Your guide to Fringe Benefits Tax (FBT).
Should you be lodging an FBT Return where no FBT is payable?
What are fringe benefits?
Fringe benefits are something extra an employee gets from their employer, in addition to their wage or salary.
There are several benefits an employer can offer for their employee or family, the most common ones include;
- Vehicle lease for personal use
- Personal use company car
- Discounted loans
- Gym/health membership
- Entertainment expenses: event tickets, accommodation, free or discounted food etc.
- Private health insurance
- Living away from home allowance
- Real property: land and buildings
- Right to property: shares or bonds
- Childcare costs and school fees
Benefits are a great way for employers to recognise and reward their employees’ contributions to the business. Not all benefits are subject to FBT.
What is fringe benefit tax (FBT)?
FBT is separate from income tax and the employer is liable for any applicable FBT on fringe benefits they provide. FBT is calculated on the taxable value on a fringe benefit, which is the cost to the employer for providing a benefit. There are some benefits such as car benefits that have a taxable value based on a statutory formula rather than the actual cost to the employer.
FBT reporting requirements
When an employer provides a fringe benefit with a total taxable value of more than $2,000 in a FBT year. The employer needs to report the grossed-up value on their income statement or payment summaries for the corresponding income year.
FBT has its own calendar year which is between 1 April to 31 March, meaning businesses need to register for FBT and lodge FBT returns.
Benefit to lodging a nil FBT return
You’re probably wondering why you should consider lodging an FBT return when there is no FBT payable. It’s simple, once an FBT return is lodged the ATO can only go back three years should they wish to commence audit activities. Without the FBT return being lodged, the ATO has the discretion to commence an audit into activities as far back as the business has had employees. Without evidence from signed declarations, logbooks, meal entertainment records etc., that no FBT was payable the ATO is able to raise FBT liabilities even if the employee who enjoyed the benefit is no longer working for the business. This makes it difficult for the business to recoup costs.
People make mistakes, here are some of the common mistakes that could be identified by an ATO review
- An employee is provided with a car and the private use is worked out using the operating cost (logbook) method. If the depreciation is incorrectly claimed, it could result in an FBT liability where the calculated employee contribution is insufficient to remove the car’s taxable value.
- Not maintaining a register of which employees are the recipient of meal entertainment benefits, meal entertainment benefits are not all treated the same.
- Fringe benefits need to be calculated on a GST inclusive basis. It is important to ensure the cost base for each benefit is correct.
It is important to be aware of the current rates and rules surrounding fringe benefits as they change regularly. The ATO has indicated there will be increased focus on FBT this year, if you would like to limit the years the ATO can audit your business contact Holden Accountants today.
