What is fringe benefit tax (FBT)?

Employers are becoming increasingly competitive in what they offer to attract and retain the best employees. Some perks like free food, discounted gym memberships, in house barista, tickets to events are becoming more common - some of these may or may not attract fringe benefits tax.​

Also, companies in their day to day operations could have employees receiving all types of benefits especially relating to entertainment and food (like an office arvo tea or a farewell lunch for a colleague), which result in multiple (and complex) calculations. We won’t get into that, but ATO has all the details here.​

We’re not going to get too technical here – just the basics and some figures to show the impact.​

A fringe benefit is where an employee (or their family member) receives an extra benefit in their role as an employee, in addition to their wages or salary. It can also be a benefit in return for foregoing some of their salary under a salary sacrifice arrangement. ​

The most common non-cash benefits are:​

These benefits are subject to fringe benefits tax (FBT) which is separate to income tax and calculated on the taxable value of the fringe benefit. The benefit needs to be private or personal in nature and not related to the person undertaking their day to day job.​

Employers are liable for the FBT that applies to the benefits an employee receives. ​

Here’s a simple example showing the difference between two employees receiving the same remuneration value, but in different forms.​

Jane receives a gross salary of $85,000. Before it gets into her hands, the employer has deducted $18,092 PAYG and pays it directly to the ATO.​

I think we’re all OK with this.​

What if John receives a salary of only $65,000 and has the use of a company vehicle valued at $20,000?​

Fair? We think not, and more importantly, the ATO thinks not.​

The whole purpose of Fringe Benefits Tax legislation is for the government (ATO) to receive the tax that would have been paid, if the employee paid for the benefit out of their own salary from take-home pay.​

FBT is a tax paid by the employer and only applies to companies, not sole-traders. ​

Unlike the financial tax year (1 July – 30 June), the FBT year is 1 April – 31 March.​

The ATO provides a step-by-step as to how to calculate the FBT payable​

Taxable Value of benefit provided x Gross Up Rate (Type 1 or Type 2) x FBT Rate of 47% = FBT Payable to ATO by Employer​

There are two different gross-up rates to calculate fringe benefits taxable amounts:​

However, for some benefits, the taxable value is calculated using a statutory formula (e.g. car benefits), which doesn’t necessarily reflect the actual cost to your employer (it’s used simply to work out FBT and any reportable fringe benefit amount). ​

Let’s work through a simple example - if an employee receives a gym membership worth $,1000 (including GST) during the year from their employer, the employer would calculate the FBT payable as follows​

Taxable Value = $1000​

Gross Up Rate (Type 1) = 2.0802​

FBT Rate = 47%​

$1,000 x 2.0802 x 47% = $977.69 - This is what the employer pays to the ATO​

A minor benefit is one that is provided to an employee or their associate (e.g. spouse) on an “infrequent” or “irregular” basis, which is not a reward for services, and at a cost less than $300 (inclusive of GST) “per benefit”. The employer will not need to pay FBT on these benefits. You’ll need to use some discretion as to what is considered infrequent and irregular - your accountant will be able to give you some guidance on this.​

An annual FBT return needs to be lodged and paid by 21 May each year. If you have a tax agent that lodges your return electronically, the due date to lodge and pay is 25 June.​

If your FBT liability for the last year was $3,000 or more, you will need to pay 4 quarterly instalments. Quarterly instalments are determined based on your prior years lodged FBT return.​

If you provide certain fringe benefits with a total taxable value of more than $2,000 during the FBT year, these are Reportable Fringe Benefits Amounts - you must report:​

Not all benefits are reportable (e.g. car parking).​

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