A Fringe Benefit is a “Non Cash” benefit provided to an employee or director.
Main Features:
The tax on the fringe benefit is always paid by the employer
- FBT is an annual tax, however this may be required to be paid quarterly (through the BAS).
- FBT is payable on a “self-assessment” basis.
- Whilst being payable by the employer, FBT is also deductible to the employer.
- FBT is payable regardless of whether the employer makes a loss. Why? Because it is calculated based on benefits provided (rather than being based on taxable income).
How does it work? The FBT year runs from 01 April in each year to 31 March in each year following. At the close of the FBT year, a business that is registered for FBT must lodge a FBT return with the ATO. If a Fringe Benefit was provided, FBT must be paid or an employee contribution must have been made.
FBT Contributions
Employees have the option of making a contribution towards reducing the taxable value of a benefit. I.e. – an employee can pay money towards reducing down the FBT liability of the employer. The taxable value of the benefit in these cases will be reduced by the amount of the contribution made by the employee.
For example, if you own your own company and have a vehicle in the company name that you use for private purposes; you may calculate your FBT liability for the year, and make a “contribution” of this amount. This will result in the declaration of FBT income on your P&L “FBT Contribution income”, GST collected on your balance sheet (if your business is registered for GST) and a debit (drawing) against your director loan account on your balance sheet.
The otherwise deductible rule
In circumstances where the employee would be able to claim the cost of the Fringe Benefit in his / her personal tax return, the employer will not be subject to FBT in the provision of that benefit to the employee.
For example, if you are an accountant and your employer pays for you to attend an accounting seminar; your employer will not be subject to FBT in paying for you to attend this course, because as an accountant this cost would be deductible in your personal tax return if you paid for it yourself anyway.
Calculating the taxable value of FBT
FBT is currently levied at 47% of the gross value of the benefit provided. There are 2 ways to calculate the taxable value of the benefit provided to the employee, depending on whether the benefit has had any GST paid on it (entitling the employer to claim a GST credit); or whether the benefit is a GST-free or input-taxed benefit.
Specific Fringe Benefits
Motor Vehicles Where an employer provides a car to an employee and the car is used for private purposes, a fringe benefit is being provided. This arises regardless of whether the employer owns the vehicle outright, or is leasing/ paying-off the vehicle.
The FBT Act provides that a car will be regarded as being used for private purposes if it is:
- Garaged or kept near the residence of the employee.
- The car is not at the employer’s business premises and the employee may use the vehicle for private purposes. This includes situations whereby the control of the car resides with the employee in non-working hours.
For the purposes of FBT, a car is defined as “a motor vehicle, being a motor car, station wagon, panel van, utility truck or other road vehicle designed to carry a load of less than one tonne and fewer than 9 passengers.” Motor cycles & taxis are specifically excluded.
The taxable value of a car for FBT purposes can be based on either the “Statutory Method” or the “Operating method”, depending on which method gives the employer the best value. When no choice is made, the statutory formula applies. Whilst the statutory method is based on the ‘base value’ of the vehicle; the operating method is based on the actual operating costs of the car. Regardless of the method used, it is always important to note down your odometer reading at the start and close of each FBT year; and log the % of business & private use of the vehicle.
Business use & log books
The business use % is based on the number of business KMS travelled during the FBT year. In order to calculate this, the employee is required to keep a logbook which may be used to support the estimate of business KMS.
Each entry in the logbook must contain:-
- The purpose of the trip
- The date when the trip commenced & finished
- The odometer reading at the beginning and end
- The number of kilometres travelled on the journey
- The record must be in English
- The entry should be made as soon as practicable after the journey.
Other types of Fringe Benefits In addition to motor vehicle benefits, there are a number of other types of Fringe Benefits. These are:-Car Parking Fringe Benefits
(When a parking space is provided to an employee on business premises and the nearest commercial car park charges more than $8.83 per day for car parking).
Debt Waiver Fringe Benefits (Where an employer waives a debt owing by an employee).
Loan Fringe Benefits (FBT is applicable to benefits provided by way of an interest-free or low interest loan to an employee).
Expense Payment Fringe Benefits (When expenditure incurred by an employee is reimbursed by an employer).
To substantiate the deductibility, the employer must obtain documentary evidence of expenditure incurred by the employee. This type of Fringe Benefit is common amongst non-profit organisations. The employee will be given a set amount as an “entertainment allowance,” for example. Under this type of arrangement, the employee must collect & submit to their employer receipts for meals out etc. The employer will then reimburse the employee for these costs. This reimbursement is considered an “expense payment Fringe Benefit”, on which FBT is payable by the employer.
It should be noted that whilst the employer pays the FBT on the “non-cash benefit”, the employee will still be required to disclose the value of the FBT benefit received in his / her personal tax return. While the individual’s personal tax liability is calculated on taxable income only; HECS / HELP repayments, the Medicare levy, the Medicare levy surcharge and the entitlements to various other benefits are calculated based on taxable income + the value of FBT benefits received. Employees in the non-profit sector are encouraged to seek the advice of their accountant in order to ensure that the amount of HECS, tax & Medicare levies are calculated and planned for in advance.
Housing Fringe Benefit (FBT is payable on the market value of the accommodation provided to an employee).
Living Away from Home allowance
Airline Transport Benefits (when free or discounted air travel is provided to an employee).
Board Fringe Benefits (when board, accommodation and meals are provided to an employee, the meals component will be subject to FBT).
Property Fringe Benefits
Residual Benefits (any other benefit provided to an employee that is not covered in the specific provisions above). The main criterion is that the benefit provided to the employee must arise as the result of an employment relationship.
The information provided in this article is intended to give a brief summary of the current FBT provisions only. We have prepared this article based on the information requirements of our clients. If you have any queries, or would like further information, don’t hesitate to contact Freshwater Taxation.
