Fringe Benefits Tax: Obligations for employers

With the Fringe Benefits Tax (FBT) year coming to an end on 31 March 2018, it’s a good time to brush up on FBT and what it means for you and your business. The FBT net is quite broad and looks to capture many arrangements between employers and employees. The ATO has announced a crackdown on Fringe Benefits Tax and will be looking closely at income tax returns and business activity statements to ensure all fringe benefits are being reported. It is important to understand when FBT may apply so that benefits are recorded correctly and any resulting tax can be managed.

We have compiled a list of the most common fringe benefits, FBT exemptions and reduction options so that you can determine whether this may apply to your circumstances.

What is FBT?

The FBT year runs from 1 April to 31 March and is a tax payable by employers on certain benefits provided to employees or their associates. It may be in addition to, or form part of, their ordinary wages. Fringe benefits tax is separate from income tax and is calculated on the taxable value of the fringe benefits provided.

Examples of fringe benefits include:

  • Allowing your employee to use a work car for private purposes
  • Paying for an employee’s flights to a conference where they later holiday for an extended period of time following the conference
  • Providing your employee with a discounted loan
  • Paying an employee’s gym membership or other personal costs
  • Providing entertainment, such as free concert tickets
  • Providing employees with free car parking
  • Reimbursing an expense incurred by your employee, such as school fees or medical insurance
  • Providing benefits under a salary sacrifice arrangement

Common FBT categories

The most common fringe benefit categories are: 

  • Car fringe benefits arising when employers provide a car which is available for private use by the employee;
  • Entertainment fringe benefits arising from the provision of recreation, food and drinks (including associated travel costs); and
  • Expense payment fringe benefits arising when paying for an employee’s private expenses either by direct payment or by reimbursement.

Other categories of fringe benefits include car parking, loans, living away from home allowance, debt waivers, housing and board.  In addition, a residual fringe benefit may arise if an employee is provided with any benefit that is not one of the specific fringe benefit categories.

Common FBT exemptions

Some benefits are exempt from FBT, or receive concessional treatment, however specific conditions often need to be satisfied.  Some examples of FBT exemptions include:

  • Work-related items (provided items are primarily used for employment);
  • Minor benefits (generally items less than $300 notional taxable value, excluding meal entertainment); and
  • Car parking for small business (subject to a number of conditions being satisfied).
  • Provision of portable devices (i.e. mobile phones, laptops and iPads)

Other exemptions and concessions may apply to taxi travel expenses and living away from home allowance benefits.  Specific concessions also apply for non-profit organisations.

Reduction options

A number of fringe benefits attract concessional treatment however these benefits are usually obscure and uncommon. For employers looking to provide further incentives to employees by way of salary packing etc., there are a number of benefits that can be provided that attract little to no FBT, such as:

  • Only providing benefits that would be an income tax deduction if the employee had paid for the benefits themselves (e.g. reimburse for business use of mobile phone / home internet costs); or
  • Providing exempt fringe benefits like portable devices (laptops, iPad’s etc.); or
  • If an employee is provided with a motor vehicle for use whilst at work and does not need to take the vehicle home, the vehicle should remain on the employer’s premises (including leaving the keys in the office). If a vehicle is only used for business travel and is not made available for private use by employees, there will be no FBT.

Significant Changes

A number of employers have employees who are required to travel extensively as part of their job (i.e. going from site to site or fly-in fly-out work). Historically, travel from work to home has been classified as of a private nature. The ATO has released a draft ruling (TR 2017/D6) which recognises two circumstances where this otherwise non-deductible travel may be deemed to have occurred for a work purpose and will therefore be deductible. Broadly speaking, the two circumstances are:

  1. Special Demands Travel – Factors that go into determining this include the remoteness of the work location, the requirement to work between multiple workplaces, and the need for an employee to work away from home for an extended period of time.
  2. Co-existing work place travel –When an employee has two or more workplaces (i.e. works at different offices/work sites), the associated travel is attributable to the employee being required to work in multiple locations and is generally part of their work.

It is important to note that these two new circumstances are conditional on the employee being paid to undertake the travel and does so under the direction and control of their employer.

Compliance requirements

If your business is providing fringe benefits, and if the employee does not reimburse the business for the taxable value of the fringe benefits provided, the business is required to register for fringe benefits tax, and lodge an FBT return.

The lodgement and payment due date is 21 May. However, if the return is lodged by a registered tax agent, the payment due date is extended to 28 May and the lodgement due date is extended to 25 June.

You are also required to record fringe benefits provided to employees in the employee’s payment summary where the individual’s fringe benefits amount exceeds $2,000.

What you need to do now

If your business is providing fringe benefits to employees, the following will assist you in getting ready for the end of the fringe benefits tax year:

  • Set a reminder for 31 March to record odometer readings of all motor vehicles provided to employees and subject to FBT;
  • Request details from employees of when these vehicles were not available for private use;
  • Review your files to identify any possible benefits provided to employees and their associates;
  • Review salary packages in place for any unspent amounts; and
  • Request receipts for any unreimbursed expenditure from employees.

Remember – Directors of a company or trust may also be subject to FBT if they are receiving certain benefits.  Sole traders and partners in a partnership however are not employees, and are therefore not obligated to report fringe benefits.

We can help

The ATO has issued a number of tax rulings affecting 2018 FBT year. As such, it is important that employers understand their obligations. If you would like more information about fringe benefits tax, or assistance with preparation of your FBT return, please contact our team on 07 3217 2477.  You can also view a number of short, informative videos about FBT and other small business matters on our Resources page.

Contact us for more information