FBT
Fringe benefits tax (FBT)
Fringe benefits tax is a separate tax paid by employers on certain non-cash benefits provided to employees or their associates, assessed for the year from 1 April to 31 March.
Fringe benefits tax, or FBT, is a tax paid by employers, not employees, when they provide certain benefits to employees or their family members in place of, or in addition to, salary. Typical examples include a car made available for private use, paying an employee's private expenses, providing entertainment, low-interest loans and providing free or discounted goods and services. The tax is calculated on the taxable value of the benefits, and is separate from income tax and from PAYG withholding.
FBT is assessed on a different year to income tax. The FBT year runs from 1 April to 31 March, and employers who have provided fringe benefits must lodge an FBT return and pay any tax after the end of that year. The due dates fall in May, and the exact dates should be checked on ato.gov.au. Employers also need to keep records, such as logbooks, odometer readings, declarations and invoices, to support their calculations. These records generally need to be kept for five years.
The rate of FBT and the gross-up rates used in the calculation are set by legislation and change from time to time, so the current figures should be checked with the ATO. The process generally involves working out the taxable value of each benefit, grossing it up to reflect the pre-tax salary that would be needed to buy it, and then applying the FBT rate. Because the tax is levied on the grossed-up amount, the cost to the employer can be much higher than the cost of the benefit itself.
Some benefits are exempt or reduced, which can make them attractive to include in a remuneration package. Examples include certain work-related items, minor benefits and, for some employers such as public benevolent institutions and public hospitals, packages under a capped arrangement. Employers should be cautious, because the conditions are specific and the exemptions have limits. Employees may also see a reportable fringe benefits amount on their income statement, which affects some tests but is not taxed in their hands.
GST interacts with FBT in a few ways. An employer who is registered for GST can often claim GST credits on the cost of providing a benefit, such as the purchase of a car, provided they have a tax invoice. For entertainment benefits, the rules on credits depend on whether FBT is payable, and a credit is generally unavailable where the benefit is not subject to FBT. Employers may also need to apply the GST gross-up rate where credits are claimed, which is why there are two gross-up rates.
A common misunderstanding is that FBT only matters for large businesses. A small business that lets an employee use a work ute privately, or pays for staff parties, may have an FBT liability. Sole traders and owners are not employees of their own business, but benefits provided to their employees or to associates of the employees can still be caught.
This is general information only, so confirm your FBT position with the ATO or a registered tax professional.
Worked example
A company gives an employee a laptop used mostly for private purposes and pays $2,200, including $200 GST, for a holiday flight for the employee. The flight is an expense payment benefit with a taxable value of $2,200 (or $2,000 if GST credits are claimed). The employer includes it in the FBT return for the year ending 31 March, applies the gross-up rate and the FBT rate set by law, and pays the tax in May.
Practical tips
- Keep a register of all benefits provided each FBT year, with invoices, logbooks and employee declarations, because FBT is assessed after the year ends.
- Remember the FBT year runs from 1 April to 31 March, which differs from the income tax and BAS financial year.
- Check whether an exemption or concession applies before assuming a benefit will be taxed, but make sure the conditions are fully met.