A complete guide to fringe benefits tax (FBT) for employers

Understanding fringe benefits tax (FBT) is essential for employers in Australia. This tax applies to certain non-cash benefits given to employees, such as cars, health insurance, and meals. If you provide these benefits, it's important to understand how FBT works and how it impacts your business. In this guide, we’ll break down the basics and help you stay compliant.[ez-toc]

A quick guide to fringe benefits tax

Fringe benefits tax (FBT) is a tax employers pay on certain benefits given to employees. These benefits can include cars, health insurance, and meals. FBT is separate from income tax and is calculated on the value of the benefits. Employers must track and report these benefits to stay compliant and avoid penalties.

Why understanding fringe benefits tax matters for modern businesses

Fringe Benefits Tax (FBT) is a key part of managing your business payroll. If you give non-cash perks to employees, like a company car or free gym memberships, you may need to pay FBT. The tax is paid by the employer and is separate from income tax.

What is FBT?

FBT is a tax on certain benefits you provide to employees or their associates. These are called fringe benefits and include things like:

• Use of a company car for private purposes
• Low-interest loans
• Entertainment such as meals and event tickets
• Reimbursement of private expenses
• Housing or living-away-from-home allowance

These benefits attract FBT even if you don't give them as part of regular pay. The fringe benefits tax assessment act and the benefits tax assessment act 1986 set the legal framework. The tax is payable by you as the employer and is calculated using a specific tax rate and gross-up method to reflect the full value of the benefit.

Why does FBT matter?

If you don’t report fringe benefits properly, you may face extra tax bills or audits from the Australian Taxation Office. You must track each benefit provided to an employee, calculate its taxable value, and lodge an FBT return each year between 1 April to 31 March. This period is known as the FBT year.

Simplify with helpful resources

Managing FBT can get messy, fast. Business Kitz helps you:

• Use ready-to-go templates to record fringe benefits
• Sign and store forms securely
• Access records fast during tax time

Simplify your FBT reporting and document handling today with Business Kitz. Let us help reduce your admin load and keep your business compliant.

What qualifies as a fringe benefit under Australian tax law

A fringe benefit is a non-cash benefit given to an employee or their associate. It is usually part of their job package but not paid as regular salary or wages. These benefits are often offered to attract or retain staff. Some are subject to FBT, while others may be exempt.

Common types of fringe benefits

Fringe benefits come in many forms. Some of the most common include:

• Company car used for private travel
• Car parking near the workplace
• Low-interest loans
• Expense payments, such as school fees or private bills
• Entertainment, like event tickets or meals
• Housing or rent-free accommodation
• Living-away-from-home allowances

The value of the fringe benefit and how it is used both affect its taxable value. If a benefit is provided to an employee for private use, it may attract FBT.

Taxable vs non-taxable benefits

Correctly classifying benefits matters. It affects your FBT liability, reporting and record-keeping. The table below shows key differences:Type of BenefitTaxable (Attracts FBT)Non-Taxable (Exempt or Concession Applies)Company car for private use✔✘ If used only for work travelFree on-site car parking✔✘ If under market thresholdLaptop for work use✘✔ If primarily for work and under exemptionStaff Christmas party✔✘ If cost is minor and infrequentLow-interest staff loans✔✘ If within exempt loan rules

Keep records accurate

Every benefit is provided under different conditions. Keep clear records of use, value and purpose. Misclassifying benefits can lead to higher tax paid and possible audits.Business Kitz helps you stay on top of this with templates that match ATO rules. Correct classification saves time and helps reduce your FBT. Try it for free here.

How fringe benefits tax is calculated and applied

Fringe benefits tax is a separate tax that applies when an employer gives certain benefits to staff or their associates. It is paid by the employer, not the employee. You must calculate and pay FBT if the benefits you provide are not exempt and are given in connection with employment.

When fringe benefits tax applies

You must pay FBT when:

• You give certain benefits provided to employees outside of normal salary
• The benefit is for private use or gain
• The benefit is not exempt from FBT

FBT is triggered even if the benefit seems minor. It also applies even if the employee doesn't use the benefit often.

The FBT year and tax rate

The FBT year runs from 1 April to 31 March. This differs from the standard financial year. You must lodge an FBT return by 21 May, or 25 June if using registered tax agent services.The current tax rate is 47%. You use this rate when working out your fbt liability.

