Fringe Benefits Tax
Are you familiar with the fringe benefits tax? It’s a tax levied on certain types of benefits that employees receive from their employers. The purpose of the tax is to offset the cost of these benefits for employers. This post will look at what fringe benefits are taxable and how the tax works. We’ll also provide some examples so you can get a better understanding of this important topic.
Did you know that the income tax you pay each year isn’t the only tax you have to worry about? There’s also a fringe benefits tax to consider. This tax applies to any benefits your employer provides you, such as a car or phone. This post will explain what fringe benefits are and how to calculate your fringe benefits tax liability.
When most people think of fringe benefits, they think of things like company cars or private health insurance. But there are a lot of other types of fringe benefits that can be tax-deductible. In this blog post, we’ll take a look at some of the most common ones and how you can claim them on your tax return. Keep in mind that these deductions may vary depending on your country and tax laws, so it’s always best to speak with an accountant or tax specialist to find out exactly what you’re entitled to.
Fringe Benefits Tax
Fringe Benefits Tax (FBT) is an employer tax that is paid by the employer when an employee receives certain benefits as a result of their employment.
FBT can affect your personal taxation obligations in respect to child support payments and eligibility for other Government means-tested benefits such as Family Tax Benefit A or B, Medicare Levy and HECS-HELP.
DHOAS is classed as a reportable expense payment fringe benefit under section 20 (a) of the Fringe Benefits Tax Assessment Act 1986. This means that Defence will pay a portion of the grossed-up value of the benefit.
The amount that will appear on your payment summary will be the ‘grossed up’ amount, as Defence is obliged to report it in this way. The grossed-up amount reflects the amount you would have needed to have earned to receive the net amount of the benefit. This is similar to how salary and wages are reflected on payment slips and payment summaries.
In addition, the grossed-up value of the fringe benefit may be used to determine certain income-tested government benefits, such as the family tax benefit and the parental income test for the youth allowance. It may also have an effect on childcare payment arrangements. For further information, see the Department of Human Services website (https://www.humanservices.gov.au).
Whilst DHOAS is classified as a reportable fringe benefit, there are occasions whereby the benefit may be considered non-reportable. For example, DHOAS will not appear on payment summaries if you are an active reservist, have been afforded war-like credits (maximum of 60 months), and deployed on 23AG and or 23AD. However, if 23AG or 23AD is applicable, it will only cover the period you were afforded these income tax exemptions.
Suppose the property that your DHOAS loan relates to is rented out. In that case, you should contact Defence on 1800 333 362 and gain access to the link for the declaration under the Defence Finance Group website and any appropriate forms so that Defence can apply the “Otherwise deductible” rule.
When Defence applies the “Otherwise Deductible” rule, the DHOAS loan will not appear on your payment summary.
However, you will only have a Reportable Fringe Benefit Amount (RFBA) reported on your payment summary if the total of all the reportable fringe benefits exceeds the current threshold of $2000.00. Therefore, if you are in receipt of DHOAS that exceeds the $2000 threshold, you will more than likely have a RFBA.
Defence issues payment summaries for DHOAS reportable fringe benefits. However, Defence will not know an RFBA amount until the end of the FBT year. Therefore, if you are asked for an estimate to provide to Centrelink, it is suggested that you use the year’s prior RFBA figures as a guide.
As tax matters are complicated, we urge members to seek independent financial advice on their individual circumstances before accessing DHOAS.
Fringe Benefits Tax (FBT)
A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages.
For fringe benefits tax (FBT) purposes, an employee includes a:
- current, future or past employee
- director of a company
- the beneficiary of a trust who works in the business.
Examples of fringe benefits include:
- allowing an employee to use a work car for private purposes
- giving an employee a discounted loan
- paying an employee’s gym membership
- providing entertainment by way of free tickets to concerts
- reimbursing an expense incurred by an employee, such as school fees
- giving benefits under a salary sacrifice arrangement with an employee.
The following are not fringe benefits:
- salary and wages
- shares purchased under approved employee share acquisition schemes
- employer contributions to complying super funds
- employment termination payments (including, for example, the gift or sale at a discount of a company car to an employee on termination)
- payment of amounts deemed to be dividends under Division 7A
- benefits provided to volunteers and contractors
- exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.
