Employers in Australia who provide certain ‘fringe benefits’ to their employees, in addition to or instead of, salaries and wages, must also pay a tax on those benefits - which must be reported to the Australian Taxation Office annually.
Used widely by Australian employers to attract and retain talented employees, fringe benefits were recently identified as a focus for the ATO, which has committed to addressing underpayment of fringe benefits tax (FBT) - particularly amongst small businesses. Since this increased scrutiny involves the use of data-matching programs, it’s vital that Australian organisations stay on top of their compliance obligations, and ensure their FBT returns are submitted accurately and on time.
It’s worth stressing that the FBT is imposed on employers, not employees - and does not affect the employee’s own income tax liability. With that in mind, if you’re an employer who provides fringe benefits, it’s time to make sure you’re up to date on all the important points of the reporting process…
What are Fringe Benefits?
Fringe benefits may be provided to an employee (or even an associate or family member of an employee) by their employer, an associate of the employer, or a third party. The definition of those items and services which fall into the category of ‘fringe benefits’ is quite broad, but includes:
- Company cars (provided directly, or under a novated leased)
- Car parking
- Payment of personal expenses
- Low interest loans
- Travel allowances
- Housing and accommodation (living-away-from-home allowance)
- Leisure facilities
- Entertainment facilities
Obviously, employers who provide fringe benefits to their employees must also keep the relevant records in order to accurately complete their FBT return at the end of the year.
Calculating and Submitting FBT
The FBT tax year runs from the 1 April to the 31 March. The FBT return itself should be provided to the ATO, and any tax paid, by 28 May. The process for calculating FBT liability involves:
- Working out the taxable value of the benefits you provide to your employees.
- Applying any relevant tax credits.
- Determining your fringe benefits ‘taxable amount’.
- Multiplying that amount by the current FBT rate.
FBT can be paid annually, or in quarterly installments (with the BAS).
It should be noted that, when the total value of fringe benefits provided to an employee exceeds $2000 within the FBT tax year, those benefits should also be included on an employee’s annual payment summary. Some fringe benefits do not need to be reported on the payment summary, including those designed to ensure employee safety and security. Check the ATO guide for updated information on excluded benefits.
Getting FBT Right
Given the ATO’s move to scrutinise this area of tax reporting, it pays to make sure your fringe benefit tax affairs are in order. The ATO has stated that a major focus of its FBT attention will fall on the provision of company vehicles, car parking, and living-away-from-home allowances - along with the way employees own contributions to fringe benefits are reported by employers. With the reporting deadline fast approaching, employers who are uncertain about their roles and responsibilities should contact the ATO, or their payroll provider, to resolve the situation without delay.
For advice and information about your FBT liability, or any aspect of the Australian tax landscape, contact activpayroll today.