Gross-up method and example

You must “gross-up” the taxable value of each benefit to reflect what the employee would have needed to earn to buy the benefit after tax. There are two rates:

• Type 1 gross-up: 2.0802 (for benefits with GST)
• Type 2 gross-up: 1.8868 (for benefits without GST)

Example:If a car fringe benefit has a taxable value of $5,000 (with GST), the grossed up value is:$5,000 × 2.0802 = $10,401FBT = $10,401 × 47% = $4,888.47This amount is tax payable by the business. It must be reported and paid to the Australian Taxation Office.

Make record-keeping easier

You must track the value of the benefit, type, use and any exemptions and concessions. Business Kitz can help store and manage this data. It keeps your records clear, so you can meet your FBT obligations and reduce your FBT risk.

Who pays FBT and what are the employer’s compliance duties

Fringe Benefits Tax (FBT) is a tax paid by the employer, not the employee. If your business provides any non-cash fringe benefit to employees, you may need to report and pay FBT. This includes regular benefits, occasional perks, or benefits given to someone connected to the employee, like family members.

Employer FBT obligations

As an employer, you have several important responsibilities when it comes to FBT. First, you need to determine whether the benefit is provided in connection with work. If the benefit is work-related, you then calculate the taxable value of that benefit. Depending on the type of benefit, this may include costs like the car’s running expenses or the value of an entertainment perk.Next, you will need to use the correct gross-up rate to calculate the FBT payable. The gross-up process adjusts the taxable value of a fringe benefit to reflect the fact that the benefit is not paid in cash. Employers must also ensure that certain reportable fringe benefits are properly included in the employee’s payment summary for tax purposes.After calculating the total FBT liability, you are required to lodge an FBT return with the Australian Taxation Office (ATO) at the end of the FBT year (1 April to 31 March). Finally, ensure you pay FBT on time to avoid penalties.

Staying on top of FBT compliance

In order to meet your FBT obligations, it’s important to keep accurate records. This means documenting all benefits provided to employees, the value of each benefit, and any exempt benefits you’re claiming. You should also track how the taxable value of each fringe benefit is calculated, especially if grossed-up values are involved. Proper documentation will make it easier for you to lodge an FBT return and prepare for any potential audits.

Automated recordkeeping

Keeping these records up to date can be time-consuming. However, with Business Kitz, you can automate this process. The software allows you to easily track and document each fringe benefit, storing key information like signed forms and benefit details. This will help ensure that your business is always prepared for any audit and stays compliant with FBT regulations, saving you time and reducing the risk of errors.

Understanding salary, salary sacrifice, and fringe benefits

Understanding how salary, salary sacrifice, and fringe benefits work together is essential for both employers and employees. These components play a significant role in an employee’s total compensation package and can affect take-home pay, taxes, and FBT.

Salary vs non-cash benefits

Salary is the direct cash payment an employee receives for their work. This amount is subject to income tax, which is deducted at the source, and also affects the employee’s superannuation contributions. On the other hand, fringe benefits are non-cash perks or services provided by the employer. These may include things like a company car, housing allowance, or entertainment. Fringe benefits are generally subject to FBT but are not taxed as part of the employee's salary.

Salary packaging and salary sacrifice

Salary packaging is when an employee agrees to forgo part of their salary in exchange for non-cash benefits. For example, an employee might choose a salary sacrifice arrangement to receive a company car or a laptop. In this case, the employer provides the benefit, and the employee’s taxable salary is reduced by the value of the benefit.

Impact on FBT and take-home pay

The value of salary sacrifice can lower an employee's taxable income, reducing the amount of income tax paid. However, some fringe benefits may attract FBT, which the employer must pay. For example, a company car might reduce an employee’s salary but increase the employer’s FBT liability.

Example: Sarah and Michael

Let’s look at two employees. Sarah chooses a salary sacrifice arrangement to receive a car as a fringe benefit. This lowers her taxable salary, and she pays less income tax. However, the employer must pay FBT on the value of the car. Michael, on the other hand, opts for a higher salary without any fringe benefits. He pays more income tax but avoids FBT.Both strategies have their pros and cons. Salary sacrifice can reduce tax but may lead to higher FBT costs for the employer. Understanding how these elements interact is crucial for making smart financial decisions.

