Fringe Benefits Tax (FBT) is mostly ignored by small business and a lot of accountants. Most think of it as a tax for big business, with lots of “entertainment” and exotic remunerations strategies or government departments with scores of internal finance people. But unfortunately, this is mistaken. FBT applies to all business who provide benefits to employees in respect of their employment and it can be a right pain in the arse often seem inequitable, pedantic and incredibly complex. So for the want of keeping people reading, I’m going to focus on basics, and a few common benefits that small businesses often provide and the implications for them.
who does FBT apply to?
FBT is a tax levied at the employer for benefits provided to its employees. It is paid by the employer directly to the ATO and can therefore be a debt of the business if not paid.
i.e the ATO will chase the business, not the employee.
This is important to acknowledge, because if the employer gets the calculation wrong, or incorrectly thinks they haven’t provided a Fringe Benefit and the ATO disagrees, they will come after the employer for the outstanding amount, not the employee who has received the benefit.
how does Fringe Benefits Tax apply?
FBT is levied via an annual Fringe Benefits Tax return. However businesses are not automatically entered into the FBT system, you need to elect to be apart of it if you are providing benefits.
In my opinion if you’re registered for PAYG Withholding, you should automatically get registered for FBT. I think this would drastically increase the amount of awareness of FBT issues, and hopefully then we can highlight the reform needed to this much maligned tax.
So how does it actually apply?
Tough question, because each benefit is different, but essentially, anywhere an employee has received something that isn’t cash for doing their job. From airline points, to payments for them to live away from home, to a coffee at a coffee shop (rather than getting the coffee delivered & consuming at the office btw) and much much more.
You then take the value of the benefit gross it up for GST and multiply by 47% (ouch). There's your Fringe Benefits Tax.
Common benefits that attract FBT
Common benefits provided to employees that will get you a front row center ticket to the FBT show are;
A question I get asked often is whether their company can buy them a car. The answer is yes the company can own the car, but the real question is whether there is any benefit in doing so, or should they just claim it in their personal return? The answer to that, will come down to the facts of each case, but in general, it can be cheaper to own the car in a business and package it as part of the employees remuneration.
That’s probably a bit more detail than this article will go into, and you’ll need a little bit of FBT knowledge to get a handle on that, so for those of you who want to know more, check out this one.
The social highlight of the year for some people and businesses. For others it’s pretty sad, but whatever the event, there are most definitely Fringe Benefits considerations to be had.
Whether there is a taxable event, will again be determined by the facts of each case. Usually the Christmas party meets the minor and infrequent benefit exemption (discussed below) that results in no Fringe Benefit Tax being paid (and by the by you can't claim the GST or income tax deduction. Soz). Sometimes it doesn’t. It’ll depend on how lavish the party and how many other benefits you’ve provided each specific staff member in any given FBT year.
Walk around some offices on a Friday afternoon, and you’ll find a few sneaky wine glasses, or stubbies easing people into the weekend. Does the tax man suck the fun out of this too?
Shockingly the answer is No! (for most businesses, although conditions do apply) What the tax man is letting us drink at work?
In essence yes, and a whole bunch of other stuff, like lunch provided and consumed at work on a work day (provided its not part of a salary package).
So is there a dollar threshold on this?
Again, shockingly No! you could be drinking Grange and getting lobster sandwiches and it’s still an exempt property benefit (which means it's exempt from Fringe Benefits Tax).
Entertainment of a client, will never be a Fringe Benefit. So if I’m a client of yours come on over and get your corporate card out.
Why isn’t there any FBT on this? Because it fails the definition of a fringe benefit. I mentioned it before, the part where I said "benefits paid to employees in respect of their employment". Clients are not employees, so therefore the FBT regime can not apply to “benefits” you provide to them.
minor & infrequent benefits
This is the most used exemption in the history of FBT. Ok I may have made that up, but geez, a lot of the time this gets a run in FBT land. So to explain: The legislation allows for minor benefits, which they deem to be less than $300 including GST (so no more than $299.99) per employee, (per benefit) provided irregularly and infrequently.
For example; old mate did a good job on the tools last month and smashed his targets so you want to give him a little something to say thanks. But if you pay him a cash bonus he’ll lose a bunch in tax which will dilute the “Thank You”.
So instead you give him a gift card to Bunnings for $250. This is a benefit provided to an employee in respect of their employment so falls well within FBT land.
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Under the minor and infrequent benefits exemption, this will not attract Fringe Benefits Tax as it’s less than the $300 threshold, its provided infrequently and irregularly as it was provided once, and does not form part of his salary package.
Obviously you’re now wondering if the company gets tax deduction and a GST credit for this?
The answer in this specific gift card case is yes (except Gift cards are GST Free), but that is not always the case.
If you gave them a gift card to the cinemas or a restaurant the answer would be no. Why?
Because FBT is a pain in the arse complicated and in inequitable and needs major reform.
when is FBT due?
The FBT year is not the same as our accounting and tax year. The Fringe Benefit Tax year runs from 1 April to 31 March because….well…FBT is a pain in the arse reasons.
And once you’ve had to pay Fringe Benefits Tax, you’ll start paying FBT instalments on your quarterly BAS’ like you do with PAYG income tax instalments.
What should you do about it?
Review your financials for benefits provided.
Hit list of expenses to look through;
- Staff Amenities
- Motor Vehicles
Talk to your tax accountant about it.
If they’re clueless, or unwilling to help, or fobbing you off, hit us up HERE
Register for FBT
Even if after reviewing everything you’re certain you’ve only provided exempt benefits, its better to have prepared and submitted a nil return than no return. Why?
Because the ATO has a limited time to amend returns. In most cases this is 4 years. So if you've done all the analysis and calculations and lodge a nil return because you believe you’ve satisfied the exempt criteria, and its 5 years later, the ATO can’t then decide to have a look at it and amend it if they find something wrong.
But if you haven’t lodged a return the ATO can go back as far as they want and look at all the years worth of FBT and issue assessment notices on all of them because the amendment period has never started!
Now the chance of that might be a long shot, and you’ll need to weigh up the compliance cost versus the risk you’ve mistakenly applied the Fringe Benefits Tax legislation to your situation, but that’s up to you. I know lots of businesses that consider the cost a type of insurance policy and sleep very very easily.
If you want to be one of them. Contact us HERE