What Is Fringe Benefits Tax?
Employers pay FBT on certain benefits they provide to their employees, their employees’ families, or other associates. FBT applies even if a third party provides the benefit under an arrangement with the employer.
FBT is separate to income tax and is calculated on the taxable value of the fringe benefit. The employer must self-assess their FBT liability for the FBT year (that is, 1 April to 31 March) and lodge an FBT return.
Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. Employers can also generally claim GST credits for items provided as fringe benefits.
Register For Fringe Benefits Tax (FBT)
Fringe benefits are an important part of business and can be a useful way to attract quality staff. If you’re going to provide fringe benefits to your staff, make sure you understand your taxation obligations. Find out how FBT could affect your business and how to register for FBT.
FBT is a tax that employers pay on benefits paid to an employee (or their associate, such as a family member) in addition to their salary or wages. FBT is calculated on the taxable value of the benefits you provide. This is separate to income tax.
Why Offer Fringe Benefits?
To get the best workers for your business, you may want to attract them with certain benefits.
For example, you may give employees fringe benefits like:
- a car for private purposes
- goods at a discount
- low-interest loans
- reimbursement for private expenses, such as school fees
It’s entirely legal to provide fringe benefits, but you must meet your FBT obligations.
What You Need To Do If You Provide Fringe Benefits
If your business provides fringe benefits to your employees, then you need to:
- register for FBT
- calculate how much FBT you have to pay
- keep all records relating to the benefits you provide, including how you calculated the FBT you have to pay
- lodge a return and pay FBT to the ATO (generally by 21 May)
- include reportable fringe benefits on your employees’ payment summary or Single Touch Payroll (STP) income statement
What Are Fringe Benefits?
A fringe benefit is something extra you get from your employer, in addition to your wage or salary or in return for foregoing some of your salary under a salary sacrifice arrangement.
It’s generally not actual salary, wages or cash, and the benefit can be something for you, your spouse or your children.
Your employer is liable for the tax (FBT) that may apply to the benefits that you and/or your family may receive – not you.
Why Do Companies Offer Fringe Benefits?
Fringe benefits can help employers attract, retain and motivate employees. Employers are becoming increasingly competitive with what they offer their employees – and fringe benefits are one way they can gain a competitive edge.
Perks like free food, coffee bars, discounted gym memberships, and entertainment can make employees feel valued and create a happier workplace. Of course, not all of these perks attract FBT, but some of them do.
How Can Fringe Benefits Reduce My Tax?
Often, fringe benefits are offered to you through salary sacrifice as part of a salary packaging arrangement. Depending on your personal circumstances, this might push you down into a lower tax bracket – a great plus if you’re a higher income earner.
What’s Considered A Fringe Benefit?
A wide range of perks is classed as fringe benefits. The most common ones are:
- A leased vehicle for your personal use (under a ‘novated lease’ arrangement)
- Personal use of a company car
- Discounted loans
- Gym/health memberships
- Entertainment expenses – free/discounted food, cinema tickets, accommodation
- Private health insurance
- Living-away-from-home allowance (LAFHA)
- Real Property – land and buildings
- Right to Property – shares, bonds
- Childcare costs and school fees
Items you need to do your job – e.g. mobile phones and occupational-specific clothing – aren’t generally taxed as fringe benefits if they’re provided to you by your employer. However, if you pay for these items out of your own pocket, you might be able to claim a tax deduction. It’s important to remember that you can’t claim a tax deduction for a work expense if you’re later reimbursed for the expense.
Concessional contributions you make to your super are exempt from fringe benefits. They can therefore be a tax-effective way of boosting your retirement savings.
What Is Fringe Benefits Tax (FBT)?
Your employer is liable for any applicable FBT on fringe benefits they provide to you and/or your family.
FBT is separate from income tax. Instead, it’s calculated on the taxable value of a fringe benefit.
The taxable value is generally the cost to your employer of providing the benefit to you. 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 benefits amount).
Unlike the financial tax year (1 July – 30 June), the FBT year is 1 April – 31 March.
What is a Reportable Fringe Benefits Amount (RFBA)?
