Fringe Benefits Tax (FBT): A Guide for Employers

What Is Fringe Benefits Tax?

Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits provided to employees (or their associates) in addition to salary or wages. Unlike income tax, which is paid by the employee, FBT is paid by the employer.

The FBT year runs from 1 April to 31 March - different from the standard financial year. The current FBT rate is 47%, which makes it one of the highest tax rates in Australia.

The logic behind FBT is that if an employee receives a benefit instead of salary, both the employee and employer would otherwise avoid income tax and payroll tax on that amount. FBT ensures the benefit is taxed.

Common Fringe Benefits

Car Fringe Benefits

Providing a company car for an employee's private use is the most common fringe benefit. If an employee can use a company car for personal trips (including commuting to and from work), a car fringe benefit arises.

There are two methods to value car fringe benefits:

Statutory formula method - The taxable value is 20% of the car's base value, regardless of how much private use occurs. This is simpler but may overstate the benefit if the employee does minimal private driving.

Operating cost method - The taxable value is based on the actual operating costs of the car multiplied by the percentage of private use. This requires a logbook to be maintained for at least 12 continuous weeks.

Expense Payment Fringe Benefits

When an employer pays for or reimburses an employee's personal expenses, an expense payment fringe benefit arises. Examples include:

• Paying an employee's private health insurance
• Reimbursing personal phone bills
• Paying school fees
• Covering personal travel costs

Entertainment and Meal Fringe Benefits

Providing entertainment (meals, tickets, holidays) to employees can trigger FBT. The rules here are nuanced:

• Meals provided on business premises on a working day are generally exempt if certain conditions are met
• Client entertainment where employees attend may be subject to FBT on the employee portion
• Christmas parties and similar events have a minor benefits exemption if the cost per employee is under $300

Living Away From Home Allowances

If you pay an employee an allowance while they live away from home for work, this can be a fringe benefit. There are specific exemptions for the first 12 months.

Housing Fringe Benefits

Providing an employee with housing (common in remote areas, mining, and agriculture) triggers a fringe benefit. The taxable value is generally the market rental value minus any rent the employee pays.

Exemptions and Concessions

Several exemptions can reduce or eliminate your FBT liability:

Minor Benefits Exemption

Benefits with a notional taxable value of less than $300 are generally exempt. This includes:

• Small gifts (birthday, Christmas)
• Occasional meal vouchers
• Minor awards or prizes

However, if minor benefits are provided regularly, they may lose the exemption.

Work-Related Items

Certain work-related items are exempt, including:

• Portable electronic devices (one per FBT year) - laptops, tablets, phones
• Protective clothing
• Briefcases and tool kits
• Software primarily used for work

Otherwise Deductible Rule

If the employee could have claimed a tax deduction for the expense had they paid for it themselves, the otherwise deductible rule may reduce the taxable value to nil. For example, if you pay for an employee's professional membership that they would need for their job, the FBT may be nil because they could have claimed a deduction.

The employee must provide a declaration for this rule to apply.

Exempt Vehicles

Electric vehicles with a value below the luxury car tax threshold are exempt from FBT (under the Electric Car Discount). This has made salary packaging electric vehicles very popular.

Calculating FBT

FBT calculation involves grossing up the taxable value to a pre-tax equivalent:

Type 1 gross-up (where GST credits are available) - Multiply by 2.0802 (for the current FBT year)

Type 2 gross-up (where no GST credits are available) - Multiply by 1.8868

Then apply the FBT rate of 47% to the grossed-up amount.

For example, a car fringe benefit with a taxable value of $10,000 (Type 1):

• Grossed-up value: $10,000 x 2.0802 = $20,802
• FBT payable: $20,802 x 47% = $9,777

This illustrates why FBT is so expensive and why employers should carefully consider the FBT implications of any benefits they provide.

FBT Reporting and Payment

FBT Return

If you have an FBT liability, you must lodge an FBT return by 21 May (or later if using a tax agent). You must also pay the FBT liability by this date.

If your FBT liability exceeds $3,000, you will need to make quarterly FBT instalments.

Employee Reporting

If the total taxable value of fringe benefits provided to an individual employee exceeds $2,000, you must report this on their payment summary (or through Single Touch Payroll). This reported amount is used for income tests (such as Medicare levy surcharge, private health insurance rebate, and HECS-HELP repayments) but is not taxed again in the employee's hands.

Practical Tips for Managing FBT

1. Review all benefits provided to employees - Identify anything beyond salary and wages that could trigger FBT
2. Use exemptions strategically - Provide exempt items (like work-related devices) instead of taxable benefits where possible
3. Maintain logbooks for company cars - The operating cost method often results in lower FBT than the statutory method
4. Get employee declarations - The otherwise deductible rule can save significant FBT, but you need written declarations
5. Consider salary packaging - Structured salary packaging can provide benefits to employees while managing the FBT cost
6. Keep accurate records - Track the cost and nature of every benefit provided, and use tools like SortBooks to help categorise expenses correctly
7. Plan before providing benefits - Calculate the FBT cost before offering a benefit, not after

FBT is a significant tax that catches many employers by surprise. Understand the rules, use the exemptions available, and factor FBT into your employment cost calculations.