Fringe benefits tax - a guide for employers

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Introduction

Primary legislative references

The Fringe Benefits Tax (FBT) legislation consists of the following acts:

1. Fringe Benefits Tax Assessment Act 1986 : establishes the rules for assessing and collecting the tax. The Act is quite separate from the income tax assessment acts.
2. Fringe Benefits Tax Act 1986 : imposes tax on the taxable value of fringe benefits. Any change to the rate of tax is effected by amending this Act.
3. Fringe Benefits Tax (Application to the Commonwealth) Act 1986 : ensures that the FBT legislation also applies to Australian Government authorities and departments.

Most of the information in this guide relates to the legislation contained in the FBTAA.

Overview of the guide

This guide is our most comprehensive guide to FBT and is divided into three areas:

• chapters 1 to 5 which explain the operation of FBT and your responsibilities as an employer
• chapters 6 to 21 which deal with how to identify and value each type of benefit and the various concessions available, including for non-profit organisations.
• chapter 22 which explains the meaning of terms used throughout the guide chapters and the primary FBT legislative references referred to throughout the guide.

Below is a list of chapters that comprise the guide with links to each and a brief summary of their content. A table of any major changes and updates made at each review can be found within each chapter.

Chapter 1 - What is fringe benefits tax?

A fringe benefit is a 'payment' to an employee, but in a different form to salary or wages.

According to the FBT legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. This chapter expands on this principle including various ways you can reduce your FBT liability. It also expands on related information in respect of GST, income tax and salary sacrifice and things that are excluded from being a fringe benefit.

Chapter 2 - Calculating fringe benefits tax

Where you provide taxable fringe benefits to employees, there are some distinct steps involved in calculating your FBT liability. When working out your FBT liability you must gross-up the taxable value of benefits you provide, to reflect the gross salary employees would have to earn at the highest marginal tax rate (including Medicare levy) to buy the benefits after paying tax.

Chapter 3 - How FBT works

You must lodge an FBT return if you have a liability during an FBT year (1 April to 31 March).

You must lodge your return and pay the total FBT amount you owe for the FBT year ending 31 March by 21 May. However, if a tax agent is preparing your FBT return, different lodgment arrangements may apply.

If you haven't paid FBT before, or if the amount of FBT you had to pay for the previous year was less than $3,000, you only make one payment for the year when you lodge your FBT return. If it isn't your final FBT return and you had to pay FBT or $3,000 or more in the previous year, you must pay quarterly FBT instalments with your activity statement for the next FBT year.

Chapter 4 - Fringe benefits tax record keeping

There is a general requirement that you must keep records that are adequate to enable your FBT liability to be assessed. For FBT purposes, these records must be kept for five years from the date they are prepared, obtained or the transactions completed, and in a form that tax officers can access and understand in order to determine your tax liability.

Chapter 5 - Reportable fringe benefits

As an employer, you must record the value of fringe benefits provided to each of your employees.

If the value of certain fringe benefits provided exceeds $2,000 in a FBT year (1 April to 31 March), you must record the grossed-up taxable value of those benefits on your employee's payment summary or in single touch payroll (STP) by the due date for finalisation for the corresponding income year (1 July to 30 June). You may also have to report the notional value of certain exempt benefits.

Chapter 6 - Non-profit organisations and FBT

Depending on your type of organisation, certain benefits you provide to employees receive concessional FBT treatment. Charities that want to access FBT concessions must be registered with the Australian Charities and Not-for-profits Commission (ACNC) as a charity and endorsed by us.

Chapter 7 - Car fringe benefits

A car fringe benefit commonly arises where you make a car you own or lease available for the private use of an employee. A car is taken to be made available for private use by an employee on any day the car:

• is actually used for private purposes by the employee or associate
• is not at your premises, and the employee is allowed to use it for private purposes
• is garaged at their place of residence, regardless of whether they have permission to use it privately.

As a general rule, travel to and from work is private use of a vehicle. Private use of a motor vehicle that is not a car may give rise to a residual fringe benefit.

Chapter 8 - Loan and debt waiver fringe benefits

A debt waiver fringe benefit arises where you waive or forgive an employee's debt. For example, if you sold goods to an employee and later told them not to bother about paying the amount invoiced for the goods, you have provided a debt waiver fringe benefit.

A debt owed by an employee that you write off as a genuine bad debt is not a debt waiver fringe benefit

A loan fringe benefit arises where you provide a loan to an employee and charge a low rate of interest (or no interest) during the FBT year. A low rate of interest is one that is less than the statutory rate of interest. See FBT rates and thresholds for the current statutory rate of interest.

The use of the term 'loan' is quite broad. For example, if an employee owes you a debt but you don't enforce payment after the debt becomes due, the unpaid amount is treated as a loan to the employee. Such a loan commences immediately after the due date, at the rate of interest (if any) that accrues on the unpaid amount.

Chapter 9 - Expense payment fringe benefits

An expense payment fringe benefit may arise where you:

• reimburse an employee for expenses they incur
• pay a third party for expenses incurred by an employee.

In either case, the expenses may be business or private expenses, or a combination of both but they must be incurred by the employee.

