FBT
Expense payment benefit
An expense payment benefit arises when an employer pays, or reimburses, an expense that an employee has incurred, typically a private expense, and the benefit can attract fringe benefits tax.
An expense payment benefit occurs when an employer pays or reimburses an expense incurred by an employee, or makes a payment to a third party for something the employee has incurred. Common examples are paying an employee's private health insurance, school fees, gym membership, holiday costs or personal phone bill. It can arise even where the employee does the paying and is later reimbursed by the employer.
The taxable value of an expense payment benefit is generally the amount the employer pays, less any amount the employee reimburses from after-tax money. However, if the employee could have claimed a tax deduction for the expense had they paid it themselves, the taxable value may be reduced under the otherwise deductible rule. For example, reimbursement of a work-related course fee that the employee could have claimed as a deduction can be reduced, provided the employee gives a declaration and the employer holds documentation.
This is where record keeping is critical. The employer must have written evidence, often an employee declaration and receipts, showing that the expense was work-related and what portion is private. Without the evidence, the otherwise deductible rule cannot be applied and the full amount is taxed. Employers should also check whether the expense falls under another category of benefit, such as a car benefit, as that category's rules will then apply.
Some expense payments are exempt, including those that qualify under the minor benefits exemption, where the value is below the threshold and the benefit is infrequent and irregular. Other exemptions may apply to specific items like work-related portable devices, subject to conditions. The employer should look at each expense separately, rather than assuming the same treatment applies to all.
GST interacts as follows. If the employer pays a supplier directly and holds a tax invoice, they may be able to claim a GST credit, subject to the rules on private or domestic use and entertainment. The credit affects the choice of gross-up rate used in the FBT calculation. Where the employee pays and is reimbursed, the credit is only available if the employer receives a valid tax invoice in their own name or an invoice is otherwise acceptable.
A common misunderstanding is that a reimbursement of an expense is the same as salary. If the payment is made without PAYG withholding and the expense is private, it may be a fringe benefit. Another mistake is to forget the employee declaration, which results in the full amount being taxed.
This is general information only, so confirm your treatment with the ATO or a registered tax professional.
Worked example
An employer reimburses an employee $1,100 for a family holiday flight, GST inclusive. The expense is private, so it is an expense payment benefit. If the employer is registered for GST and holds a tax invoice, the credit is $1,100 x 1/11 = $100, and the base taxable value is $1,100. The employer reports it in the FBT return after 31 March, applying the gross-up rate that matches whether GST credits were claimed.
Practical tips
- Collect an employee declaration and receipts whenever you reimburse an expense, so that the otherwise deductible rule can be applied.
- Keep tax invoices in the business name if you want to claim GST credits on paid expenses.
- Check whether the minor benefits exemption applies before treating small or irregular payments as taxable.