A Quick Guide to Navigating FBT Obligations in Australia

Understand the essentials of FBT compliance for Australian businesses. This guide covers reporting duties, exemptions, and strategies to minimize liabilities.

Businesses looking to attract and retain staff often provide employee benefits, on top of salary, as a way to sweeten the deal.

Many of these benefits (but not all) can have potential tax consequences – known as fringe benefits tax (FBT) – so it is important to weigh up the effect on your business.

FBT is separate to income tax and is calculated on the value of the benefit provided to the employee. Employers must calculate the amount of FBT they owe each year and lodge a return with the ATO.

FBT doesn’t only apply to benefits provided to current employees. Any benefits provided to past or future employees, company directors and beneficiaries of trusts who work in the business are also subject to FBT.

It is worth noting that the FBT year is not the same as the financial year. It runs from 1 April to 31 March.

What to report

Most fringe benefits must be reported to the ATO. Some examples of benefits include: the use of a company car outside of work; free parking; gym membership; payment of school fees; tickets or vouchers for concerts, meals or movies; and living accommodation.

Some benefits do not need to be reported and do not incur FBT.i These include a number of benefits provided to employees working in remote areas such as living assistance.

Other fringe benefits that are exempt from tax include work-related items such as a portable electronic devices, computer software, protective clothing and tools of trade.

If the taxable value of an employee’s fringe benefits for the FBT year (1 April to 31 March) is less than $2,000, no reporting is required.

In adding up the fringe benefits, the ATO says you will need to make sure you include the employee’s share of any benefits they share with other employees as well as the value of any benefits provided to the employee’s associates, such as their partner.

Doing the numbers

For each employee, you’ll need to calculate their ‘reportable fringe benefits amount’ (RFBA) by multiplying the total taxable value of the benefits provided by an ATO ‘gross-up rate’.

The Type 1 gross-up rate is used where a GST credit entitlement is applicable to the benefit. The Type 2 gross-up rate is used where there is no GST credit entitlement applicable to the benefit. (For the FBT year ending 31 March 2023, the Type 1 rate is 2.0802 and the Type 2 rate is 1.8868.)

This calculation grosses up the pre-tax income the employee would have had to earn to buy the benefits themselves.

As an example, a fictitious company EFG Pty Ltd provides their employee Derek with car parking, valued at $450; a car, valued at $3,000; and home internet, worth $500.

The total taxable value of the fringe benefits is $3950 but the car parking benefit is not a reportable fringe benefit. So, the total taxable value of the reportable fringe benefits provided is $3,500.

To calculate the RFBA, the employer would multiply $3,500 by the Type 2 gross-up rate, 1.8868.

As a result, EFG Pty Ltd reports an RFBA for Derek of $6,603 through Single Touch Payroll for the year ending 30 June 2022.

FBT and salary sacrifice

Benefits provided to employees through salary sacrificing or salary packaging arrangements may also attract FBT.

Under a salary sacrificing arrangement, an employee agrees to forgo part of their salary in return for benefits of a similar value, such as more super or a car. As a result, the employee pays less income tax and the employer pays FBT on the benefits provided.

Extra super contributions made under a salary sacrificing arrangement are not subject to FBT and are treated differently. They are considered employer contributions and are taxed in the super fund.

Claiming deductions

Employers can claim income tax deductions for the FBT they are required to pay.

They can also claim an income tax deduction and GST credits for the cost of providing the fringe benefits.

The ATO provides a number of suggestions for reducing your FBT liability.ii These include:

  • Providing benefits that would be deductible for the employee. You do not incur an FBT liability if you give an employee a benefit they would have been able to claim as an income tax deduction if they had paid for it. This is called the ‘otherwise deductible’ rule.
  • Using employee contributions. Your FBT liability can be reduced if your employee contributes towards the cost of the fringe benefit.
  • Providing a cash bonus. You won’t have to pay FBT if you provide your employee with a cash bonus instead of a benefit. The employee will pay income tax on the amount.
  • Providing exempt or concessional benefits. Exemptions and concessions may apply to benefits including work-related items, benefits of less than $300, emergency
    assistance, retraining, taxis and public transport, work use of a vehicle, car parking and food or drink consumed on your business premises.

Fringe benefits can be a valuable and strategic tool in your recruitment and retention toolbox. We can help you understand and comply with the reporting requirements and be clear about the impact of FBT on your business.

Case study

FBT on a gym membershipiii
Jenni runs a small consulting firm. She provides her employee, Anton, with a gym membership that costs $1,100 (including $100 GST).

This is a fringe benefit. Jenni works out the FBT as follows:

Taxable value of the benefit ($1,100)

× the gross-up rate (for a GST-inclusive fringe benefit the rate is 2.0802)
× the FBT rate (47%)
= FBT of $1,075.46.

Jenni must prepare and lodge an annual FBT return, and pay her FBT liability.

She may also need to calculate and report Anton’s reportable fringe benefits amount in his end-of-year payment information.

As the gym membership is subject to FBT, Jenni can claim:

  • an income tax deduction and GST credit for the cost of the gym membership
  • an income tax deduction for the FBT paid.

Source: Australian Taxation Office
i Fringe benefits tax – a guide for employers | Legal database (ato.gov.au)
ii https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/exemptions-concessions-and-other-ways-to-reduce-fbt/reducing-your-fbt-liability
iii How fringe benefits tax works | Australian Taxation Office (ato.gov.au)

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.