Common fringe benefit exemptions you may be eligible for

Employers need to be aware of certain fringe benefit exemptions that may reduce their FBT liability. These exemptions allow businesses to avoid paying FBT on specific benefits provided to employees, making it easier to manage costs. However, these exemptions come with conditions that must be met.

Common FBT exemptions

Here are some common FBT exemptions:

1. Work-related itemsItems like laptops, phones, or tools used directly for work are generally exempt from FBT. To qualify, these items must be used mainly for work purposes, not personal use.
2. Minor benefitsMinor benefits are low-value perks given occasionally. For example, a small gift for an employee’s birthday could be exempt from FBT if it is under a certain threshold. The benefit must be provided infrequently and have a low value (less than $300).
3. Relocation expensesIf an employee is required to relocate for work, the associated costs such as moving expenses, temporary accommodation, or transport may be exempt from FBT.
4. Workplace parkingParking provided at the workplace is exempt from FBT as long as it meets certain criteria. If it is provided to employees who primarily use public transport or for occasional use, it is not subject to FBT.
5. Remote area benefitsEmployers providing benefits to employees working in remote areas may be eligible for FBT exemptions under special concessions.

Quick reference: FBT exemptions

Exemption TypeConditionsWork-related itemsMust be used mainly for work purposesMinor benefitsValue under $300, infrequent and occasionalRelocation expensesCosts associated with moving for work, temporary accommodationWorkplace parkingProvided at the workplace, meets criteriaRemote area benefitsSpecial exemptions for employees in remote locations

Proper documentation is key

While these exemptions can reduce your FBT liability, proper documentation is crucial. Employers must keep detailed records to prove the eligibility of the exempt benefits. Using tools like Business Kitz helps ensure all your documentation is accurate and audit-ready, reducing the risk of errors and compliance issues.Stay organised and compliant by documenting all benefits provided to employees and make sure you meet the necessary criteria for these exemptions.

Reportable fringe benefits and their effect on employees

Reportable fringe benefits are benefits provided to employees that exceed a certain value. These benefits are reported on the employee’s payment summary and can affect the employee’s tax obligations. It's essential for employers to understand what qualifies as reportable fringe benefits and how they impact employees.

What are reportable fringe benefits?

Reportable fringe benefits are any benefits provided to an employee where the value exceeds $2,000 in a financial year. Examples of reportable fringe benefits include:

• Company cars: If the employee uses the company car for both work and personal purposes, and the value of the benefit exceeds $2,000, it will be considered reportable.
• Loans: If an employee is provided with a loan that is interest-free or at a lower rate than the market rate, the benefit may be reportable.
• Housing benefits: If the employer provides housing or subsidised rent, the value of the benefit could be reportable.

How reportable fringe benefits affect employees

When reportable fringe benefits are included on an employee’s payment summary, they can influence other tax obligations. For example, reportable fringe benefits can affect:

• HECS repayments: If an employee is repaying a HECS debt, the reportable fringe benefits will be added to their income for the purpose of calculating the repayment amount.
• Medicare levy: The Medicare levy may also increase due to the inclusion of reportable fringe benefits on the employee’s total income.

How to report reportable fringe benefits

Employers must report reportable fringe benefits to the Australian Tax Office (ATO) on the payment summary at the end of the financial year. It's important to distinguish these from other non-reportable benefits.To ensure correct reporting, maintain accurate records of all fringe benefits provided. This is where Business Kitz can help. By using Business Kitz for document management, you can store and track benefits efficiently, supporting your compliance. Keep your records organised and up-to-date to avoid any confusion or mistakes during the reporting process.

Paying FBT: Key dates, how to lodge, and avoiding penalties

Paying Fringe Benefits Tax (FBT) on time is crucial for businesses. Missing deadlines or failing to lodge returns correctly can lead to penalties. Below, we outline the steps to lodge FBT returns, the key deadlines to remember, and how to avoid costly penalties.

