Welcome to a whole new tax! Did you know that there are taxes and reporting requirements (for some people) beyond the year end income tax returns we all do? You might have heard about GST (good and services tax), or CGT (capital gains tax), but today we’re looking at Fringe Benefits Tax AKA “FBT”.
If you offer a fringe benefit to your employees, then you need to register to pay Fringe Benefits Tax. At the time of writing, the FBT rate is 47%.
This begs the question...
A ‘Fringe Benefit’ is an additional benefit provided to an employee on top of, or in replacement of, their salary and wages. Benefits can be both monetary and non-monetary and are benefits/purchases made outside of what is required for the employee to complete their job.
Basically, employers can’t substitute wages or give additional benefits to their employees and avoid withholding/paying the appropriate amount to the ATO. So, if you’re thinking about giving your employee a trip to Las Vegas instead of paying a bonus or increasing their salary next year, best to think again - or chat to your accountant about FBT.
Common examples of FBT:
Monetary and non-monetary benefits provided for work related purposes are not fringe benefits. For example, a performance related monetary bonus is not a fringe benefit (it is taxable for the employee though!). Non-monetary provisions, such as a laptop, protective clothing, or tools of the trade that are required to fulfil your work, are also not fringe benefits.
You must report all benefits provided to your employees that meet the Fringe Benefits criteria. It is always important to keep records, namely receipts and invoices. If you’re not sure what you’re providing is taxable or not, show those records to your accountant and they will determine for you.
For most Australian businesses, their financial year is 1 July - 30 June. However, an FBT year is from 1 April - 31 March. Annoying, we know. Generally, your Fringe Benefits Tax return is due on 21 May. For example, you have calculated your Fringe Benefits for 1 April 2019 - 31 March 2020, therefore your FBT Tax Return is due on 21 May 2020.
To report your fringe benefits you need to complete a Fringe Benefits Tax Return and lodge it with the Australian Taxation Office. It’s best to seek the help of an accountant to do this though, as they will know how to decrease your liability as much as possible (legally of course!) and how your FBT return and your income tax return talk to each other.
To be required to register for FBT, you must meet the following criteria:
If your business operates under a Sole Trader formation and you are the only one who works in the business (no employees), and you provide yourself with benefits that fit under the Fringe Benefits criteria, you are not required to register for FBT. A sole trader is not considered an employee of their business. You are one and the same as your business.
The same goes if you are a partner of a business operating as a Partnership with no employees. You are not considered an employee of the business, so even if you provide yourself with a Fringe Benefit, you are not required to register for FBT.
Case Study: Car Fringe Benefits
You provide your employees with work cars that have your company’s advertising on the side. They are permitted to use the cars for personal use. Your employees must keep a log book for twelve consecutive weeks to work out the employee’s personal use. After each trip (work and personal) your employee must record the following information:
This information helps to calculate any resulting Fringe Benefits Tax.
From there, you can use one of the two methods in which a business can calculate their car Fringe Benefits. The ‘Statutory Method’, which is based on the car’s cost price, or the ‘Operating Cost Method’, which is based on the costs of operating the car.
I bet you never imagined that we could give you a new meaning to the word “fringe”. I know for me, “Fringe” has always just been a reference to the Adelaide Fringe Festival, which funnily enough is what led me down the accounting path. But that is a story for another day!
(and co-author Caitie Copley)