A ‘fringe benefit’ is a benefit that is provided to your employees or your employees’ families or associates. 

There are many different types of fringe benefits such as the private use of a work car, car parking, entertainment or discounted loans. (Salary & Wages are not fringe benefits). These benefits are not taxed under the Income tax system to the individual employee.  There is a separate tax, fringe benefits tax (FBT), that is calculated on the taxable value of the fringe benefit.  This tax is payable by the employer.

The FBT Year is also different to the Tax Year.  The FBT year runs from 1 April – 31 March.  Employers with an FBT liability must lodge an FBT return each year and pay the calculated tax.

The tax rate is 47% of the ‘Grossed-up’* value of the fringe benefit.

* Equivalent to the gross income your employees would have to earn, at the highest marginal tax rate (including the Medicare levy), to buy the benefits themselves.

Given the high FBT tax rate, it is not always beneficial to an employee to receive benefits in this manner.  Employers will generally reduce the benefit provided to allow for the FBT tax they will need to pay.

There are specific FBT tax concessions depending on the purpose of the item, the location of the employee and the organisation the employee works for.

If you need any assistance in identifying whether your small business is liable for FBT or would like to plan the provision of fringe benefits to employees, please contact Cambrian Hill Accounting.