Fringe benefits tax. Three words you’ve likely seen on your tax return. You’re even more likely to wonder what on earth they are. If you have, we can assure you you’re not alone! No matter if you’re an employee or an employer, fringe benefits tax affects you both. To help uncover what fringe benefits tax means for you or your business, the team at Shoebox is here to make talking tax easy.
Let's start with the basics and explain what exactly fringe benefits tax is. In layman's terms, a fringe benefit is anything additional you receive from your employer. Or if you’re an employer, it's anything additional you provide to your employees. Fringe benefits are in addition to wages, or in return for foregoing part of your salary as a part of a salary sacrifice arrangement.
The key takeaway to remember is: Fringe benefits tax aren’t cash or wages, and the benefits received may also be applied to your family in addition to yourself.
Why Did The Fringe Benefits Tax Begin?
The Australian tax system realised some employers may provide their employees with benefits that fall outside of their regular salary. To restore equity and fairness across the Australian tax system, fringe benefits tax was established in 1986. The introduction allowed benefits to be claimed as a tax deduction by the employer, which reduced their employee's taxable income. Fringe benefits tax essentially was the solution to overcome pitfalls in income tax law, that could allow benefits other than salary to become tax-free income.
What is Considered a Fringe Benefit?
You’ll be glad to know there is an extensive list of perks that fall under fringe benefits tax! Defined in the Fringe Benefits Tax Assessment Act 1986, a benefit is defined as any right, privilege, service, or facility received by the employee from their employer.
To help get your head wrapped around what perks fall under fringe benefits tax, the most common benefits identified include:
- Use of a company car, or other assets used for personal use such as a lease vehicle.
- Employee gym memberships
- Employee childcare and education fees
- Private health insurance
- Entertainment items such as food, cinema, or concert tickets
- Discounted loans
- Living away from home allowance (LAFHA)
What Is Exempt From Fringe Benefits Tax?
Now we’ve provided you with the benefits, you’re likely curious about the exemptions.
Exemptions of fringe benefits tax include:
- Payments, salary, or wages
- Benefits supplied to contractors or volunteers
- Payments of superannuation
- Employee termination payments
Benefits Covered Under The Exemption
Whilst the ATO has exemptions in place, they do allow for some fringe benefits to be exempt from fringe benefits tax. In the following instances fringe benefits tax can be exempted:
- Minor benefits: If the total taxable value of a benefit is less than $300, it is deemed unnecessary to be included as a fringe benefit. This allows the employer to be exempt from paying FBT.
- Minor benefits must be infrequent to be excluded from fringe benefits tax. These commonly include gifts provided to your employees, such as birthday or holiday gifts.
- Employment items: If items are required for the employee to carry out their employment duties, items such as protective clothing, portable electronic devices, computer software, and trade tools are exempt from fringe benefits tax.
- Taxi travel: If the whole or part of the employee's travel is directly between the place of work and home
- Emergency Assistance: If an employer provides benefits to an employee impacted by a natural disaster or accident, they may qualify as emergency assistance and are exempt from fringe benefits tax
- Living away from home: If the employer is paying the employee to live away from their residence to carry out their duties, a fringe benefit may qualify.
This is where fringe benefits tax can get a little complex. To qualify for fringe tax benefits, the following conditions must be met:
- An employee's car must be parked on a premise that is owned or leased by the employer, with the intention of the parking provided to be used in respect of the employee's employment
- The employee’s car is owned, leased, or provided by the employer
- The employee's car is parked for more than four hours, between 7 am to 7 pm on any given day
- The employee’s car is parked near or at their place of employment
- The vehicle used by the employee to travel between home and work a minimum of once per day
- If there is a commercial parking station within a kilometre of the employee’s workplace, it must charge a fee for all day parking (particularly if the fee for all day parking is more than the car parking threshold and if the fringe benefits tax at the beginning of the year is more than the car parking threshold).
Car parking is exempt from fringe benefits tax when an employer provides its employees with parking where not all of the above conditions apply. An exemption will only be provided to small businesses (companies that earn less than $10 million per annum) if:
- Parking isn’t provided in a commercial car park;
- The employers are not a government body or public listed company
For more information, the current parking threshold rates can be found on the ATO website here.
How does FBT Benefit Employees?
Besides the obvious benefit of receiving entertainment, private health insurance, or company cars, employees receiving fringe benefits may allow you to be pushed down into a lower tax bracket! An added advantage, especially for higher-income earners.
How does FBT Benefit Employers?
Don’t worry, we haven’t forgotten about the employers reading this article! Although complex at times, understanding the benefits of fringe benefits tax has its advantages. Employers who offer their staff fringe benefits are often highly sought after by potential employees. What's even better is, fringe benefits are capable of retaining valuable staff as well as motivate employees and boost workplace morale. It may be overlooked, but simple perks such as offering complimentary food, gym memberships, or entertainment can help your employees feel valued. It also has the added benefit of creating an overall happier workplace!
Need further persuasion? Think of it this way: supplying fringe benefits is an advantage to your company. Especially in today's market, employers are becoming increasingly competitive in what they can offer employees to attract the best candidates. To ensure your competitive advantage, providing fringe benefits is one of the easiest and most rewarding methods used to gain a competitive edge.
How To Calculate Fringe Benefit Tax
Up for the challenge of calculating your fringe benefit tax? You can head to the ATO website
, where you can follow a list of instructions that will talk you through the process. If fringe benefits tax has sparked your interest to learn more, you can head to the Shoebox blog
where we regularly keep you updated.
We know that calculating tax isn't how everyone would like to spend their evenings. That's why the team at Shoebox offers affordable tax services.
If you find you would like assistance with your accounting needs, the team at Shoebox is here to help. As an Australian registered tax agency, we specialise in offering convenient tax services to both businesses and individuals nationwide! Contact Shoebox
today, and one of our highly trained tax advisors or bookkeepers will be in touch to make tax easy today!