By Justin Inskip, Director, Westlawn Business Services 18 February 2014
Do you provide fringe benefits to employees or their associates? You might be liable for fringe benefits tax (FBT), which is unrelated to income tax and is determined by the taxable value of the benefits.
An employer is liable for FBT even if benefits are provided by a third party under an arrangement with the employer. The Tax Office does not tell you how much FBT you need to pay. You must assess liability when lodging your FBT return.
You need to work out the taxable value of each fringe benefit you give to each employee. The rules for calculating the taxable value of a fringe benefit vary depending on the type of benefit.
The rate of FBT is applied on the “grossed-up amount”. Grossing-up involves increasing the value of the benefit provided to reflect the gross salary the employee would have had to earn to buy the benefit themselves from after-tax income. Please consult your adviser for the rules for calculating the value of specific fringe benefit and current FBT rates.
Below are examples of eight common fringe benefits:
1. Company car – If you supply a company car that is available to an employee for private use, you may be liable to pay fringe benefits tax. If the car is generally parked overnight at, or near, your employee’s home, the car is usually deemed available for private use. Generally speaking, travel to and from work is considered private use. Not all vehicle types are liable for FBT.
2. Parking – If you provide parking to your employee and there is a qualifying commercial garage in close proximity, you may have provided a car parking fringe benefit and be liable for FBT. A qualifying garage is defined according to the services it offers and whether the prices it charges are above a given threshold. Some small businesses are exempt from car parking fringe benefits tax.
3. Loans – If you give your employee a loan and charge no interest or a low rate of interest, you may be providing a loan fringe benefit. A low interest rate means a rate less than the so called “statutory rate” of interest which is determined by the ATO.
4. Debt waivers – Suppose you lend some money to one of your employees but then at a later date you decide to forgive the debt, telling the employee it’s “on the house”. This could potentially create what’s known as a debt waiver fringe benefit. But not all forgiven debts fall into this category. For instance, employee debts that you write off as bad debts do not qualify as fringe benefits.
5. Living-away-from-home allowances – A living-away-from-home allowance fringe benefit may arise if you pay your employees to cover expenses incurred because they are temporarily required to live away from home in order to work.
6. Property – A property fringe benefit may arise if you provide an employee with property for free or at a discount. Examples include all goods, real property (such as land and buildings) and other items (such as shares and bonds).
7. Expense payment – If employees incur expenses and you reimburse them, you may be providing expense payment fringe benefits. The expenses can be business, private or a combination, but they must be incurred by the employee to give rise to a fringe benefits tax obligation. So expenses incurred on a corporate credit card generally do not give rise to a fringe benefit tax liability.
8. Entertainment – When you provide entertainment to employees in the form of food, drink or recreation, you might be liable for FBT. While technically speaking, there is no separate “entertainment fringe benefit,” related tax obligations can arise in the following circumstances:
An employee purchases movie tickets and you reimburse him or her for the cost. (This could also create an expense payment fringe benefit tax obligation.)
You provide food and drinks to your employees for free at a company function. (This could also result in a property fringe benefit tax obligation.)
The following are examples of items that are not fringe benefits:
Salary or wages
Employer contributions to superannuation funds, and
Certain work-related items (for example, portable electronic devices, computer software, protective clothing, briefcases and tools of the trade).
FBT Checklist: Questions to ask
According to the ATO, if you answer “yes” to any of these questions, you may have to pay FBT:
Do your employees take cars home and garage them overnight, even if only for security reasons?
Do your employees use cars or other vehicles the business owns for private use?
Do you have a salary package arrangement with any of your employees?
Have you paid or reimbursed any employees’ expenses?
Do you provide entertainment, such as food, drink or recreation to your employees?
Have you given property, such as electrical goods, to your employees either free or at a discount?
Do you provide any employees with a house or unit of accommodation?
Do you provide loans at reduced interest rates to any employees?
Have you released any employee from a debt they owed the business?
Are you a tax-exempt organisation that has provided food, drink or accommodation to employees?
Disclaimer Westlawn Business Services Pty Ltd provides this information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers.
Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.