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Business Tax Tip – Fringe Benefits Tax (FBT) – how does it work
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Published on Thursday, 25 March 2021 17:11
The Australian Tax Office (ATO) is the best source to define many business tax issues and here are some extracts where they explain Fringe Benefits Tax (FBT).
1.1 What is a fringe benefit?
A fringe benefit is a 'payment' to an employee, but in a different form to salary or wages.
According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The 'employee' may even be a former or future employee.
An employee is a person who is, was, or will be entitled, to receive salary or wages, or benefits in lieu of salary and wages. Benefits provided in respect of someone who has died are not fringe benefits as a deceased person does not meet the definition of 'employee' in the FBT legislation. The terms benefit and fringe benefit have broad meanings for FBT purposes. Benefits include rights, privileges or services.
As a guide to whether a benefit is provided in respect of employment, ask yourself whether you would have provided the benefit if the person had not been an employee. When we refer to 'you' in this guide, we are referring to you as an employer.
1.2 Who pays the tax?
FBT is paid by the employer.
You will be an employer for FBT purposes if you make a payment to an employee, company director or office holder that is subject to withholding obligations, or if you provide benefits in lieu of such payments. These withholding obligations may apply to payments made to an Australian resident employee working overseas.
If you are an international organisation and provide benefits to employees in Australia, these benefits may be subject to FBT in Australia (keeping in mind that Australia has comprehensive double tax agreements with the United Kingdom and New Zealand, which currently include FBT).
As an employer, you pay FBT irrespective of whether you are a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.
This is regardless of whether you or another party provides the fringe benefit. FBT is payable whether or not you are liable to pay other taxes such as income tax.
You may claim an income tax deduction for the cost of providing fringe benefits and for the amount of FBT you pay.
1.3 Are you providing fringe benefits?
The following checklist will help you work out if you are already providing a fringe benefit to your employees. If any of the following apply, you may have an FBT liability.
- Do you hold any cars or other vehicles that are available to employees for their private use, including a car garaged at the employees' place of residence?
- Do you provide loans at reduced interest rates to employees?
- Have you released an employee from a debt?
- Have you paid for, or reimbursed, an employee's non-business expense?
- Do you provide a house or other accommodation to your employees?
- Do you provide employees with living-away-from-home allowances?
- Do you provide entertainment including food, drink or recreation to your employees?
- Do any of your employees have a salary package arrangement in place?
- Have you provided your employees with goods at a lower price than they are normally sold to the public?
Fringe benefits have been categorised into 13 different types so that specific valuation rules can be used. These benefits are dealt with separately in their respective chapters in this guide.
A number of benefits are exempt from FBT. These include certain benefits provided by religious institutions and benefits provided by some international organisations and public benevolent institutions. In addition, there are some specific types of benefits that are exempt from FBT.
For more on reducing your FBT liability and what is not subject to FBT, read more here.
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