Fringe Benefits Tax (FBT) is a tax an employer pays on certain benefits of a personal or private nature they provide to their employees and the employees family and associates.
Common examples are outlined below:
Car fringe benefits
If an employer owns or leases a car and makes that car available for the private use of employees then a car fringe benefit may have been provided.
Car parking fringe benefits
A car parking fringe benefit may arise where an employer provides car parking to an employee and there is a commercial parking station within a one kilometre radius and the fee charged by that car parking station is more than the ATO car parking threshold. For 2018 this threshold is $8.66.
Entertainment fringe benefits
Entertainment means the provision of food, drink or recreation or the provision of accommodation or travel in connection with such entertainment. Examples include business lunches, staff social functions, staff gifts and the provision of tickets to sporting or theatre events.
Expense payment fringe benefits
If an employee incurs expenses and the employer either reimburses the employee or pays a third party directly for the expense then a fringe benefit has been provided. The expense can be either private or business in nature and it must have been incurred by the employee.
Living away from home allowance (LAFHA) fringe benefits
LAFHA is an allowance paid to an employee to compensate for additional non-deductible expenses they might incur because their job requires them to live away from their normal place of residence.
Loan fringe benefits
A loan fringe benefit is when an employer provides a loan to an employee and charges no interest or interest at a rate less than the ATO benchmark rate. The benchmark interest rate for 2018 is 5.25%.
Property fringe benefits
A property fringe benefit arises when an employer provides an employee with property either free or discounted. Property includes goods, real property and any in-house property that an employer might purchase or manufacture in the ordinary course of their business.
As an employer, if you provide any of these benefits to employees you might be required to lodge an FBT Return and maintain and keep certain FBT records and declarations.
2018 FBT Update
The 2018 FBT year is for the period 1 April 2017 to 31 March 2018. FBT returns are required to be lodged by 21 May 2018. However, the ATO provides tax agents with a lodgement extension up to 25 June 2018. If you are not lodging your FBT return through a tax agent then the lodgement date remains as 21 May 2018. Any FBT liability is required to be paid by 28 May 2018.
There are several changes to the FBT rules for the 2018 year. These are summarised below.
- With the removal of 2% Temporary Budget Repair Levy, the FBT rates and thresholds have changed. The FBT tax rate has decreased from 49% to 47%.
- The two rates used to calculate the taxable value of the fringe benefits, known as Gross Up rates, have also reduced. Type 1 fringe benefits, those where the employer can claim a GST credit for the benefit paid, are to be grossed up using a rate of 2.0802 (2017 2.1463). All other benefits, known as Type 2 benefits, are to be grossed up using a rate of 1.8868 (2017 1.9608).
- Certain fringe benefits, known as Reportable Fringe Benefits, are required to be reported on employees group certificates and disclosed in their income tax returns. The rate used to calculate these reportable fringe benefits has reduced to 1.8868 (2017 1.9608).
- If your organisation is exempt from FBT, the maximum amount of fringe benefits that can be provided to each employee under this exemption has decreased from $31,177 to $30,000 for Public Benevolent Institutions and from $17,667 to $17,000 for private and public hospitals.
- The ATO released draft taxation ruling TR 2017/D6 which outlines the ATO’s view on the FBT treatment of travel related expenses. The ruling contains several new examples of when an employer can provide travel related benefits without attracting FBT.
- The ATO has also released Draft Practical Compliance Guidelines PCG 2017/D14 which relaxes their guidelines regarding the FBT treatment of the private use of eligible vehicles. Some private motor vehicle travel will be classified as ‘minor, infrequent and irregular’ and will now be exempt from FBT. For example, if an employee travels for private purposes for no more than 750 kilometers each FBT year, and no single return journey exceeds 200 kilometers, this travel will be exempt. Also, if an employee is travelling to and from work and they detour for a private purpose, if the detour adds no more than 2 kilometers to the total trip, then the entire trip will be exempt from FBT.