can help to reduce FBT.
I want to lend money to my employees. Are there any FBT implications?
Loan Fringe Benefit
Where money is loaned to employees, this will generally attract FBT on two fronts. The first is where the business charges no interest or interest at a rate lower than the ATO benchmark rate. The second is where the principal debt obligation is waived by the business.
If the employer decides to lend money to employees, they should get employees to complete a declaration which confirms what the money will be used for and the business use percentage, which can help to reduce FBT.
However, lending money to employees poses various risks to employers and you should discuss with your Altus Adviser regarding safeguards which you can implement to protect yourself in the event of an ATO audit on these types of arrangements.
When is FBT tax return lodgement and payment due?
The FBT return is due in late June every year if employers are lodging their returns electronically. If lodgement is via paper, then the deadline for lodgement and payment is brought forward by a month.
We have lodged the FBT return. Is there anything else I need to worry about?
Where an employee has received fringe benefits with a taxable value of greater than $2,000, generally the employer must include a reportable fringe benefit amount on the employee’s PAYG Payment Summary, now known as the income statement for Single Touch Payroll.
Fringe benefits are also taxable under payroll tax and should be included in an employer’s payroll tax return.
What is the new electric vehicle FBT exemption the government has introduced? Can this help me reduce my FBT?
The government has introduced a FBT exemption for electric cars to encourage the take up of these types of vehicles, which means employers are no longer required to pay FBT on the employee private use component for these types of cars.
The employer must meet the follow criteria:
From 1 April 2025, plug-in hybrid electric vehicles (PHEVs) will no longer qualify for the FBT exemption. However, if you have a financially binding commitment in place on or before this date, your exemption will still apply.
When considering which electric vehicle to purchase, it’s important to understand how the FBT rules may impact you. We recommend speaking with your Altus Adviser to ensure you achieve the best tax outcome.
If electric vehicle benefits are exempt from FBT, does that mean there is no requirement to report those benefits onto employee payment summaries and income statements?
Unfortunately, no. The government brought in legislation recently to mandate employers to continue to report exempt electric vehicle benefits provided to employees onto the relevant employee income statements and PAYG payment summaries. There are significant fines for failing to do so.
Anything else you need to know?
Contact your Altus Adviser and they will help you with any questions or queries.
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Altus Wealth Pty Limited ABN 55 649 956 212 is an Authorised Representative of Altus Financial Services Pty Ltd ABN 24 637 026 825 an Australian Financial Services Licensee (AFSL no. 520266). Altus Financial Services Pty Ltd is not responsible for the advice, products and services provided by Altus Accounting. Julie Azzi is a credit representative (CR No. 366834) of BLSSA Pty Ltd ABN 69 117 651 760 (Australian Credit Licence 391237).
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