Fringe benefits tax: everything you need to know

This article is a guide to help accountants understand FBT in greater detail, and offers clear insights on how they can provide the most valuable advice for their business clients.

What is the fringe benefits tax?

Fringe benefits are additional compensations employers provide their employees as part of their overall package to complement their salary or wages. These additional incentives are not exempt from tax responsibilities, which is where an accountant's role is crucial.

Fringe benefits can vary widely depending on the employer and industry. It is worth noting that they are not just perks; they hold substantial value and can influence an employee's decision to join or stay with their company.

The fringe benefits tax was first introduced in a 1986 act, and has since evolved to become a common tool that businesses use to attract and retain top talent. Fringe benefits add a layer of sophistication to salary packages, making them more appealing.

The Australian Taxation Office (ATO) categorises various benefits as fringe benefits for tax purposes. Accountants will need an understanding of the different types of benefits to advise their clients correctly.

Many Australian businesses are reliant on fringe benefits as they can be tailored to meet their staff’s needs, increase their job satisfaction and positively impact their productivity.

Understanding fringe benefits tax

The Australian Government ensures that fringe benefit perks are taxed in a similar way to cash income.

Employers are required to pay FBT even when the benefit being provided isn’t directly related to the employee's day-to-day. For example, if the benefit is using a company car or tickets to a concert for personal use, if it's a non-monetary benefit FBT will apply. Accounting professionals will need to calculate the FBT based on the taxable value of these benefits, so precise calculations are important.

By mastering the rules surrounding FBT, accountants can prevent issues with non-compliance and possible penalties for their clients, enhancing their value as trusted advisors in the community.

How fringe benefits tax works in Australia

The FBT year runs from 1 April to 31 March. Accounting practices will usually keep a separate calendar for their FBT jobs to be done, such as reporting and compliance.

It is the employers’ responsibility to assess the taxable value of fringe benefits to determine their FBT liability. This involves evaluating each benefit provided and calculating its worth according to ATO guidelines. The challenge lies in the diversity of fringe benefits, each with its own valuation method.

The Australian Taxation Office (ATO) provides comprehensive guidelines on the current FBT rate. These guidelines are the backbone of accountants' calculations of FBT. It's not just about adding numbers; it's about understanding the nuances of each benefit type and applying the correct valuation techniques.

Documentation and reporting are cornerstones of FBT compliance. Accounting professionals must meticulously document all fringe benefits provided throughout the year. This record-keeping is important when reporting time comes, as it ensures that all information is accurate and complete, minimising the risk of errors or omissions.

As an accountant, your role is pivotal in advising and assisting employers in managing these obligations effectively.

The different types of fringe benefits

Fringe benefits come in many shapes and sizes, each with distinct implications for FBT.

Here are some examples of fringe benefits, as defined by the Australian Tax Office (ATO):

Car parking;
Employee gym memberships;
Using a work car for private usage;
Entertainment benefits (such as free tickets to a concert or a sporting event);
Private health insurance;
Low-interest loans from the employer.

A more detailed overview of the various types of fringe benefits can be found on the ATO website.

How do you calculate fringe benefits?

The FBT rate is a pivotal component of FBT calculations, currently set at 47% of the taxable value of the fringe benefits for years ending 31 March 2021 to 31 March 2025.

The ATO provides two gross-up rates used in FBT calculations:

Type 1: where the employer is entitled to claim Goods and Services Tax (GST)

Type 2: where an employer is not entitled to claim GST for the benefits they’ve provided.

Employers must calculate the grossed-up taxable value of benefits to determine FBT, which they can do through a self-service tool on the ATO website.

What is exempt from fringe benefits?

Certain fringe benefits may qualify for FBT exemptions, reducing the overall tax liability for employers; these may include:

Work-related items, such as laptops or mobile phones: these items are considered necessary for the employee's role, and thus, providing them does not attract FBT. However, the item must be primarily used for work purposes to qualify for this exemption.

Minor benefits valued under $300: These are typically low-value items given infrequently (for example, a gift card).

Certain benefits offered by not-for-profit organisations or public hospitals: These entities operate under specific conditions that allow for exemptions, reflecting their unique role in society. Accountants who work with these organisations will need to be familiar with these exemptions to provide accurate advice.

Reporting and lodging fringe benefits

Employers should report FBT within their annual FBT return, including all fringe benefits provided during the FBT year. It is a significant responsibility for accountants to guide businesses through the process.

The ATO deadline for FBT returns is 21 May each year. This end date is non-negotiable and missing it can result in penalties, and interest charges.

Accurate record-keeping is vital for FBT purposes. Businesses need to maintain detailed records of every fringe benefit they have provided to their workforce, including their valuation and any applicable exemptions.

FBT amounts must be included in their employees’ payment summaries, providing transparency to employees about their total compensation package. Including this highlights the value of fringe benefits and their tax implications.

Ensuring FBT compliance in reporting not only protects clients from financial penalties but also bolsters the accountant’s reputation as a reliable financial advisor.

Fringe benefits: common mistakes to avoid

There are many common pitfalls in FBT compliance that accountants can help their clients to avoid.

A frequent mistake is overlooking the need to gross up fringe benefits for FBT calculations. This will lead to underpayment and subsequent penalties. Access Accountants Compliance enables accountants to lodge their FBT returns from anywhere. They can speed up compliance work by automatically prefilling data, from the ATO or from the Ledger, freeing up valuable time.

Businesses sometimes fail to properly document the private use of company cars, which can complicate FBT assessments. That’s why accurate documentation is important for determining the correct taxable value.

The tax landscape in Australia is dynamic, so it is important for accountants to regularly review ATO changes to maintain compliance. Staying updated means accountants can offer informed guidance to their clients, helping them avoid costly mistakes.

Accountants using Access Handisoft Evo can easily surface ATO updates for their compliance needs right now in real time. Accountants using our AI-powered assistant can prevent those easy mistakes and enhance their role as trusted advisors.

In summary

It goes without saying that it is essential for accountants to stay informed of changes in fringe benefits tax, so they can provide accurate advice to their business clients regarding their FBT liabilities.

With our all-in-one Access Accountants Compliance solution, accountants can enjoy the benefits of an integrated CRM, email, tax, ledger and client portal from anywhere.

Talk to a specialist today or watch our demo.

Fringe benefits tax: frequently asked questions

What is fringe benefit tax?

Fringe Benefits Tax (FBT) is a tax imposed on employers for some staff benefits in connection with their employment.

They are separate from salary or wages and can include things like company cars, health insurance, and gym memberships.

How is fringe benefits tax calculated?

FBT is calculated based by the taxable value of the fringe benefits provided to employees. The taxable value is generally the cost to the employer of providing the benefit, less any contributions made by the employee. This year, the FBT rate is set at 47% of the taxable value of the benefits.

What are some common examples of fringe benefits?

Some common examples of fringe benefits are company cars, private health insurance, gym memberships, housing allowances, and entertainment expenses.

Employers must accurately identify and report all fringe benefits provided to employees to comply with FBT regulations.

Is everything subject to the fringe benefits tax?

Not all fringe benefits qualify for FBT. Some benefits, for example work-related items, minor benefits, and exempt benefits, may be exempt from FBT or subject to reduced rates.

It's important for employers to understand which benefits are taxable and which are exempt for more accurate reporting and compliance with FBT regulations.