Fringe benefits tax is a tax to penalise employers for handing out non-cash wages and payments. 

The Australian Tax Office (ATO) needs to ensure that taxes are paid on wages and payments, and providing bonuses such as a car or laptop are non-financial ways to provide value to employees. As such, they are considered part of the payments made and so are taxed.  

For example, providing a company car to drive home at night, allowing people to use their work phones for private calls, and free goods from the business. 

Anything that is provided for personal use, as a perk of working for a company, can be considered Fringe Benefits, that is, on the fringes of employment payments. 

The reason why there is FBT 

Back in the day, you could provide a person with a house, a car, fuel, and only pay minimum wage, and both parties were getting a good deal. The employer would get a loyal worker and not have to pay so much super and PAYGW tax. The employee would pay less tax overall, and take advantage of lower tax rates, not having to pay for all the extras out of their take home pay. 

For those who were not being paid a house and a car and all the perks, they had to be paid a higher amount, pay more tax, and as a “penalty to the business” pay more super. 

Creating the Fringe Benefits Tax regime meant that employers were still allowed to provide a house and a car, but now pay a similar amount of tax, and of course have to report those benefits as income (reportable fringe benefits), to make things fair. 

This also ensures employees going into these arrangements are aware that they are missing out on a portion of their superannuation entitlements. 

Your declared income for Child Support and Centrelink purposes, and for some of the income testing requirements like HECS/HELP repayments, will include the value of those fringe benefits. This ensures a more equal distribution of government entitlements across incomes – whether physically paid or as other benefits.  

So while FBT is designed to make it fairer, it is a complicated tax with many exemptions and obscure rules that make it hard to explain. 

Myths about FBT:  

Fringe Benefit Tax has heaps of myths about it, but the best way to get reliable information is to talk to your accountant. The ATO has guidelines about what is and what isn’t a Fringe Benefit Tax item or activity, and your accountant will be best placed to know what works for your business and industry, and what doesn’t.  

FBT Myth One:  

Is providing housing in a remote area exempt from tax?  

Sometimes. It depends on how it’s paid and who has control of the house. It may be exempt, or you may have a 50% reduction, but that never reduces it to nil.

FBT Myth Two:  

Do I have to do a FBT return as I only provide exempt benefits? 

No lodgment is required, but we recommend you do a Nil return, so that you have a 3 year audit window - if there’s no return, you are open for audit forever. 

FBT Myth Three:  

Will the $300 minor benefits rule cover me for providing a gym membership each month worth $100?  

Nope, sorry, minor benefits rule also applies a frequency and not just a dollar amount, so regular fringe benefits, even if under $300 will be caught.  The good news is that the minor benefits rule applies per employee, per type of benefit, so it’s a good exemption to have. 

FBT Myth Four: 

If I have a car for work purposes and I only drive it to the office and back home again and never on the weekends for anything, is that FBT exempt?  

No. Unfortunately if you have your car at home it’s available for personal use, even if it isn’t being used that way. Dropping kids off to school, the occasional run out for emergency shopping is all considered personal use. 

FBT Myth Five: 

Utes are exempt for FBT, will our four door ute also be exempt? 

Nope - some utes don’t have the carrying capacity of 1 tonne, so are deemed people carriers rather than work utes, and will not be exempt from FBT.  Speak to your accountant about how Fringe Benefits Taxes are calculated for vehicles. 

FBT Myth Six 

If I’m the owner of the business, and I’m the only one who gets benefits, will I have to pay FBT? 

Uummm yep, it still applies!

FBT and “Entertainment”

Another common area of confusion is entertainment, such as work-related events and parties for business reasons. Yes, there is FBT on entertainment. But as with any taxation legislation, there are rules about what is and what is not included as entertainment.  There are considerations such as: 

• On site vs off site? 
• Finger food vs a sit down meal? 
• Is the food incidental to the reason for the meeting/ event? 
• Are you being entertained or is it for work purposes? 
• Is alcohol involved? 
• Do you have a log book of people who have been entertained or are you going to use the 50/50 method? 
• Are clients invited or just staff and associates (their family?) 

Different scenarios have different outcomes - FBT / GST and income tax implications. 

What to do next about your Fringe Benefits 

If you are providing fringe benefits to your staff, then registering for FBT is easy via ATO Online Services. 

Collecting the information you need to prepare the FBT tax return can be a little more complicated, however we have a free checklist you can fill out to self assess. 

Once you know whether to pay FBT or not, it’s best to let the experts do the calculations to ensure you are paying the right amount of tax and taking advantage of all the reductions, exemptions and ensuring you don’t overpay tax. A simple change in calculation can end up saving thousands of dollars in tax if identified correctly. 

Ready for expert advice? Give us a call on 08 9185 9400 or drop an email to Helen at [email protected]