Let’s talk about a topic that often leaves many business owners feeling overwhelmed and unsure – the Fringe Benefits Tax (FBT). It’s understandable if you’ve found yourself scratching your head, trying to navigate the intricacies of FBT. You’re not alone. At Impala Tax, we’ve been in your shoes and we can help you make sense of it all.
What is Fringe Benefits Tax (FBT) and when does it apply to my business?
The Fringe Benefits Tax (FBT) is a tax paid on certain benefits you provide to your employees or their families. It’s separate from income tax and is calculated based on the taxable value of the fringe benefits provided. You might have to pay FBT even if the benefit is provided to an associate of your employee or by a third party under an arrangement with you.
How is FBT Calculated?
Calculating FBT can be complicated, especially if it’s your first time dealing with it. The amount of FBT you pay is based on the “grossed-up” taxable value of the benefits you provide. This basically means you’re taxed on the pre-tax salary your employees would have had to earn to buy the benefit from their post-tax income.
What is a Reportable Fringe Benefits Amount (RFBA)?
RFBA is the grossed-up amount of certain fringe benefits you’ve provided to your employees during an FBT year (1 April to 31 March). If the total exceeds certain thresholds, you’ll need to report the amount on your employee’s payment summary for the corresponding income year.
Key Components of FBT
There are several elements that play a crucial role in determining your FBT.
FBT Year
Unlike the standard fiscal year, the FBT year runs from April 1 to March 31. Keeping track of this timeframe is crucial for accurate calculations.
FBT Rates
As of the 2023-24 FBT year, the FBT rate is 47% which is the same as the highest marginal individual tax rate of 45% plus 2% Medicare Levy. It’s important to stay updated on any changes to the FBT rate in subsequent years.
Payment of Fringe Benefits Tax
FBT is typically paid quarterly through your business activity statement (BAS). However, some businesses may pay annually instead.
Example Calculations of Fringe Benefits Tax
To help you better understand, let’s look at a couple of examples:
GST Free Benefit like residential Rent
Suppose you provide an employee with a residential rent-free benefit worth $10,000 (GST free). The grossed-up taxable value would be $18,868 (using a gross-up rate of 1.8868). So, you’d have to pay $8,867.96 in FBT.
GST in Price of Benefit – Eg Sony Camera
Now, if you gift an employee a Sony camera worth $1,200 (including $109.09 GST), the grossed-up taxable value would be $2,496.24 (using a gross-up rate of 2.0802). This results in an FBT amount of $1,173.23.
The Impact of FBT on Income
FBT can influence the take-home pay of your employees and your business’s bottom line. It’s crucial to factor this in when deciding what benefits to provide and how to structure them.
How does FBT then relate to take-home pay?
FBT is an employer tax, so it doesn’t directly reduce your employees’ take-home pay. However, if you choose to recover the FBT amount from your employees, it could affect their net income.
Individual Tax rates 2023-24
To work out how much tax you need to withhold from payments you make to your employees, you’ll need to be aware of the individual tax rates for the corresponding income year. As of the 2023-24 income year, these rates range from 19% to 45%, plus the Medicare levy and Medicare Levy, if applicable, based on income brackets.
Income Tax Consequences of Providing Fringe Benefits
Providing fringe benefits could affect the income tax you and your employees pay. It can increase your business expenses (which may reduce your taxable income) and potentially alter your employees’ reportable fringe benefits amounts.
Quick Guide to Fringe Benefits
Fringe benefits can include various types of perks or bonuses provided to employees.
What are fringe benefits?
Fringe benefits can range from using a work car for private purposes, to health insurance, to low-interest loans, to living-away-from-home allowances and more.
Why do companies offer fringe benefits?
Fringe benefits can be a great way to incentivise and reward employees, boost morale and attract top talent to your business.
What’s considered a fringe benefit?
Not all perks are considered fringe benefits for FBT purposes. For instance, minor benefits that are infrequent and irregular, and have a notional taxable value of less than $300, are generally exempt.
How can fringe benefits reduce my tax?
Depending on the type and value of the benefits provided, they may be tax-deductible or eligible for FBT concessions, which can potentially reduce your business’s tax liability.
FBT can be a complex area, but understanding it can potentially save your business a lot of money. We’re here to help you navigate it. If you’re feeling overwhelmed, why not book an appointment online or call us at 0755361960?
Frequently Asked Questions
What benefits are exempt from FBT?
Certain benefits are exempt from FBT, depending on various conditions. Some examples include:
- Certain portable electronic devices provided to employees, such as laptops or smartphones.
- Minor and infrequent benefits that are not provided regularly and have a notional taxable value of less than $300.
- Work-related items like protective clothing, tools of the trade, etc.
- Certain health care benefits provided on the business premises.
It’s worth noting that the specific conditions for exemptions can be complex and may require professional advice.
What is the ‘otherwise deductible’ rule in FBT?
The ‘otherwise deductible’ rule applies when an employee would have been able to claim a deduction if they had paid for the benefit themselves. In this case, the taxable value of the benefit can be reduced by the amount that would have been ‘otherwise deductible’ to the employee. A common example is where an employer provides a laptop used for work purposes to an employee.
How does providing fringe benefits affect my employees’ income tax?
Providing fringe benefits could potentially affect your employees’ income tax. While FBT is levied on employers, not employees, the total grossed-up amount of certain fringe benefits (Reportable Fringe Benefits Amount or RFBA) must be reported on an employee’s payment summary and may be used to calculate various Medicare and tax offsets, or liabilities.
What are the record-keeping requirements for FBT?
As an employer, you’re required to keep sufficient records demonstrating your fringe benefits tax calculations. This includes the nature and value of the benefits provided, any employee contributions, and information used to calculate any reductions in the taxable value of benefits. Records must be kept for a minimum of five years.
What happens if I don’t pay FBT?
If you don’t meet your FBT obligations, you could face penalties. These can include general interest charges on any unpaid FBT and administrative penalties for failing to lodge FBT returns on time. If you’re unsure about your FBT obligations, it’s always best to seek professional advice.
Always remember that the Fringe Benefits Tax (FBT) can be complex, and every business’s situation is unique. If you’re feeling unsure, we encourage you to book an appointment online or call us at 0755361960 to discuss your specific circumstances. At Impala Accountants, we’re here to help you navigate these complexities.
Next Steps
At Impala Accountants, we’re ready to work alongside you to ensure you understand and comply with your FBT obligations while making the most out of your fringe benefits strategy. Get in touch with us to discuss how we can help your business navigate the intricacies of FBT.