Steps to lodge FBT returns and pay on time

To lodge FBT returns and pay FBT correctly, follow these steps:

1. Register for FBT: If your business provides fringe benefits, you must register for FBT with the Australian Taxation Office (ATO).
2. Calculate FBT: Determine the total taxable value of the fringe benefits provided to employees during the FBT year (1 April to 31 March).
3. Complete FBT return: Fill out the necessary details in the FBT return form. This will include the grossed-up value of benefits provided.
4. Pay FBT: Submit your FBT return to the ATO and pay FBT by the due date.

Key deadlines and common penalties

Key deadlines to remember:

• 31 March: This marks the end of the FBT year.
• 21 May: If you're lodging your FBT return through a tax agent, this is the deadline for lodging and paying.
• 28 May: If you’re lodging directly with the ATO, the return is due.

If you miss the deadline or fail to lodge properly, you may face penalties such as fines or interest charges. These can add up quickly, making it essential to stay on track with your deadlines.

Mini checklist: Stay on track with reminders

• Register for FBT with the ATO.
• Calculate taxable value of fringe benefits.
• Lodge the FBT return by the deadline.
• Pay FBT on time.

Automate lodgement documentation

To help with FBT compliance, Business Kitz offers an easy way to track and manage your FBT documentation. With automated reminders and easy record-keeping, Business Kitz helps you lodge and pay your FBT on time, avoiding penalties. Try it for free here.

Fringe benefits and salary packaging for tax efficiency

Salary packaging is a strategy that allows employees to receive part of their pay in the form of fringe benefits instead of a direct cash salary. This can help employees reduce their taxable income and increase their take-home pay. Here's how salary packaging works and how it can benefit both employers and employees.

How salary packaging works

With salary packaging, employees agree to forgo a portion of their salary in exchange for benefits like a company car, laptop, or other non-cash items. These benefits are often provided tax-free or at a reduced rate compared to regular salary, meaning the employee could pay less tax on their total income.

Common inclusions in salary packaging

Some of the most common benefits included in salary packaging are:

• Company cars: Employees may opt for a car fringe benefit, which reduces their taxable income while providing them with a vehicle for personal and business use.
• Laptops and electronic devices: Employees can also package items like laptops, phones, and tablets, reducing their taxable income further.
• Superannuation contributions: Employers may also contribute more to an employee’s superannuation as part of a salary packaging arrangement.
• Other benefits: This can include items like health insurance, gym memberships, and childcare costs.

Tax advantages and FBT implications

Salary packaging can reduce an employee's taxable income, which may result in paying less income tax. However, it’s important to note that fringe benefits provided by the employer are generally subject to FBT. The employer will need to pay fringe benefits tax (FBT) on the value of the fringe benefits provided.The key tax advantage is that certain benefits like superannuation contributions and laptop packages may be exempt from FBT, making salary packaging an attractive tax-saving option.

Real-world scenario for clarity

Consider Sarah, who packages a company car and a laptop as part of her salary. By doing so, her taxable salary is reduced, meaning she pays less income tax. However, her employer needs to calculate the FBT for the car. Since the laptop is an exempt benefit, there’s no FBT for it. This arrangement helps Sarah reduce her tax and enjoy the perks of these benefits.In conclusion, salary packaging is a powerful tool for employees and employers looking to improve tax efficiency. However, careful management of FBT obligations is essential to ensure compliance and avoid penalties.

Do you need to register for FBT? Here’s how to check

If you're an employer providing fringe benefits to employees, you may need to register for FBT. Understanding whether you need to register can help you avoid penalties and ensure compliance with tax laws. Here’s what you need to know about registration and the steps to take.

Who needs to register for FBT?

Employers who provide fringe benefits to employees must consider registering for FBT. This applies whether the benefits are provided directly or through a third party. If you are offering benefits like a company car, laptops, or health insurance, you will likely need to register.

What triggers registration?

You are required to register for FBT if:

• You provide fringe benefits to your employees, their family, or associates.
• The total value of the fringe benefits exceeds $2,000 in a FBT year.
• You are a business or not-for-profit organisation that provides these benefits.

It’s important to remember that fringe benefits tax applies to non-cash benefits provided to employees. If you’re unsure whether your benefits fall under FBT rules, you can check with the Australian Taxation Office (ATO).