Suppose the total taxable value of the fringe benefits provided to you and/or your family in an FBT year exceeds $2,000. In that case, you’ll have a reportable fringe benefits amount in your end of financial year income statement (formerly called a payment summary). However, some fringe benefits, like meals, entertainment and employer-provided car parking, aren’t included in the reportable amount.
While an RFBA isn’t deemed taxable income, depending on your personal circumstances, it will be used to determine whether you’re entitled to or liable for a number of benefits and obligations. These include Family Tax Benefits, Medicare levy surcharge, private health insurance rebate, child support payments, superannuation co-contributions, Higher Education Loan Program (HELP), tax offsets and Financial Supplement repayments.
How Fringe Benefits Tax Reporting Works
Suppose a member receives reportable fringe benefits, and the total taxable value of those benefits is more than $2,000 in an FBT year. In that case, the grossed-up amount of the taxable value of those benefits must be reported on the member’s Payment Summary for the income tax year that ends three months later. This amount is called the reportable fringe benefits amount (RFBA).
The RFBA is the value of the benefit multiplied by a gross-up rate of 1.8692. This is the rate all employers must use when determining a member’s RFBA, irrespective of whether GST was included in the benefits. However, if GST is included in benefits provided to a member, a higher gross-up rate (2.0647) is used to determine an employer’s FBT liability (but not a member’s RFBA).
The Tax Effect Of Receiving A Benefit That Is A Fringe Benefit
The reportable fringe benefits amount (RFBA) is included in determining a person’s eligibility to certain income-tested tax concessions and a person’s liability to income-tested surcharges for a tax year. Accordingly, the RFBA may result in a member receiving less tax concessions or becoming liable for additional government surcharges.
The RFBA is included in determining a person’s eligibility or liability for the following.
- Medicare levy surcharge (but not the Medicare levy).
- Superannuation contributions surcharge.
- Terminations payment surcharge.
- Tax rebate (maximum rebate $540) for superannuation contributions paid to a complying superannuation fund on a spouse’s behalf.
- Government co-contribution for personal superannuation contributions.
- Higher Education Contribution Scheme (HECS) repayments. (An accumulated HECS debt amount may include a Postgraduate Education Loans Scheme (PELS) amount and an Open Learning Deferred Payment Scheme amount.
- Child support obligations.
The RFBA shown on a member’s Payment Summary does not change the amount of income tax or the standard Medicare levy the member may be liable to pay.
Some non-reportable fringe benefits may be taken into account in assessing child support obligations. Non-reportable fringe benefits are benefits received but not reported on a payment summary.
Before being grossed up, the taxable value of fringe benefits may decrease the member’s entitlement to some government benefits.
Death Of A Member
After the death of a member, the member will not receive fringe benefits from Defence. However, the deceased member’s spouse or dependents may continue to receive fringe benefits such as Defence housing.
When a member dies, they are no longer an ’employee’ or a ‘former employee for the purposes of the Fringe Benefits Tax Assessment Act 1986.
Accordingly, benefits received after death are not subject to either fringe benefits tax or the Payment Summary reporting requirements.
Any entitlements of the deceased member to payments for unused leave or eligible termination payments are not subject to fringe benefits tax. However, such payments may have income tax consequences.
Remote Area Travel And Fringe Benefits Tax
Remote area travel is a fringe benefit for occasional travel to a major population centre in Australia. It is provided to members and dependants, not residents in or adjacent to an eligible urban area. A member who is not resident in an eligible urban area is regarded as living in a remote area. Remote area travel is not included in a member’s RFBA reported on the member’s Annual Payment Summary.
Occasional travel is travel that is irregular and infrequent. If any of these conditions are met, a member is a resident in a remote area.
The home is in an urban centre with a 1981 census population of less than 14,000 (or less than 28,000 if the urban centre is in Zone A or B).
The home is more than 40 kilometres by the shortest practical surface route from the centre of an urban centre with a 1981 census population of between 14,000 (or 28,000 if the urban centre is in Zone A or B) and 130,000.
The home is more than 100 kilometres by the shortest practical surface route from the centre of an urban centre with a 1981 census population of at least 130,000.
Remote area travel is different from remote area holiday travel.
The definition of ‘remote’ in the tax laws is different from the Defence definition because Defence has included additional areas. This is why some ADF entitlements for remote locations are included in a member’s RFBA.