Lecture Notes: How Fringe Benefits Tax Works

What is Fringe Benefits Tax (FBT)?

• FBT is a tax paid by employers on certain benefits provided to employees or their families/associates.
• It is separate from income tax and calculated on the taxable value of the fringe benefit.
• Employers must self-assess their FBT liability for the FBT year (April 1 to March 31).
• If liable, employers must lodge an FBT return and pay the FBT owed.

What is a Fringe Benefit?

• A fringe benefit is a non-salary/wage payment provided to an employee.
• Examples of fringe benefits:
  • Use of a work car for private purposes
  • Car parking
  • Gym membership payments
  • Entertainment (e.g., free concert tickets)
  • Reimbursements (e.g., school fees)
  • Discounted loans
  • Benefits under a salary sacrifice arrangement
• Non-fringe benefits include:
  • Salary and wages
  • Employer contributions to complying super funds
  • Shares or rights under approved employee share schemes
  • Employment termination payments
  • Dividends under Division 7A
  • Benefits to volunteers and contractors
  • Exempt benefits (e.g., those by religious institutions)

Who Receives Fringe Benefits?

• Applies to benefits provided to employees, their families, or associates.
• For FBT purposes, an employee includes current, future, or past employees, directors, and trust beneficiaries working in the business.
• Sole traders/partners are not employees; benefits to oneself are not subject to FBT.
• Clients are not employees; benefits to clients are not subject to FBT.

Who Pays FBT?

• The employer pays FBT, even if benefits are provided by a third party.

How Much FBT to Pay?

• Calculated by 'grossing-up' the taxable value of benefits.
• Grossed-up value is what an employee would earn at the highest marginal tax rate to buy the benefits.
• FBT is 47% of the grossed-up value of fringe benefits.

Example: Calculating FBT on a Gym Membership

• Cost: $1,100 (including $100 GST)
• Gross-up rate (GST-inclusive): 2.0802
• FBT rate: 47%
• Calculation: $1,100 x 2.0802 x 47% = $1,075.46
• Employer must lodge an annual FBT return and may need to report employee's fringe benefits amount.

Claiming Deductions and GST Credits

• Employers can claim:
  • Income tax deduction and GST credits for fringe benefits costs
  • Full amount as an income tax deduction if GST credits can't be claimed
  • Income tax deduction for FBT paid

Responsibilities of Employers

• Identify types of fringe benefits provided.
• Check for FBT concessions to reduce liability.
• Calculate taxable value of fringe benefits.
• Calculate FBT liability.
• Keep records and employee declarations.
• Lodge FBT return and pay owed FBT.
• Report employee fringe benefits in their end-of-year payment information if required.

Additional Resources

• "Fringe Benefits Tax: A Guide for Employers" for understanding responsibilities, identifying benefits, valuing them, and available concessions.