Step-by-step instructions to register for FBT

1. Determine if you're required to register: If your business provides benefits worth more than $2,000, you must register.
2. Create or use your ATO online services account: To begin, log into the ATO’s online services or use your myGov account if linked.
3. Apply for an FBT registration: Once logged in, you can apply for FBT registration. The ATO will guide you through the process.
4. Submit your FBT return: After registering, you must lodge an FBT return each year to report the benefits you provide.
5. Pay your FBT: Ensure you pay the FBT by the due date to avoid penalties.

For further details on how to register and lodge an FBT return, you can visit the ATO website at ato.gov.au.

Resources for new users

To help streamline the process of registering for FBT, you can use Business Kitz. Business Kitz offers resources and tools to make your FBT registration and record-keeping more efficient.By using Business Kitz, you can easily track and manage fringe benefits provided to your employees and ensure that your business stays compliant with ATO requirements.

Fringe benefits tax for not-for-profit organisations: Know your limits

Not-for-profit (NFP) organisations can enjoy some special concessions when it comes to fringe benefits tax (FBT). These concessions help reduce the FBT liability that would otherwise apply to the fringe benefits they provide to their employees. However, there are limits. Understanding these limits and staying within them is crucial for compliance.

Special FBT concessions for not-for-profit organisations

NFP organisations can benefit from reduced FBT rates and caps on the amount of fringe benefits they can provide tax-free. For example, certain benefits may be exempt from FBT or taxed at a lower rate if they meet the criteria set by the Australian Taxation Office (ATO).These special concessions apply to:

• Public benevolent institutions (PBIs)
• Health promotion charities
• Religious institutions
• Public hospitals

Cap comparison by organisation type

The ATO sets caps on the amount of fringe benefits a not-for-profit organisation can provide to its employees before it becomes subject to full FBT. Below is a comparison of the cap amounts for different NFP types:Organisation typeCap on fringe benefits before full FBT appliesPublic benevolent institutions (PBIs)$31,177 per employee (2024 FBT year)Health promotion charities$31,177 per employee (2024 FBT year)Religious institutions$31,177 per employee (2024 FBT year)Public hospitals$31,177 per employee (2024 FBT year)

Consequences of exceeding limits

If a not-for-profit organisation exceeds the cap on fringe benefits provided to employees, it will be subject to the full FBT rate on the amount over the cap. This could result in a significant tax liability, which can place strain on the organisation's budget. In addition, failure to comply with FBT regulations may lead to penalties from the ATO.

Final steps: Accurately calculating your total FBT liability

Calculating your fringe benefits tax (FBT) liability is an essential task for employers. The process involves several key steps. It starts with identifying the fringe benefits provided to employees, then moves to calculating the taxable value of those benefits, and finally, determining the FBT payable.

Steps to calculate FBT liability

1. Identify fringe benefits: Start by listing all fringe benefits you’ve provided to employees during the FBT year. This includes items like cars, loans, entertainment, and housing.
2. Determine the taxable value: The next step is to calculate the taxable value of each benefit. For example, if you provided a company car, you need to determine the base value of the car and then apply the gross-up method.
3. Apply the gross-up: The gross-up factor adjusts the value of the benefit to reflect the amount of tax the employee would pay if the benefit were provided as salary. There are two types of gross-up methods: Type 1 (for benefits subject to GST) and Type 2 (for those not subject to GST).
4. Calculate FBT payable: Once the grossed-up value of the benefits is determined, apply the appropriate FBT rate to calculate the total FBT payable.

Example: Car benefit calculation

Let’s say you provided a company car to an employee. The base value of the car is $30,000. Using the Type 1 gross-up factor of 2.0802, the grossed-up value becomes $62,406. If the FBT rate is 47%, the FBT payable would be $29,315.83.

Connection to income tax and BAS

The FBT you calculate will appear on your business activity statement (BAS). It is also linked to your income tax obligations, as FBT is a separate tax from income tax but needs to be managed together.

Simplify calculations with Business Kitz

Accurate calculation of FBT can be complex and time-consuming. Business Kitz helps streamline the process by automating record-keeping, simplifying calculations, and reducing the risk of errors. Use Business Kitz to ensure you comply with your obligations.

FAQ: Fringe benefits tax (FBT)

What is an overview of FBT?

