FBT
Fringe benefit
A fringe benefit is a payment or benefit provided to an employee, or their associate, in connection with their employment, other than salary or wages, and it may attract fringe benefits tax.
A fringe benefit is a benefit that an employer provides to an employee, or to someone connected with the employee such as a family member, because of the employment, and that is not paid as salary or wages. The benefit can be provided directly by the employer, or arranged by a third party, and it can be given in place of salary, as part of a packaged arrangement, or on top of normal pay. Where a fringe benefit is provided, the employer may be liable to pay fringe benefits tax.
The law groups fringe benefits into categories, each with its own valuation rules. The categories include car benefits, car parking, expense payment benefits, loan benefits, housing benefits, living away from home allowances, meal entertainment, property benefits, residual benefits and others. Many everyday workplace perks fit into one of these categories, so it is important to identify the right one, as the taxable value is worked out differently for each.
Not everything provided to staff is a fringe benefit. Salary and wages, including super guarantee contributions, are not fringe benefits because they are covered by PAYG withholding and super. Reimbursements of work-related expenses where the employee would have been entitled to a deduction are often not taxed, subject to rules about the otherwise deductible amount. Some benefits are exempt, such as certain work-related items or those under the minor benefits exemption.
The timing and records matter. The employer must keep documents that support how a benefit was valued, for example a car logbook, receipts, employee declarations and evidence of use. The FBT year runs from 1 April to 31 March, and the employer works out the taxable value of each benefit for that period. The valuation methods are set by law, and the ATO publishes the current rates and thresholds that apply.
GST can affect the cost of a benefit. Where the employer is registered for GST and the benefit involves a taxable purchase, the employer may be able to claim a GST credit on the purchase, which reduces the taxable value but results in a higher gross-up rate for the FBT calculation. Entertainment is a special area where credits may be limited unless FBT is paid. Employers should keep tax invoices and check each situation.
Employees do not pay tax on fringe benefits in the same way as on salary. However, some benefits must be reported as the reportable fringe benefits amount on the employee's income statement, which affects tests such as the Medicare levy surcharge and some government payments. This can come as a surprise to employees who are not aware of it.
A common misunderstanding is that a benefit is only a fringe benefit if the employee asked for it. Even if the employer simply decides to provide something, the tax implications can be the same. Another mistake is to think small perks never matter, whereas frequent or higher-value perks can exceed the minor benefits exemption. This is general information only, so confirm your position with the ATO or a registered tax professional.
Worked example
An employer pays a $1,500 gym membership for an employee's private use and gives a $60 gift voucher at Christmas. The gym payment is likely to be a fringe benefit, with a taxable value of $1,500, and goes on the FBT return after 31 March. The $60 gift may fall under the minor benefits exemption, depending on the rules and its frequency, so it might not be taxed, but the employer should check and keep records.
Practical tips
- Identify which category each benefit falls into, since the valuation rules differ between car benefits, expense payments, loans and others.
- Keep invoices, logbooks and declarations for each benefit, as they are needed when you prepare the FBT return after 31 March.
- Do not forget benefits provided to an employee's family members, because they can also be fringe benefits.