FBT
Exempt benefit
An exempt benefit is a benefit provided to an employee that is not subject to fringe benefits tax because it meets conditions set by law, such as certain work-related items or minor benefits.
An exempt benefit is something an employer provides to an employee that falls outside the fringe benefits tax system because a specific rule says so. If a benefit is exempt, the employer does not pay FBT on it, and it generally does not need to be reported as part of the reportable fringe benefits amount. Exemptions are intended to cover things that are mainly for work purposes or that are of low value and irregular.
Examples of exempt benefits include some work-related items, such as a portable electronic device that is used primarily for work, subject to rules about the number and type of devices provided in an FBT year. Other examples include certain emergency assistance, some benefits for employees of particular organisations, and benefits that are exempt because they meet the minor benefits exemption. Some zero and low emission vehicles may also be exempt, subject to conditions that are changing, so employers should check the current ATO guidance.
The conditions for each exemption are specific and must be met in full. For example, a device may be exempt only if it is used primarily for work, the employer meets limits on how many similar items it supplies, and the employer holds proper records. If the conditions are not met, the benefit may be taxable and the employer may face FBT and interest. It is risky to assume that something is exempt without checking.
Even exempt benefits require records. The employer should be able to show why the benefit is exempt, for example through employee declarations, usage records or invoices. If the ATO reviews the FBT return, it will ask for evidence, and unsupported exemption claims can be disallowed. Records generally need to be kept for five years from the date of lodgment.
GST is separate from the FBT exemption. A business registered for GST can generally claim GST credits on the purchase of an exempt benefit if it is a creditable acquisition for the business and the employer holds a tax invoice. Entertainment is an exception, where credits depend on FBT being payable. An exemption from FBT therefore may mean that GST credits for entertainment are denied. It is worth checking the combined effect before providing the benefit.
A common misunderstanding is that any small gift to an employee is exempt. The minor benefits exemption has conditions about value and frequency. Another mistake is to assume an exemption applies to the whole package when it applies only to part. This is general information only, so confirm your position with the ATO or a registered tax professional.
Worked example
An employer buys a $1,100 laptop (GST inclusive) for an employee to use primarily for work and has not given the employee another laptop that year. If it meets the conditions, the laptop is an exempt benefit, so no FBT applies. The employer claims a GST credit of $1,100 x 1/11 = $100 on the BAS, holding the tax invoice and a record of the work use.
Practical tips
- Check that every condition of an exemption is satisfied and write down the reason you rely on it.
- Keep records such as declarations and invoices for five years, since the ATO may ask for them.
- Remember that being exempt from FBT does not automatically mean the cost is deductible or that GST credits can be claimed. Check each separately.