Fringe benefits tax (FBT) is a tax employers pay on non-cash benefits provided to employees. These benefits are in addition to their salary. FBT is separate from income tax. It applies to items such as company cars, housing, and loans. Employers must calculate FBT based on the taxable value of the benefits.

How is FBT calculated?

FBT is calculated using the taxable value of the benefits provided. The value is adjusted by the gross-up method, which accounts for the tax paid on the benefits. The FBT rate is applied to this adjusted value to determine the amount payable. The FBT year runs from 1 April to 31 March, and employers must lodge an FBT return.

What is the reportable fringe benefit amount (RFBA)?

The RFBA is the total value of fringe benefits provided to an employee that is reported on their income statement. This amount affects the employee’s tax return, as it is used to determine the employee's eligibility for certain government benefits and family tax. The RFBA does not directly increase the employee’s tax payable but can impact their personal tax calculations.

What are exempt benefits under FBT?

Some fringe benefits are exempt from FBT. For example, certain benefits for employees working in not-for-profit organisations may be exempt from FBT, depending on specific rules. Additionally, benefits like work-related mobile phones or minor benefits may be exempt from income tax under specific conditions.

How does FBT affect the employee's tax return?

Fringe benefits provided to employees can influence the employee's tax return. The RFBA is included in the income statement, which may affect personal tax. This amount also impacts eligibility for government-tested benefits, including family tax. Although FBT is payable by the employer, employees must still report it correctly.

What is an expense payment fringe benefit?

An expense payment fringe benefit arises when an employer directly pays for an employee’s personal expenses. Examples include paying for an employee's health insurance or school fees. These payments are subject to FBT unless exempt under specific conditions.

Can FBT be reduced through salary sacrifice?

Salary sacrifice is a strategy where employees trade part of their salary for non-cash benefits like cars or extra superannuation contributions. This can reduce an employee's taxable income and potentially lower their personal tax, but it can also increase the FBT liability for the employer. Employers must ensure the correct FBT treatment is applied.

What happens if FBT is not paid on time?

If FBT is not paid on time, the employer may face penalties and interest charges. It is crucial to lodge the FBT return by the due date. Employers should stay on top of the key dates and consider using tools like Business Kitz to simplify documentation and ensure on-time lodgement.

What is the impact of the taxable value of the benefits on FBT?

The taxable value of the benefits is the amount on which FBT is calculated. This value includes the cost of the benefit to the employer, any associated costs, and adjustments for the gross-up method. The higher the taxable value, the higher the FBT payable.

Are there any exemptions for FBT treatment in not-for-profit organisations?

Not-for-profit organisations can benefit from FBT exemptions or concessions. These may include caps on the value of benefits provided to employees and specific conditions for exemption. It’s important to understand the rules for each benefit type to avoid exceeding the limits.

What are the key deadlines for lodging FBT returns?

FBT returns must be lodged by 21 May each year. Employers should calculate their FBT liability for the previous FBT year (1 April to 31 March) and pay any FBT due. Missing the deadline can result in penalties, so it’s important to keep accurate records and stay ahead of deadlines.

What is the connection between FBT and taxation laws?

FBT is governed by taxation laws and must be applied according to the rules set out in the Fringe Benefits Tax Assessment Act. Employers must understand these laws to ensure proper FBT treatment, avoid penalties, and make sure they comply with the Australian Taxation Office (ATO) requirements.

Stay compliant and stress-free

Managing FBT can be challenging, but it doesn’t have to be. With the right tools and knowledge, you can stay on top of your obligations and avoid costly mistakes.Key takeaways for FBT management include understanding the taxable value of benefits, applying the correct gross-up method, and keeping accurate records. Always be mindful of key dates, reporting requirements, and the potential tax implications for both employees and the business.Stay compliant, save time, and reduce your stress with Business Kitz today.

Disclaimer: This content is intended to be used for educational and informational purposes only. Business Kitz does not offer legal advice and cannot guarantee the accuracy, reliability, or suitability of its website content for a particular purpose. We encourage you to seek professional advice from a licensed professional and verify statements before relying on them. We are not responsible for any legal actions or decisions made based on the information provided on our website.

Unless expressly stated otherwise, all content, materials, text, images, videos and other media on this website and its contents are the property of their respective copyright owners.