A Comprehensive Guide to Fringe Benefits Tax in Australia
Fringe benefits can provide employees with amazing perks and―depending on their circumstances and the type of employment and employer―help reduce their taxable income.
If you’re planning to offer fringe benefits to your employees, consider hiring professional accountants to help you calculate fringe benefits tax. Let’s take an in-depth look at the Fringe Benefits Tax in Australia.
Understanding FBT
A fringe benefit is a different form of payment an employer may provide to their employees. Many business owners pay themselves a certain salary and extra benefits, which come under the banner of fringe benefits and are taxable.
Here are some examples of fringe benefits:
· Giving an employee with a work vehicle for personal use
· Giving an employee an interest-free loan
· Paying an employee health insurance
· Paying for meals and entertainment, such as an annual dinner
The Fringe Benefits Tax Assessment Act 1986 provides comprehensive guidelines on the conditions that prompt the company to pay FBT on any benefits they provide to their employees. As mentioned, FBT is separate from the usual income tax and has a different calculation method.
Calculating Fringe Benefits Tax
The ATO doesn’t provide the exact amount of tax employers must pay yearly. So, as a business owner, you’d have to calculate the amount yourself or hire accounting services to do the accurate calculation for you.
One thing to note is that the calculation duration runs from 1st April to 31st March, and the due date for lodgement and paying the FBT is 21st May. However, if you use an accountant or tax agent, the due date is 25th June.
Here’s are some steps to calculating fringe benefits tax:
· Step 1: Sum up the entire value of the fringe benefits provided during the tax timeframe
· Step 2: Identify the “Type 1” benefits and calculate their taxable value
· Step 3: Calculate the grossed-up taxable value of your Type 1 benefit
· Step 4: Identify the “Type 2” benefits and calculate their taxable value
· Step 5: Calculate the grossed-up taxable value of your “type 2” benefits
· Step 6: Add together grossed up value of Type 1 and Type 2 benefits
· Step 7: Calculate the FBT by multiplying the amount in step 6 by the current rate
These calculations can be confusing, and it is better to hire professional tax planners to help you accurately calculate the type 1 and 2 benefits and ensure that you’re not underpaying or overpaying your FBT.
Benefits Under the FBT Exemption
The ATO does provide some leeway and allows some benefits to being exempt from FBT. Certain work-related items such as protective clothing, portable electronic devices such as mobile phones, laptops, computer software and tools of the trade are exempt from FBT.
Also, if the total taxable value of the fringe benefits comes to $300 or less and if it is unreasonable to treat it as an additional benefit, the employer can be exempt from FBT.
Items such as taxi travel, provided that the whole or major part is directly between the employee’s workplace and place of abode, are exempt from FBT. If an employer pays an allowance to workers to cover the expenses of living away from home to perform their duties, the amount paid can constitute a fringe benefit.
Key Takeaways
Fringe benefits constitute a major part of an employee’s remuneration and can attract the brightest minds to work for your company. If you decide to incentivise your employees with fringe benefits, it is important to understand the legal and tax obligations that come with it.
If you’re unsure how to accurately calculate your FBT or are struggling to understand the various legal aspects of fringe benefits, it is better to engage with an expert accountant to help you through the process.
Get Started With Ace Biz
If you’re looking for a qualified, reliable, professional accountant who can handle complicated matters of fringe benefits and ensure that you don’t get on the wrong side of the ATO, check out the services Ace Biz provides.
They are one of the best in providing top-notch accounting and taxation services. Their experts have a robust knowledge of all relevant Australian standards and the technicalities involved in accounting standards to ensure that you’re paying your FBT accurately and in compliance with all relevant rules and regulations.
They provide comprehensive accounting and tax planning, business advisory, bookkeeping, and financial reporting services in Sydney, Newcastle and nearby areas. Get in touch with them today to learn more about how their services can help you grow your business.
