November 26, 2024

Imagine a company offering its employees a luxury vehicle as a part of their remuneration package. While this attractive benefit can boost morale and enhance recruitment efforts, it also triggers the complexities of Fringe Benefits Tax (FBT) in Australia. As employers increasingly utilize non-cash benefits to create competitive advantages, understanding FBT is essential to avoid unexpected tax liabilities. This article will provide an overview of what employers need to know about FBT—covering its implications, reporting requirements, and strategies to minimize costs.

Understanding Fringe Benefits Tax

Fringe Benefits Tax (FBT), particularly in terms of Australian payroll, is a tax that employers are required to pay on specific benefits they provide to their employees, their employees’ family members, or other associates. This tax is distinct from income tax and is based on the taxable value of the benefits given.

As an employer, you are responsible for self-assessing your FBT liability for the financial year, which runs from 1 April to 31 March. If you have a liability, you must submit an FBT return and remit the amount owed. A fringe benefit represents a form of compensation to an employee that differs from traditional salary or wages.

Various types of fringe benefits exist, including:

• Allowing an employee to use a company vehicle for personal use
• Providing car parking facilities
• Covering an employee’s gym membership costs
• Offering complimentary tickets to entertainment events, such as concerts
• Reimbursing an employee for expenses like school fees
• Granting discounted loans
• Facilitating benefits through salary sacrifice arrangements with employees

Certain items are not classified as fringe benefits, including:

• Regular salary and wages
• Employer contributions to compliant superannuation funds
• Shares or rights offered under approved employee share acquisition schemes
• Termination payments, including gifting or selling a company vehicle to an employee upon termination at a discount
• Payments considered dividends under Division 7A
• Benefits provided to volunteers and contractors
• Exempt benefits, such as those given by religious organizations to their practitioners.

Remember, for employers managing Fringe Benefits Tax (FBT) in Australia, understanding the nuances of cross-border payroll tax compliance is also crucial, especially as differing regulations can significantly affect how employee benefits are provided and taxed in international operations.

Deadlines for Filing and Payment of FBT Returns

If you are responsible for preparing your own FBT return, you must submit it and settle any owed amounts by 21 May 2025. However, if a tax agent is handling your electronic submission, the deadline for both lodging and payment is 25 June 2025.

Who is Responsible for FBT?

The responsibility for paying FBT falls on the employer. This remains true even if a third party provides the benefit as part of an agreement with the employer.

Who Benefits from Fringe Benefits?

Fringe Benefits Tax (FBT) applies to the benefits given to your employees, as well as to their family members or associates. For the purposes of FBT, the term “employee” encompasses:

• Current, future, or former employees
• Company directors
• Trust beneficiaries who are involved in the business

If you are a sole trader or a partner in a partnership, you do not qualify as an employee, and any benefits you provide to yourself are exempt from FBT. Additionally, your clients are not considered employees, so any benefits offered to them, such as entertainment, are not subject to FBT.

Determining Your FBT Liability

To calculate the amount of FBT you owe, you need to “gross-up” the taxable value of the benefits you have provided. This grossed-up figure reflects the total income your employees would need to earn, at the highest marginal tax rate (including the Medicare levy), in order to purchase those benefits themselves. The FBT liability is then set at 47% of this grossed-up value of the fringe benefits.

What Are Your Responsibilities?

As an employer, your responsibilities include:

1.Identifying the various types of fringe benefits you offer.

2.Exploring available FBT concessions and opportunities to minimize your FBT obligations. Certain benefits, such as work-related items, may be exempt from FBT.

3.Consider alternatives to fringe benefits or providing benefits that qualify for concessions to lower your FBT liability.

4.If you operate as a not-for-profit organization, you might qualify for exemptions or rebates specifically for such entities.

5.Calculating the taxable value of the fringe benefits you provide.

6.Assessing your FBT liability.

7.Maintaining accurate records, including employee declarations where applicable.

8.Filing an FBT return and settling any outstanding FBT amounts.

9.Reporting the fringe benefits for each employee in their end-of-year payment summary, if required.

Strategies for Minimizing Your FBT Liability

• Substitute fringe benefits with cash salary.
• Offer benefits that employees can claim as an income tax deduction if they were to pay for them out of pocket.
• Consider providing benefits that are exempt from FBT.
• Implement employee contributions, such as having employees cover part of the operating costs for car fringe benefits (e.g., fuel) that you do not reimburse. However, be aware that these contributions may be regarded as assessable income for you and could be subject to GST.

Takeaway 

Understanding Fringe Benefits Tax (FBT) is essential for employers in Australia to navigate the complexities of employee remuneration effectively. By recognising the types of fringe benefits that trigger FBT, assessing their taxable values, and exploring strategies to minimize liabilities, employers can optimize their benefits packages while ensuring compliance with tax regulations. 
Need further assistance? Reach out to us. We offer Global Payroll services to help with accurate payroll tax calculations, multi-jurisdiction return filing, and identifying exemptions to lower tax liability. Gain access to Employer of Record services at Procloz that ensure compliance with local laws. Remember, staying informed about FBT concessions and exemptions, particularly for not-for-profit organizations, can further enhance financial management. As the landscape of employee benefits continues to evolve, a proactive approach to FBT will not only help maintain compliance but also contribute to a more engaged and satisfied workforce.