Chapter 10 - Housing fringe benefits

If you provide an employee with the right to use a unit of accommodation and that unit of accommodation is the usual place of residence of the employee, the right to use the unit of accommodation is a housing fringe benefit.

A unit of accommodation includes:

• a house, flat or home unit
• accommodation in a house, flat or home unit
• accommodation in a hotel, motel, guesthouse, bunkhouse or other living quarters
• a caravan or mobile home
• accommodation on a ship or other floating structure.

The employee doesn't have to have exclusive use of the accommodation.

Chapter 11 - Living-away-from-home allowance fringe benefits

If you pay an employee a living-away-from-home allowance, you are providing a living away from home allowance fringe benefit.

For FBT purposes, a living-away-from-home allowance is an allowance you pay to an employee. It is intended to compensate for additional expenses incurred and any disadvantages suffered because the employee has to live away from home to perform employment-related duties. Additional expenses don't include expenses the employee could claim as an income tax deduction.

Chapter 12 - Airline transport fringe benefit

Changes were made to the FBT law relating to airline transport fringe benefits. Under these changes, airline transport benefits are now taxed under the in-house benefit provisions.

Chapter 13 - Board fringe benefits

A board fringe benefit may arise if you provide an employee with accommodation and there is an entitlement to at least two meals a day - the meals may be a board fringe benefit.

Examples include:

• meals provided in a dining facility located on a remote construction site, oil rig or ship
• meals provided to a live-in housekeeper or to resident teachers in a boarding school.

Chapter 14 - Entertainment

The provision of entertainment means the provision of entertainment by way of food, drink or recreation. There is no category of fringe benefit called an entertainment fringe benefit, but the following types of fringe benefits may arise from providing entertainment:

• a tax exempt body entertainment fringe benefit (only employers who are exempt from income tax, see chapter 15)
• an expense payment fringe benefit - for example, the cost of theatre tickets purchased by an employee and reimbursed by the employer
• a property fringe benefit - for example, providing food and drink
• a residual fringe benefit - for example, providing accommodation or transport in connection with such entertainment

Chapter 15 - Tax-exempt body entertainment fringe benefits

A tax-exempt body entertainment fringe benefit may arise where you incur entertainment expenses and you are wholly or partially exempt from income tax, or don't derive assessable income from the activities related to the entertainment.

Only entertainment expenditure that is non-deductible for income tax purposes can give rise to a tax-exempt body entertainment fringe benefit.

Chapter 16 - Car parking fringe benefits

Broadly, a car parking fringe benefit may arise where you provide car parking for an employee at or near their place of employment, and:

• there is a commercial parking station available for all-day parking within a one-kilometre radius of the premises on which the car is parked, and
• that commercial car parking station charges a fee for all-day parking that is more than the car parking threshold.

The car parking threshold is indexed in line with the consumer price index. See FBT rates and thresholds for the current car parking threshold.

Chapter 17 - Property fringe benefits

A property fringe benefit arises when you (the employer) provide an employee with free or discounted property.

For fringe benefit tax (FBT) purposes, property includes:

• goods (including gas and electricity, unless provided through a reticulation system) and animals
• real property, such as land and buildings
• rights to property, such as shares or bonds.

Benefits specifically covered by earlier chapters of this guide are excluded from being property fringe benefits.

Chapter 18 - Residual fringe benefits

The term fringe benefit has a very broad meaning. It includes any right, privilege, service or facility provided in respect of employment.

Any fringe benefit that is not subject to the rules outlined in one of the preceding chapters of this guide is called a residual fringe benefit. Essentially, these are the fringe benefits that remain, or are left over, because they are not one of the more specific categories of fringe benefit.

Chapter 19 - Reductions in fringe benefit taxable value

A number of fringe benefits attract concessional treatment. The concession is a reduction in the taxable value of the fringe benefit that results in a reduced amount of fringe benefits tax (FBT), or even no FBT, being payable.

The taxable value of a fringe benefit is calculated in accordance with valuation rules. Where the 'otherwise deductible' rule applies, the taxable value is then reduced.

If the fringe benefit is of a type that attracts any of the concessions listed in this chapter, you (the employer) may reduce the taxable value further. In some instances there may be special conditions that must be satisfied before the concession applies - for example, keeping certain records.

Chapter 20 - Fringe benefits tax exempt benefits

A number of benefits are exempt from fringe benefits tax (FBT). Although these are popularly called 'exempt fringe benefits', they are referred to in the FBT legislation as 'exempt benefits' - in fact, by definition, an exempt benefit cannot be a fringe benefit.

Chapter 21 - Employee cars - applying the 'otherwise deductible' rule

Various chapters in this guide describe a procedure for calculating the reduction in FBT available under the otherwise deductible rule. There is modified procedure used to calculate the amount that hypothetically would have been allowable as an income tax deduction to the employee where the costs of operating the employee's own car are involved.

Chapter 22 - Definition of key terms

Various chapters in this guide describe specific terms and processes that are used in FBT legislation. These terms and a brief explanation of each are provided to help establish their application to particular types of fringe benefits and their use in the calculation of taxable value and liability.

ATO references:
NO Fringe benefits tax - a guide for employers