What is fringe benefits tax (FBT)?
Fringe Benefit Tax (FBT) is a tax paid by employers who provide certain benefits to employees that are not subject to regular income tax. For example, FBT is paid on a variety of reportable fringe benefits including company cars, car parking, health insurance, reimbursement of school fees, or meal entertainment.
An employee may opt for a salary package that includes salary sacrifice in exchange for these types of benefits. To compensate for the reduced PAYG tax paid, the ATO introduced FBT, which is part of a company’s annual tax return. The FBT year in Australia is different from the regular tax year, starting on April 1.
If an employee has access to company car entitlements, and can use it for private purposes then the vehicle is liable for FBT, based on its taxable value.
To minimise their FBT liability, businesses can review exemptions, deductibles and rebates, and check for exempt benefits that are excluded from the reportable fringe benefits amount, and which can reduce their overall tax liability.
Exemptions include benefits such as on-premise childcare and some minor benefits, like meal entertainment under a certain dollar amount.
The current gross-up rate in Australia is 47%. For the most up-to-date tax rates check with an ATO tax agent or the Australian taxation office.
As part of a company’s FBT record keeping, details on company cars that are available for personal use should be recorded, such as logbook records that detail business trips. ATO-approved fleet management solutions makes it simple for employees to tag trips as business or private, doing away with the need for a lot of tedious and error-prone paper logbooks.
Novated leases are generally where an employer pays the lease on a vehicle, and the employee (or the employee’s associate) is the lessee. The FBT liability will vary depending on the specifics of the lease agreement (bona fide or non-bona fide).
Disclaimer: This is for informational purposes only and should not be relied upon. Please refer to your tax agent or the Australian taxation office for detailed advice.