Fringe benefits tax can often be confusing and complicated; what is a fringe benefit, when is tax payable and who pays the tax?
A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages.
According to the fringe benefits tax (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.
The terms benefit and fringe benefit have broad meanings for FBT purposes. Benefits include rights, privileges or services. For example, a fringe benefit may be provided when an employer:
– allows an employee to use a work car for private purposes
– gives an employee a cheap loan
– pays an employee’s gym membership
– provides entertainment by the way of free tickets to concerts
– reimburses an expense incurred by an employee, such as school fees
– gives benefits under a salary sacrifice arrangement with an employee.
FBT is paid by the employer irrespective of whether a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.
The employer may claim an income tax deduction for the cost of providing the fringe benefit and the amount of Fringe benefit paid.
Reportable fringe benefits
If an employee receives fringe benefits with a total taxable value of more than $2,000 in an FBT year (1 April to 31 March), the grossed-up taxable value of the benefits must be reported on the payment summary under RFBA.
Quick quiz to test what you know about FBT
1. Is FBT payable when super is paid under a salary sacrifice arrangement ?
A: No as this is not classified as a ‘benefit’ under the legislation.
2. Who pays fringe benefits tax?
A: The employer.
3. Is the FBT year the same as the tax year?
A: No the FBT years is from 01 April to 31 March each year.
4. You have a lot on in the office at the moment and your staff stay back to do some of the additional work load so you provide tea and snacks. Is this considered a fringe benefit?
A: No this is considered sustenance and not a fringe benefit.
5. To reward your staff for all their hard work whilst its been so busy you put on drinks and snacks after work and get the staff members to bring their spouses. Is this considered a fringe benefit?
A: As the drinks and snacks are provided after work and in a social setting this is considered a fringe benefit. Generally if alcohol is provided it is deemed as entertainment and attracts FBT.
6. What is the fringe benefits tax rate?
A: Currently 46.5%.