The Essential Small Business Guide to Fringe Benefits Tax

As a small business owner, talented and capable employees can be some of your most valuable assets. However, a small business or startup budget doesn’t usually allow you to compete with larger companies that can offer higher wages to attract and keep the best employees.

Fringe benefits can increase employee retention, productivity and more!

Fortunately, you can provide fringe benefits to attract high caliber new hires and retain your best staff for the long term. Aside from attracting and retaining the best talent in your industry, offering fringe benefits can increase employee wellness, productivity, engagement, loyalty, and ultimately boost your bottom line.

These days, employees not only expect certain benefits from their employers, but they thrive on them. This is why fringe benefits are such an important thing to consider when devising your business strategy.

The only problem is, Fringe Benefits Tax (FBT) seems to be one of the most confusing taxes for small business owners with employees. However, it’s essential that you’re aware of your FBT tax obligations, because errors can be expensive and open you up to scrutiny from the ATO.

First of all, let’s clarify what a fringe benefit is…

A fringe benefit is any non-cash benefit that a current, future or former employee or their associate (such as a family member) receives because of their employment. A fringe benefit can be any right, privilege, service or facility that the employee receives that isn’t required by law. For example:

  • Allowing an employee to use a work car for private purposes
  • Giving an employee a discounted loan
  • Paying an employee’s gym membership
  • Providing free accommodation
  • Providing entertainment by way of free meals or tickets to concerts
  • Reimbursing an expense incurred by an employee, such as school fees
  • Giving benefits under a salary sacrifice arrangement with an employee

These lifestyle assets might have Fringe Benefit Tax implications for your business when they are used by you or your employees, so it’s important to keep a record of each asset and how it’s used. Accurate records will help you meet your FBT obligations and determine any related income tax deductions you’re able to claim. For a complete list of all the different fringe benefits, visit the ATO website.

On the other hand, fringe benefits are not:

  • Salary and wages
  • Shares purchased under approved employee share acquisition schemes
  • Employer super fund contributions
  • Employment termination payments, such as the gift or discount price for a company car to an employee on termination.
  • Payment of dividends
  • Benefits provided to volunteers and contractors
  • Exempt benefits such as those provided by religious institutions to their practitioners

6 quick facts about Fringe Benefits Tax

  1. FBT is separate to income tax and is calculated on the taxable value of each fringe benefit.
  2. It’s a tax on employers that provide non-cash benefits to their employees (or associates)
  3. Employers must annually self-assess their FBT liability for the FBT year (1 April to 31 March) and lodge an FBT return by 21 May, or the first business day after this date.
  4. You can usually claim an income tax deduction for the cost of providing fringe benefits and for the FBT you pay.
  5. You can also claim GST credits for items provided as fringe benefits.
  6. Tax paid in the FBT year must then be reported on your employee’s payment summary for the financial year (1 July – 30 June).

7 ways small businesses can reduce their FBT liability

Making benefits available to your employees doesn’t mean you need to cover the entire cost. In fact, offering fringe benefits instead of higher wages can save you money in the long run. Here are 7 things to consider when devising your fringe benefit plan:

1. Provide benefits that are income tax deductible

If you give an employee a benefit that they would have otherwise been able to claim as an income tax deduction, you may not have any FBT liability at all. In other words, if the employee had paid for the benefit themselves, they would be entitled to a full income tax deduction.

2. Use employee contributions

You can reduce your FBT liability by having your employee contribute towards the cost of a fringe benefit. The taxable value of a fringe benefit can usually be reduced by the amount of the employee contribution.

3. Consider providing cash bonuses

If you provide your employee with a cash bonus instead of a benefit you won’t have to pay FBT. Instead, your employee will pay income tax on the amount received.

4. Know which benefits are exempt from FBT

Some benefits are exempt from Fringe Benefits Tax. In particular, the exemption covers items that are used primarily in the employee’s job, such as:

  • Computer software
  • Protective clothing
  • Briefcases
  • Tools of trade.
  • Portable electronic devices such as mobile phones, laptops, tablets, portable printers and GPS navigation receivers.

Unlike larger companies, small businesses can provide employees with more than one work-related portable electronic device in an FBT year, even if the devices are quite similar in their functions.

5. Use your car parking benefits concession

Car parking benefits are also exempt from FBT if you’re considered a small business entity. However, there are a few more rules to follow in order to be eligible for this exemption. Government bodies, listed public companies and subsidiaries of listed public companies are not eligible, and the parking provided must not be in a commercial car park.

Car parking benefits are also exempt from FBT if the employee has disability, regardless of the type of employer.

5. Focus on providing lots of ‘minor benefits’

Any benefit less than $300 in notional taxable value is considered a ‘minor benefit’, and is exempt from FBT.  You can learn more about when the exemption does and does not apply on the ATO website.

6. Use taxis instead of Uber

Tax travel benefits are exempt from Fringe Benefits Tax if the travel is a single trip beginning or ending at the employee’s place of work.

Taxi travel is also an exempt benefit if the travel is both a result of sickness or injury, and is directly between the employee’s place of work and their home, or any other place the employee needs to go as a result of their sickness or injury.

This exemption is limited to travel in a vehicle licensed by the relevant state or territory to operate as a taxi. At this stage, Uber and other ride-sourcing services are not included.

7. Be aware of other FBT concessions

There are also concessions that apply to some fringe benefits. These concessions reduce the taxable value of the fringe benefit, to reduce the amount in Fringe Benefits Tax you need to may. In some cases, you won’t have to pay any FBT at all.

This applies to some benefits provided in remote areas, travel provided to employees posted overseas, employees using their own car for relocation, as well as some other benefits that you can find out about on the ATO website.

How to avoid last minute FBT stress

Given that not all benefits are treated equally by the ATO, taxation is one of the biggest challenges fringe benefits present for small business owners.

With all the complexities of fringe benefits, it’s best to work with a small business tax specialist, even if you’ve done your own research. Expert advice and implementation can easily save your business thousands of dollars, along with so much time and energy that’s better spent focusing on what you do best!

ABA’s small business team are experts in the latest cloud-based software solutions, and can ensure you always have up-to-date, accurate and secure records. Get in touch today to discover how you can use fringe benefits to your advantage!

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