Providing benefits that would be deductible for the employee
You do not incur a fringe benefit tax (FBT) liability if you give an employee a benefit they would have been able to claim as an income tax deduction if they themselves had paid for it. This is called the 'otherwise deductible' rule.
If only a proportion of the expense would have been deductible for the employee, you reduce the value of the fringe benefit by the proportion that would have been deductible.
You can either:
- get a declaration from the employee that states the extent to which the cost is deductible
- choose to rely on business records where the Commissioner has made a determination by legislative instrument, instead of getting an employee declaration.
Keep the employee declaration with your business records. You don't need to send it to us.
Example: substantiating reduction with employee declaration
Meghan is a real estate agent employed by AbRealty.
She often works from home, using her home internet service to connect to the office or update listings. She estimates that 40% of her home internet usage is work related. The remainder is private use.
AbRealty reimburses Meghan for the full cost of her home internet service.
Meghan gives her employer a Recurring expense payment fringe benefit declaration covering the entire FBT year. The declaration states that 40% of the cost of her home internet service would be income tax deductible for her if she paid for it.
AbRealty:
- uses the 'otherwise deductible' rule to reduce the taxable value of the fringe benefit by 40%
- pays FBT on the remaining 60% of the fringe benefit
- can claim
- a GST credit for 100% of the GST charged on the internet service
- an income tax deduction for 40% of the cost of the internet service (excluding GST)
- an income tax deduction for the FBT paid
- keeps the employee declaration with its business records to substantiate the reduction in FBT.
Meghan cannot claim an income tax deduction as she did not pay for her work-related internet use.
End of exampleUsing employee contributions
You can reduce your FBT liability by having your employee contribute towards the cost of a fringe benefit. The contribution is usually a cash payment to you or the person who provided the benefit.
For most categories of fringe benefits, the taxable value of a fringe benefit can be reduced by the amount of the employee contribution. However, if the benefit is a tax-exempt body entertainment fringe benefit, you cannot reduce the value of the benefit by any employee contributions paid directly to you.
Just as the cost of providing a fringe benefit (including any part of the cost contributed by the employee) is generally deductible for you as the employer, you include any employee contributions paid directly to you in your assessable income (see FBT guide: 1.7 What are the income tax consequences of providing benefits?).
Example: employer uses employee contributions
A company golf team has a golfing day once a month. The employer pays the green fees of $45 a month, with the employees reimbursing the employer 75% of the fees.
The employer will:
- pay FBT only on the 25% of the green fees that are not reimbursed
- include the employee contribution in the company’s assessable income.
Providing a cash bonus
If you provide your employee with a cash bonus instead of a benefit you won't have to pay FBT. The employee will pay income tax on the amount.
Example: cash bonus instead of benefit
Gini asks her employer to provide her with an $800 gym membership. The employer would have to pay FBT on the value of the membership.
Instead, the employer pays Gini a cash bonus of $1,221.
The employer has no FBT liability on this payment. Gini must pay income tax on the payment.
At Gini's marginal rate of income tax, the $1,221 bonus is equivalent to $800 in after-tax income.
End of exampleProviding exempt or concessional benefits
Exemptions and concessions apply to a range of fringe benefits, including specific exemptions and concessions that apply for some not-for-profit organisations.
Exemptions may apply to:
- work-related items
- minor benefits (with a notional taxable value of less than $300)
- emergency assistance
- retraining and reskilling
- taxis and public transport
- work-related use of an eligible vehicle
- car parking
- food or drink consumed on your business premises.
A range of exemptions and concessions also apply to accommodation and location related fringe benefits where employees are required to work in remote areas or otherwise away from home.
For more information, see FBT guide: 19 Reductions in fringe benefit taxable value.