Tax Treatment of Common Fringe Benefits in a Business

Are your employees entitled to additional perks like a reserved parking spot, gym membership, or even a company car?

These extra benefits are commonly referred to as fringe benefits, which is a different form of ‘payment’ to salary or wages. However, they come with a separate tax called fringe benefits tax (FBT), which is calculated based on the taxable value of the provided fringe benefits.

Keep in mind that FBT still applies even if the benefit comes from a third-party arrangement with the employer. Knowing which benefits count as fringe benefits will help you figure out what you can offer your employees as an extra perk for working with you.

Examples of items that are fringe benefits

• Allowing an employee to use a work car for private purposes
• Giving an employee a discounted loan
• Paying an employee’s gym membership
• Providing entertainment by way of free tickets to concerts
• Reimbursing an expense incurred by an employee, such as school fees
• Giving benefits under a salary sacrifice arrangement with an employee.

Examples of items that are not fringe benefits

The following are not fringe benefits:

• Salary and wages
• Shares purchased under approved employee share acquisition schemes
• Employer contributions to complying super funds
• Employment termination payments (including, for example, the gift or sale at a discount of a company car to an employee on termination)
• Payment of amounts deemed to be dividends under Division 7A
• Benefits provided to volunteers and contractors
• Exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.

Employees don’t have to worry about paying the tax on these items, but it is an area of concern that you need to be careful of. You need to self-assess their FBT liability for the FBT year (which ends 31 March) and lodge an FBT return.

Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay.

However, there are ways in which you may be able to reduce your liability when it comes to FBT. These methods could include:

• Providing benefits that are income tax deductible - if your employee is given a benefit that they could otherwise have claimed themselves.
• Using employee contributions - if your employees contribute to the cost of the FBT themselves through a cash payment to the provider of the benefit, the taxable value of the fringe benefit can be reduced by that amount
• Providing a cash bonus - if you provide your employee with a cash bonus instead of a benefit you won’t have to pay FBT, and the employee will pay income tax on the amount.
• Providing benefits that are exempt from FBT

What benefits are exempt?

Not all benefits you give your employees count as fringe benefits. Some benefits are exempt from FBT altogether. It's important to know which benefits fall into this category, so you don't end up paying unnecessary taxes.

• From 1 July 2022, employers do not pay FBT on eligible electric cars and associated car expenses.
• If your employee has a disability, you are a small business or you are an exempt employer, you do not have to pay FBT for providing an employee with car parking.
• There is no FBT if an employee is using a vehicle you have provided that is an eligible vehicle (according to the Australia Taxation Office) and that their private use of the vehicle is limited.
• Portable electronic devices that are mainly used for work purposes are exempt from FBT (applicable to one item per FBT year). These can include mobile phones, laptops, tablet computers, calculators, portable printers or portable GPS navigation receivers.
• Specific work-related items are exempt from FBT where they are mainly used for work purposes. These include computer software, protective clothing, briefcases and tools of trade.

Need help with your FBT return?

It’s advisable to consult with a tax agent if you need to amend or lodge a FBT return.

At Clarity Taxation, we are equipped with the tools and skills to negotiate what can be a tricky area filled with complexities and traps.

Now is the best time to speak with us about your FBT liability, what you might need to include in your return and more. Start a conversation with us today.