A fringe benefit is an additional benefits received from an employer, in addition to a wage or salary, or in return for a salary sacrifice arrangement. Fringe benefits can be used to help employers attract, retain and motivate employees, by giving a competitive edge. These perks can include free food, coffee bars, discounted gym memberships and entertainment. Although the purpose of fringe benefits tax is straightforward, the law itself can be complex and confusing. Keep reading this Legal Kitz blog to understand more about what fringe benefit tax applies to and how it’s calculated.
Fringe benefits tax will be paid by employers on certain benefits they provide to their employees, even if it was provided by a third party under an arrangement. This tax is separate to income tax, and is instead calculated on the taxable value of the fringe benefit. This tax assessment is outlined by the Fringe Benefits Tax Assessment Act 1986.
Who is an employee for fringe benefits tax purposes?
According to the Australian Taxation Office (ATO), an employee for fringe benefits tax purposes includes:
- current, future or past employees;
- directors of companies; and
- beneficiaries of a trust who works in the business.
Examples of fringe benefits
Fringe benefits can include, but are not limited to:
- allowing the use of a work car for private purposes;
- discounted loans for employees;
- paying for a gym membership;
- providing entertainment (e.g. through movie tickets);
- private health insurance; or
- childcare costs and school fees.
Fringe benefits do not include the following:
- salary and wages;
- shares purchased under approved employee share acquisition schemes;
- employer contributions to complying super funds;
- benefits provided to volunteers and contractors; or
- employment termination payments.
What is a Reportable Fringe Benefits Amount (RFBA)?
If the total taxable value of relevant fringe benefits exceeds $2,000 in a fringe benefits tax year (from 1 April to 31 March), employers will be required to gross-up this amount and report it on the employee’s income statement or payment summary. This taxable value on fringe benefits is outlined by the Fringe Benefits Tax Act 1986.
An RFBA is not considered taxable income, but it may be used to determine whether an employee is entitled to, or liable for, different benefits and obligations. These can include Family Tax Benefits, the Medicare levy surcharge, tax offsets, etc.
Some fringe benefits are not included in the reportable amount, such as meals, entertainment, and employer-provided vehicle parking.
Calculating the RFBA
The taxable value of reportable fringe benefits will be calculated by an employer, using the lower gross-up rate for the fringe benefit tax (FBT) year. This amount reflects the gross salary that an employee would have to learn to purchase that benefit using after-tax income.
What fringe benefits are exempt?
Benefits which are mainly used for work purposes (such as tools or electronic devices) may be free from fringe benefit tax. ‘Minor benefits’, which have a national taxable value of less than $300, may also be FBT exempt.
There are a number of concessions and exemptions from FBT available for certain not-for-profit organisations such as charities, public hospitals and religious institutions.
Does FBT affect salary sacrificing?
Salary sacrifice arrangements can help enable an employee to receive both their income and benefits in a tax-effective way which benefits both the employee and the employer. These benefit items can include:
- car fringe benefits;
- expense payment fringe benefits (such as school fees, mortgage payments, etc);
- car parking fringe benefits; and
- superannuation contributions.
Salary sacrifice items usually have FBT implications, especially for items like cars. Some items are exempt from FBT, such as superannuation. However, employers may choose to reduce an employee’s salary by the amount that they would be required to pay on fringe benefit tax. This may result in a less ideal situation for the employee, who will be essentially paying for the tax.
Is fringe benefits tax paid on superannuation contributions?
Superannuation contributions are not fringe benefits unless they are paid for the benefit of an associate, such as for an employee’s spouse or to a non-complying superannuation. These may attract a fringe benefits tax.
Legal advice
It can be difficult to understand your obligations regarding fringe benefits tax. You don’t have to do it alone! If you would like to speak to one of our friendly staff here at Legal Kitz, we offer a FREE 30-minute initial consultation with one of our experienced business specialists. You can also get in contact at [email protected] or at 1300 988 954.