Fringe Benefits Tax (FBT) is a tax imposed on employers for specific benefits they provide to their employees or their employees family or friends. FBT’s purpose for its existence is to prevent tax leakage from businesses deducting the cost of provide those however income tax is not collected on the employee side.
Some major examples of fringe benefits include; allowing an employee to use a car for work for private purpose unrelated to work, paying for an employee’s gym membership, providing entertainment by giving away free tickets to concerts. FBT applies even when the benefit is provided by a third party under an arrangement with the employer.
The following are not fringe benefits; shares purchased under approved employee share acquisition schemes, salary and wages, employer contributions to complying super funds and employment termination payments (including for example, the gift or sale at a discount of a company car to an employee on termination).
The current FBT rate is 47 percent. The benchmark interest rate is 4.8 percent. The “car parking threshold” is $9.15. The recording-keeping exemption is $8,853. The FBT return is due by 21st May 2021, or by 25th June if lodged electronically via your tax agent.
From a business perspective, there are generally speaking two types of fringe benefits. The first being the benefits provided to employees generally, or a category of employees, and are not part of any particular employee’s remuneration. Any Fringe Benefit Tax arising is a cost of the business.
The second type of fringe benefits are the kind that do form part of an employee’s remuneration package. The FBT on the benefit is usually decided in advance, and is a element of the employee’s remuneration package. Which is, the FBT is not an additional cost to the employer.
The price of a fringe benefit is added before applying the 47% rate. For practical purposes, the amount of FBT on a fully taxed benefit works out to be slightly below the price of the benefit itself. For example; a $1,000 benefit generates about $890-$970 in FBT, depending on the applicable gross-up rate.
Employers who work in Public Benevolent Institutions (for example; certain charities), public hospitals and certain not-for-profit organisations are either exempt or have limited exposure to FBT.
Benefits exempt from FBT
Car parking – where employer’s group-wide turnover is below $10 million (Small Business Entity – SBE).
Portable electronic device – where primarily used for employment. One per year, per employee (SBEs can provide multiple). For example; tablet, laptop Surface Pro, mobile phone.
Minor – infrequent benefit worth less than $300.
Fly-in fly-out transport.
How Covid-19 has impacted FBT
You may provide your employees with benefits you do not usually provide because of COVID-19. This includes paying for items that allow your employees to work from home.
Some items will usually be exempt from FBT if they are primarily used by your employees for work. The items include; laptops, portable printers and over electronic devices.
Also, the minor benefits exemption or the otherwise deductible rule may apply if you: allow your employee to use a monitor, keyboard or mouse they otherwise use in the workplace, or provide them with computer consumables or stationary or pay for their phone and internet access.
The minor benefits exemption may apply for infrequent, minor and irregular benefits under $300. The otherwise deductible rule allows you to reduce the taxable value of benefits by the amount that your employee can claim a once-only deduction.
Another common Fringe Benefit that has been impacted by covid-19 are the benefits associated with the car park that is provided for employees to park their car at work.
If, on any given day, your office is closed due to covid-19 this means that the work car park is also closed. As a result of this employees will not have provided a car parking benefit as there will be no car space available for use by your employee for more than four hours between 7.00am and 7.00pm on that day.
The time during which the work car park is closed will not form part of the availability periods used to calculate the taxable value of a car space under the statutory method.
Furthermore, if all of the commercial parking stations within a 1km radius of your businesses location are closed on a particular day due to covid-19 there will be no car parking benefits provided to employees.
According to guidelines release by the ATO, If, on 1 April 2020, the lowest fee charged by all of the commercial parking stations within a one-kilometre radius of your business premises for all-day parking was less than $9.15, you will not have provided a car parking benefit. For example, this may occur where all of the commercial parking stations have discounted their all-day parking rate due to COVID-19.
However, the reduced fee must not be significantly greater or less than the average of the lowest fee charged by a commercial parking station operator in the four weeks prior to 1 April 2020 or the four weeks after 1 April 2020. The reduced fee is ignored for the purpose of determining the lowest fee charged by a nearby commercial parking station if it does not meet this requirement.
You won’t provide a car fringe benefit where a car is not applied for your employee’s private use or taken to be available for your employee’s private use.
During a period of covid-19 restrictions, a car that has been provided to an employee will not taken to be available for your employee’s private use if all the following apply: the car is returned to your business premises, the employee has relinquished an entitlement to use your car for private purposes or the employee cannot gain access to the car.
Some factors that indicate a car is not taken to be available for your employee’s private use during these restrictions include where: the employers requests that the car be returned to the business’s premises, the employee does not have physical access to the car, if the employee has made a choice to surrender the car they cannot change that choice and obtain the ability to access the car, the car is returned to your business premises and you apply the car to a different purpose (although a separate car benefit may arise if you give the car to another employee who applies it for private use) or you consistently enforce a policy that your employee cannot gain access to the car.
Calls to remove FBT
The Small Business Ombudsman believes that removing the fringe benefits tax, and enabling GST to be remitted at the point of sale, would potentially make the tax system more small business friendly.
A recent research paper published by Australia’s Small Business and Family Enterprise Ombudsman has listed 25 recommendations that aspire to create a tax environment that empowers small business owners.
The report developed by Kate Carnell from ASBFEO evaluates the “small, achievable” changes to the tax system that would better serve Australian small business owners in the age of covid-19, which is reckoning with a combined tax debt of $21 billion.
Ms. Carnell encourages the ATO to remove the fringe benefits tax (FBT) on small businesses, and to introduce reforms that see defined “work” benefits exempt, and “choice” benefits taxed as “income” in the hands of employees.
The cost of compliance for FBT brings in around $4 billion each year. There have been several businesses saying that they pay the same amount in FBT compliance costs as what they do for income tac compliance costs. Many small business owners believe that FBT is simply outdated and is a tax that is not necessary for how the world operates in 2021.
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