What is Fringe Benefits Tax?

In Short

• Fringe Benefit Tax (FBT) applies to non-cash benefits provided to employees, such as cars, loans and health insurance.

• Employers are responsible for calculating and paying FBT, which is based on the taxable value of each benefit.

• Various exemptions, like minor benefits and work-related items, can help reduce your FBT liability.

Tips for Businesses
To minimise your FBT liability, take advantage of exemptions such as the minor benefits exemption for small, infrequent gifts or the work-related items exemption for tools and equipment. Keeping accurate records of all benefits provided and consulting with a tax professional will help ensure compliance and reduce potential penalties.

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Table of Contents

• What is FBT?
• Types of Fringe Benefits
• Calculating Fringe Benefits Tax
• Key Takeaways
• Frequently Asked Questions

As an employer, offering benefits to your employees or their associates is a valuable way to attract and retain talent, but it may also bring additional tax obligations under Australia’s Fringe Benefits Tax (FBT). This tax applies to certain non-cash benefits you provide to your employees, such as company cars, health insurance or accommodation. While these perks can enhance your overall compensation package, they would also require you to comply with specific tax regulations set by the Australian Taxation Office (ATO). This article will walk you through:

• how FBT operates;
• the types of benefits subject to FBT;
• methods for calculating the tax; and 
• available exemptions to help you manage your FBT responsibilities effectively.

What is FBT?

FBT is a tax that you, as an employer, must pay on the value of certain benefits provided to employees or their associates, such as spouses or children. Unlike income tax, which employees are responsible for, FBT is your responsibility, calculated based on the taxable value of each benefit. The ATO assesses FBT for the ‘FBT year’, which runs from 1 April to 31 March in the following year, and you must self-assess your FBT liability for the FBT year. If there is any FBT liability, you must lodge an FBT return and pay the FBT you owe.

Types of Fringe Benefits

The ATO outlines several types of fringe benefits that may incur FBT liability, depending on how they are provided to employees. Here are some of the most common categories you may need to consider:

• Car: If you provide a vehicle to an employee and allow them to use the vehicle for personal use, such as commuting to and from work, this can result in a car fringe benefit. Even limited personal use can create an FBT liability. You can determine the taxable value of this benefit using the operating cost method or the statutory formula method, with each method following specific rules set by the ATO.
• Loan: Providing employees with loans at reduced or no interest rates can also create a fringe benefit. FBT applies to the difference between the loan’s interest rate and the statutory rate set by the ATO, calculated to reflect the potential taxable income saved by the employee.
• Expense Payment: Covering or reimbursing an employee’s private expenses, such as health insurance premiums, travel costs or utility bills, is considered a fringe benefit. The taxable value of expense payment benefits generally reflects the amount paid or reimbursed on behalf of the employee.
• Housing: If you provide accommodation for employees, particularly in locations away from their usual residence, this may constitute a housing fringe benefit. 
• Entertainment: Meals, drinks or event tickets can also be subject to FBT. The rules around entertainment benefits vary based on whether they are provided to employees, associates or clients, and not all entertainment expenses are deductible or exempt from FBT.
• Other: You might provide benefits such as relocation assistance, parking or childcare. Each type of benefit has specific requirements, and managing these benefits effectively requires understanding when FBT applies and how each benefit is calculated.

Calculating Fringe Benefits Tax

The taxable value of each fringe benefit determines your FBT liability. You gross up this taxable value using the gross up rate set out by the ATO. This is equivalent to the gross income your employees would have earned at the highest marginal tax rate to buy the benefits themselves. 

The ATO generally applies a standard rate of 47% to the grossed-up value of the benefit.

Exemptions and Concessions

You may reduce your FBT liability by:

• providing benefits that would be deductible for the employee; 
• using employee contributions; 
• providing a cash bonus; or
• providing exempt or concessional benefits. 

The ATO provides several exemptions and concessions that can reduce or eliminate your FBT liability for specific benefits. Being aware of these exemptions can help you structure benefits in a way that minimises the FBT burden on your business. Some key concessions are: 

• Minor Benefits Exemption: If a benefit is valued under $300 and provided infrequently or irregularly, it may qualify for the minor benefits exemption. This often applies to small gifts or occasional employee meals, provided they are not part of a routine.
• Remote Area Benefits: If you operate in remote regions, you may qualify for exemptions on benefits such as housing and holiday transport for employees. This can be advantageous for businesses that need to attract employees to locations with limited housing or services.
• Work-Related Items Exemption: Certain items essential for employees to perform their jobs, such as laptops, mobile phones or protective equipment, may be exempt if they are used primarily for work. This exemption supports work efficiency and helps minimise the FBT burden on necessary tools.
• Living Away From Home Allowance (LAFHA): When you require employees to live away from their usual residence for work, a LAFHA can cover additional living costs. If structured properly, this allowance can qualify for FBT exemptions, reducing your overall tax liability.

These exemptions are helpful in controlling costs and optimising your benefits packages, but each has specific criteria that must be met. Maintaining accurate records is essential to support any exemption claims and avoid compliance issues.

You may also have an exemption cap if you are a non-for-profit entity. 

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Employment Agency Arrangements

If you engage employees through an employment agency, FBT obligations may differ. In some cases, using an employment agency means the agency assumes responsibility for payroll tax rather than your business directly. However, it remains essential to verify that your partners are compliant with ATO standards.

Key Takeaways

Understanding FBT is vital for Australian employers who provide fringe benefits to their employees. FBT applies to a range of non-cash benefits, and knowing when and how it applies allows you to manage your tax obligations more effectively. The ATO provides exemptions for specific benefits, such as minor benefits, remote area housing, work-related tools and living allowances, each of which can help you reduce FBT costs. Calculating FBT accurately and keeping detailed records are essential to avoid compliance issues. Consulting with tax professionals can help you manage FBT obligations effectively, ensuring your business meets its responsibilities and optimises its employee compensation packages.

If you are uncertain about your legal obligations surrounding FBT or other employment issues, our experienced taxation lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions