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The Basics of Fringe Benefits Tax

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You can recognise and reward the important roles that your employees play in your business by giving them benefits. However, remember that certain benefits or perks trigger Fringe Benefit Tax (FBT). This is a tax employers pay on most non-cash benefits they give to their employees.

The Types of Fringe Benefits that are Taxable:

  • The use of a car for non-business purposes
  • Payment of private spending
  • Low-interest loans used for private purposes
  • Some types of entertainment such as meals for when an employee is not on an overnight business trip
  • Other perks if the expense does not exceed certain limits

How to Compute FBT

There are Type 1 and Type 2 Fringe Benefits. The ATO has provided steps to help you compute your FBT.

  1. Determine the amount of all Fringe Benefits you give to your employees that can be taxed.
  2. Ascertain from step 1, the aggregate amount (pre-gross up) of Fringe Benefits you give in which GST credit (Type 1 benefits) can be applicable.
  3. Determine the grossed-up taxable amount of these Type 1 benefits. Do this by multiplying the aggregate taxable amount by 2.1463, the current type 1 gross up rate.
  4. Ascertain from step 1, the aggregate taxable amount of benefits in which GST credit is not applicable. For example, supplies you delivered that were either input taxed (Type 2 benefits) or GST-free.
  5. Determine the grossed-up taxable amount of your Type 2 benefits. Calculate this by multiply the aggregate taxable by 1.9608, the current type 2 gross up rate.
  6. Get the sum of the gross-up values from step 3 and step 5. The amount is your overall Fringe Benefits that are taxable.
  7. Calculate the total FBT value that you must pay by multiplying the aggregate Fringe Benefits taxable value (from Step 6) by 49%, the current FBT rate.

Sample

Let’s say an employee receives $100,000 per year in wages and got a car benefit having a taxable amount of $10,000 in the 2015-2016 FBT year. The annual salary is taxable at the applicable pay as you go (PAYG) withholding rate and the car benefit amount is taxed in this manner:

Taxable Amount                                              $10,000

Multiplied by Gross-up rate x                        2.1463

Grossed-up taxable amount                           $21,463

FBT Rate                                                               49%

FBT Payable (rounded)                                   $10,517

Rules on Reporting FBT on PAYG Payment Summaries:

In case the pre-gross up taxable amount of the Fringe Benefits is over $2,000 during the FBT financial year covered (from 1 April to 31 March), employers are required to report the grossed-up taxable amount of those benefits on the Payment Summary of the employee for the corresponding payroll financial year (from 1 July to 30 June). Certain Fringe Benefits do not have to be included on Payment Summaries.

Sample

For the car benefit mentioned above, the value that must be reported on the employee’s PAYG payment summary for 2016 is as follows:

Taxable Value                                                      $10,000

Multiplied by Gross-up rate x                             1.9608

FBT Reportable amount                                     $19,608

Consider consulting your accountant with regards to FBT because it can be complex. PJS Accountants can help you organise your tax affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.