Do You Know What Benefits You’re Giving Your Employees?
As a part of employees’ employment contracts, do they receive benefits such as a car parking space, gym membership, or even a car to drive?
These are known as fringe benefits, which is a ‘payment’ to an employee that takes a different form to salary or wages. This incurs a specific kind of tax separate from income tax known as fringe benefits tax, which is based on the taxable value of the fringe benefits provided. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.
Knowing what is and what isn’t deemed as a fringe benefit will assist you in working out what you might provide to your employees as a benefit for working with you. Examples of Items That Are Fringe Benefits
Allowing an employee to use a work car for private purposes
Giving an employee a discounted loan
Paying an employee’s gym membership
Supplying entertainment by way of free tickets to concerts
Reimbursing an expense incurred by an employee, such as school fees
Giving benefits under a salary sacrifice arrangement with an employee.
Examples Of Items That Are Not Fringe Benefits
The following are not fringe benefits:
Salary and wages
Shares bought under approved employee share acquisition schemes
Employer contributions to complying super funds
Employment termination payments (including for example, the gift or sale at a discount of a company car to an employee on termination)
Payment of amounts deemed to be dividends under Division 7A
Benefits provided to volunteers and contractors
Exempt benefits such as certain benefits provided by religious institutions to their religious practitioners
Employees don’t have to worry about paying the tax on these items, but it is an area of concern that employers need to be careful of. Employers must self-assess their FBT liability for the FBT year (which ends 31 March) and lodge an FBT return.
Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. However, there are ways in which you may be able to reduce your liability when it comes to FBT.
These methods include:
supplying benefits that are income tax-deductible
If your employee is given a benefit that they could otherwise have claimed themselves.
using employee contributions
If your employees contribute to the cost of the FBT themselves through cash payment to the provider of the benefit, the taxable value of the fringe benefit can be reduced by that amount
supplying a cash bonus
If you provide your employee with a cash bonus instead of a benefit you won’t have to pay FBT, and the employee will pay income tax on the amount.
supplying benefits that are exempt from FBT.
FBT exemptions can sometimes be changed by the Australian Taxation Office (ATO), which can affect your FBT liability.
One such change was the FBT Retraining & Reskilling Exemption. Under this change, if you are an employer who is providing to their employees who are redundant (or soon to be made redundant) a benefit that encompasses training or education.
The exemption can be applied to retraining and reskilling benefits supplied on or after 2 October 2020. This exemption is not to be included in your 2022 FBT return or in your employee’s reportable fringe benefits amount. If you have already lodged your 2021 FBT return though and paid any FBT owing, you can amend your 2021 FTB return to reduce the FBT paid for retraining and reskilling that is exempt.
It’s advisable to consult with a tax agent (such as us) if you need to amend an FBT return (as we are equipped with the tools and skills to negotiate what can be a tricky area filled with complexities and traps).
Now’s the best time to speak with us about your FBT liability, what you might need to include in your return, and more.
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