Previously the ATO has not focused its efforts on Fringe Benefits Tax (FBT) and therefore many business owners have put their heads in the sand and ignored it. But this isn’t a great strategy and with the ATO now putting more emphasis in this area it could land you in hot water. Here is what you need to know.
What is FBT?
This is a tax that is payable by employers for benefits that are paid to their employees. This isn’t salary or wages. For example, company car, housing allowance or health insurance. This may be paid in lieu of wages and therefore reduce the tax payable by the employee. However, while the employer is liable to pay the tax they may recover part or all of that liability from the employee as part of their arrangement.
How do you calculate FBT?
You need to firstly establish the value of the fringe benefit. For example the cost of the health insurance for the year might be $5000. You then need to multiple this amount by the FBT rate. You can find the full FBT rates and thresholds here.
The FBT year runs from 1 April till the 31st March. For the current year (ending 31st March, 2019 that FBT rate is 47%).
It’s not that simple
Ok, so the reason businesses avoid this is that it isn’t quite as simple as what we have covered so far. There area a few twists and turns that start to make things a whole lot more confusing.
1. GST
GST affects FBT. Where the employer or benefit provider is entitled to a GST credit on the provision of the benefit then they need to use a higher gross-up rate. When there is no entitlement to claim a GST credit they need to use a lower gross-up rate.
2. Instalments Threshold
Where the employer has an FBT liability for the previous year of $3,000 or more, they will need to pay future instalments over four quarterly instalments. This means that you need to record and report on this ongoing so that you are ready each quarter to make the appropriate payment.
3. Cars
Cars can be a bit tricky, especially if the vehicle is used in part for business. You can find an ATO FBT car calculator here. Logbook > update or start a 12 week register.
4. Living Away from Home - Food and Drinks
Where the employee is away from home either in Australia or overseas there is a threshold of a reasonable amount of allowance for food and drinks. This isn’t subject to FBT, unless you pay more than the reasonable amount. You can find the table here.
Talk to our team!
If you think that you need to be paying FBT on benefits for your employees we advise speaking to our tax accountant sooner rather than later. Our tax accountant will be able to help you navigate what your obligations are and help to ensure that you meet this in a timely way.
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