What is fringe benefits tax (FBT)?
Fringe benefits can help you both enjoy some job perks, and, depending on your personal circumstances, reduce your taxable income. Your employer pays fringe benefits tax on any fringe benefits they offer you.
What are fringe benefits?
A fringe benefit is something extra you get from your employer, in addition to your wage or salary or in return for foregoing some of your salary under a salary sacrifice arrangement.
It’s generally not actual salary, wages or cash, and the benefit can be something for you, your spouse or your children.
Your employer is liable for the tax (FBT) that may apply to the benefits that you and/or your family may receive – not you.
Why do companies offer fringe benefits?
Fringe benefits can help employers attract, retain and motivate employees. Employers are becoming increasingly competitive with what they offer their employees – and fringe benefits are one way they can gain a competitive edge.
Perks like free food, coffee bars, discounted gym memberships and entertainment can make employees feel valued and create a happier workplace. Not all of these perks attract FBT, but some of them do.
How can fringe benefits reduce my tax?
Often, fringe benefits are offered to you through salary sacrifice as part of a salary packaging arrangement. Depending on your personal circumstances, this might push you down into a lower tax bracket – a great plus if you’re a higher income earner.
What’s considered a fringe benefit?
A wide range of perks are classed as fringe benefits. The most common ones are:
- A leased vehicle for your personal use (under a ‘novated lease’ arrangement)
- Personal use of a company car
- Discounted loans
- Gym/health memberships
- Entertainment expenses – free/discounted food, cinema tickets, accommodation
- Private health insurance
- Living-away-from-home allowance (LAFHA)
- Real Property – land and buildings
- Right to Property – shares, bonds
- Childcare costs and school fees
Items you need to do your job – e.g. mobile phones and occupational-specific clothing – aren’t generally taxed as fringe benefits if they’re provided to you by your employer. However, if you pay for these items out of your own pocket, you might be able to claim a tax deduction. It’s important to remember that you can’t claim a tax deduction for a work expense if you’re later reimbursed for the expense.
Concessional contributions you make to your super are exempt fringe benefits. They can therefore be a tax-effective way of boosting your retirement savings.
What is fringe benefits tax (FBT)?
Your employer is liable for any applicable FBT on fringe benefits they provide to you and/or your family.
FBT is separate from income tax. It’s calculated on the taxable value of a fringe benefit.
The taxable value is generally the cost to your employer of providing the benefit to you. However, for some benefits, the taxable value is calculated using a statutory formula (e.g. car benefits), which doesn’t necessarily reflect the actual cost to your employer (it’s used simply to work out FBT and any reportable fringe benefit amount).
Unlike the financial tax year (1 July – 30 June), the FBT year is 1 April – 31 March.
What is a Reportable Fringe Benefits Amount (RFBA)?
If the total taxable value of the fringe benefits provided to you and/or your family in a FBT year exceeds $2,000, you’ll have a reportable fringe benefits amount in your end of financial year income statement (formerly called a payment summary). Some fringe benefits, like meals, entertainment and employer-provided car parking, aren’t included in the reportable amount.
While an RFBA isn’t deemed taxable income, depending on your personal circumstances, it will be used to determine whether you’re entitled to, or liable for, a number of benefits and obligations. These include Family Tax Benefits, Medicare levy surcharge, private health insurance rebate, child support payments, superannuation co-contributions, Higher Education Loan Program (HELP), tax offsets and Financial Supplement repayments.
To find out more about Fringe benefits tax, call Adam and the team on 03 9988 7777, we are here to help.