Updated in March 2022
When it comes to taxation, Fringe Benefits Tax (FBT) has never been more complex. Due to the COVID-19 pandemic, it is becoming tricky to navigate, particularly regarding home office expenses and benefits. But what are fringe benefits and what is this tax all about? Let’s delve into the answers, explaining Fringe Benefits Tax…
Fringe Benefits Tax Explained
Employers are liable for Fringe Benefits Tax (FBT) if they provide certain benefits to their employees or associates throughout the FBT year, 1 April to 31 March. The FBT rate is 47% and is levied on the taxable value of fringe benefits. It is not only companies that are liable to pay FBT, but also sole traders, partnerships and trusts.
Generally only benefits provided to employees under formal employment – including current, future and former employees, can constitute a fringe benefit. Benefits provided to volunteers and contractors are not liable for FBT.
Fringe benefits can either be provided by an employer, its associates, or by a third party under an arrangement with an employer.
Items exempt from FBT include:
- payments of salaries or wages
- shares issued under approved employee share acquisition schemes
- employer contributions to complying super funds
- employment termination payments
- certain dividends
- capital compensation for personal injury or restraint of trade
- minor benefits valued at less than $300
- work related items that are required by an employee for the day to day running of the business, such as a phone, certain computer software, protective clothing or tools
Fringe Benefits Categories
Fringe benefits can be provided in various forms, such as rights, privileges, and services.
Car Fringe Benefits
Car fringe benefits arise when an employer provides a car for the private use of an employee or related associate. Generally speaking, the vehicle is deemed to be for private use whenever it is under an employee’s custody and control, such as travelling to and from work.
The following vehicles are classified as a car for FBT purpose:
- motor cars, station wagons, panel vans and utilities
- any goods carrying vehicles designed to carry less than one tonne
- any passenger carrying vehicles designed to carry fewer than nine occupants
An employee’s use of a taxi, a vehicle designed to carry a load of one tonne or more, or any other commercial vehicle will be exempt from car fringe benefits tax.
Entertainment Fringe Benefits
An entertainment fringe benefit is when an employee is entertained by the way of food, drink or recreation, then is reimbursed by their employer. Some examples of this could be the reimbursement for the cost of theatre tickets, facility leasing or accommodation/transport in relation to entertainment.
Debt Waiver Fringe Benefits
A debt waiver fringe benefit arises when an employer waives or forgives part, or all, of an employee’s debt to the business. Any business that waives these debts will be liable for FBT. However, if an employee debt is written off because it is uncollectable, it does not qualify as a debt waiver fringe benefit.
Loan Fringe Benefits
A loan fringe benefit is when an employer provides a loan to an employee with no interest, or at an interest rate that is less than statutory interest (4.52%). Loan fringe benefits also arise when an employee is given time to repay an overpaid salary. The following loan benefits are exempt from FBT:
- fixed and variable loans to employees that are provided at the same rate, and with the same terms, that are offered to the public
- short term (6 months) advances to employees in order to cover employment-related expenses
- a temporary advance (12 months) to cover security deposits
Living-away-from-home Allowance Benefit (LAFHA)
This arises where the employer pays an allowance to an employee as compensation of additional expenses incurred because they are required to live far away from their usual residence to perform their employment duty. A period of less than 21 days away is considered as travel.
Property Fringe Benefit
A Property Fringe Benefit may arise when an employer provides an employee with free or discounted property, either tangible or intangible, such as goods, shares, bonds or the rights to a property. However, property provided and consumed by an employee on working days and in the employer’s premises or related company is exempt from fringe benefit tax.
Taxable values of such benefits are affected by its nature in regards of in-house or external property fringe benefit. Generally, it is 75% of the amount of related goods or service charging to the public in the ordinary course of business.
Any benefit not covered previously would fall into the residual benefit category, excluding the following:
- Recreational or childcare facilities located on business premises
- Motor vehicles not for private use
- Living away from home accommodation provided as a residual benefit
- Use of property located on business premises principally connected with employment
- Office equipment provided for temporary use and is expected to be returned back (e.g., desk, chair etc.)
- COVID-19 tests (PCR/RAT) provided to employees on the basis that it constitutes work-related preventive health care of the employees.
What records are needed for the Fringe Benefit Tax?
You must keep all adequate records to enable the fringe benefit tax liability to be assessed, including the working paper indicating how you worked out the taxable value of the benefits. The records need to be kept for five years from the date of the relevant transactions.
As we have explained, Fringe Benefits Tax is a complex tax with additional complexities arising from the COVID-19 Pandemic. A trained professional, such as our tax advisors at Quinns, can assist you and help to solve any FBT problem or query that you might have. Getting the right advice can help to avoid any potential complications and penalties down the track.
If you would like help with respect to Fringe Benefits Tax, please contact one of our experienced tax accountants by submitting an online enquiry form, calling us on 1300 QUINNS or alternatively, +61 2 9223 9166 to arrange a teleconference or appointment