Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits provided to their employees, or to their employees’ family or other associates. Unlike income tax, FBT is calculated on the taxable value of the fringe benefit and is separate from the employee’s salary or wages. The FBT year runs from 1 April to 31 March, and employers must self-assess their FBT liability for this period. If there is an FBT liability, employers must lodge an FBT return and pay the tax owed by 21 May each year.
What Are Fringe Benefits?
A fringe benefit is a benefit provided to an employee in a form other than salary or wages. Examples of fringe benefits include:
- 🚗 Allowing an employee to use a work car for private purposes
- 🏋️♂️ Paying for an employee’s gym membership
- 🎟️ Providing entertainment such as free tickets to concerts
- 💳 Reimbursing personal expenses
- 💼 Giving benefits under a salary sacrifice arrangement
These benefits are often referred to as “privileges” or “perks” and are non-monetary forms of compensation that enhance the overall compensation package for employees.
Who Do Fringe Benefits Apply To?
Fringe benefits directly apply to employees and their associates, which can include family members such as spouses and children. For example, if an employer provides a company car that an employee’s spouse can use, this is considered a fringe benefit and is subject to FBT. However, fringe benefits do not apply to clients and their spouses. Benefits provided to clients, such as meals or entertainment, are generally not subject to FBT, although they may not be tax-deductible for the employer.
FBT Rate and Deductions
The FBT rate is 47% of the grossed-up value of the fringe benefits provided to employees. Employers can claim deductions and GST credits for the cost of providing fringe benefits, which can help offset the FBT liability.
Car Fringe Benefits
If an employer provides a car to an employee for private use, it is considered a car fringe benefit and attracts FBT. Employers can choose between two methods to calculate the taxable value of car fringe benefits:
- Operating Cost Method (Logbook Method): Based on actual running costs and percentage of private use. Requires a 12-week logbook to determine private vs. business use.
- Formula: Taxable Value = (Total Operating Costs × % of Private Use) – Employee Contributions
- Statutory Method: A flat rate of 20% of the car’s base value, regardless of private use. Easier to use as no logbook is required.
- Formula: Taxable Value = (Base Value of Car × 20%) – Employee Contributions
Entertainment Fringe Benefits
When employers provide meals, drinks, or recreational events to employees or their families, it may be classified as entertainment fringe benefits and subject to FBT. Entertainment includes business lunches, after-work drinks, tickets to movies, concerts, or sports events, and social functions like Christmas parties or farewell events.
Employers can choose between the following methods to calculate entertainment fringe benefits:
- Actual Cost Method: Allocates actual entertainment costs to each participant. Only expenses for employees and their associates are taxable.
- 50/50 Split Method: Splits 50% of total entertainment expenses as taxable, regardless of who receives the benefit.
Exemptions for Entertainment Benefits
Certain entertainment-related expenses may be exempt from FBT:
- ✅ Minor Benefits Exemption: Perks under $300 per person and provided infrequently may be exempt.
- 🍽️ In-House Meals: Meals served during work hours at the employer’s business premises.
- 🎄 Christmas Parties: No FBT if held on business premises during work hours.
- 🏟️ Tickets to Sporting Events: No FBT if provided to clients.
- 🎁 Gifts to Employees: Non-entertainment gifts (e.g., flowers, gift vouchers) are FBT-exempt if under $300.
Key Takeaways for Employers
FBT applies to extra perks provided by employers, such as cars, meals, and entertainment. Choosing the right method to calculate fringe benefits can significantly reduce FBT liability. Employers should opt for FBT-free perks like office coffee or small gifts to minimize their FBT liability.
Contact Us
For any queries or assistance regarding Fringe Benefits Tax, feel free to reach out to I DO TAX ACCOUNTANTS:
- 📞 Tel: (03) 8594 1811 ~ 1800 955 811
- 📧 Email: info@idotax.com.au
- 📍 Address: 295 Victoria Street, Abbotsford, VIC 3067
For more detailed information, you can visit the Australian Taxation Office (ATO) website.