What is Fringe benefits tax (FBT)?
Fringe benefits tax is a tax paid on certain benefits employers provide to their employees or their employee’s ‘associates’ (typically family members). FBT is separate from income tax and is based on the taxable value of the various fringe benefits provided.
The FBT year runs from 1 April to 31 March.
A fringe benefit is a benefit provided in reward for employment. This effectively means a benefit provided to an employee (or their associate) because they are an employee.
An employer can provide these benefits, or they can be provided by:
Ø an associate of theirs
Ø A third party under an arrangement with the employer.
An employee can be a current, future or former employee.
FBT was established when the government realised that people were being paid in benefits rather than as salary. Employers had been creative with ways of paying their people: provision of cars when they did not really need them for work, payment of expenses (mortgage, school fees, holidays, long lunches etc) that had nothing to do with the expenses of the business other than it was paid as part of the reward for the employee.
History:
When employees were paid a salary/wage, it is caught in the PAYG Withholding system: ie you pay money to the employee then you need to withhold tax.
Development 1:
Increase the reward to the employee by paying their expenses for them.
Why:
When company tax rates are only 30% compared to personal tax rates, which can be as high as
48.5 %, and the employee had a $100 non deductable expense to pay i.e. mortgage or school fees. If the employee had to pay it out of after tax salary then they had to earn then $195 before tax ($95 as tax to government, $100 to employee for expense). If the company paid the $100 for the expense then it costs the company only $130 ($100 for the expense and $30 for the additional company income tax because it was not a tax deduction).
Government response:
Create Fringe Benefits tax so that the cost to the company and the amount of tax is the same as if it was salary.
There were a couple of changes of the legislation but it ended with today’s system: (and now we add the GST impact) when the company pays the expense, the company will now get a tax deduction for that expense but only when they pay FBT. The company will also get the GST back. So the amount of the FBT equates to the same amount of tax as though the employee had been paid salary and no GST credit was allowed ie the $100 expense (including GST, or 90.9 excluding GST) gets grossed up to $195 and taxed at 48.5% therefore the government gets $95 tax and the employee gets reward by having the expense of $100 paid.
(Please note today’s marginal tax rate is lower therefore the FBT rate is lower but do remember that Medicare levy is added to make up the total of the FBT rate)
It is not a legal option for the company to pay the expense and NOT claim the tax deduction as a way of not paying FBT.
CARS
The most common Fringe Benefit has been the car. The employer picks up all the costs of the car and provides it to the employee who has that car available for private use. We now have varying different arrangements including company owned vehicle, leased, novated lease etc where it is still considered the company is providing a fringe benefit of the car)
It is the fact that the car is available for private use that is the issue, it immediately becomes subject to Fringe Benefits Tax.
Car Fringe Benefits and the bookkeeper
How can a bookkeeper help the accountants work out the Fringe Benefits Tax amounts?
1) Upon each: purchase of a car, sale of a car, change of employee driving a car and every 31 March get a odometer declaration signed by the employee driving the car (templates available to members see below)
2) Provide either a summary of each cars expenses from the accounting records for the year 1 April to 31 March, so this may be in two different files given the different financial years. The trick here is to be able to provide the expenses for each separate vehicle.
3) Ensure that at least within each 5 years a log book is kept for 13 consecutive weeks for each car. A new log book must be kept each time the purpose of the vehicle or the driver changes.
For the ultimate ATO version of explanation about FBT http://www.ato.gov.au/businesses/content.asp?doc=/content/fbt_guide.htm
Entertainment
Entertainment expenses are probably the most ugly of the fringe benefits considerations. FBT applies to some and not to others.
The ATO provides the following table to explain how FBT applies to different entertainment scenarios
The following table gives a simplified summary of the FBT and income tax results that generally arise from providing entertainment to employees and others. The table is not intended for use by income tax-exempt employers.
|
Situation
|
Income tax
|
FBT
|
|
Employee takes two clients to
lunch at a restaurant cost $150
|
Employees portion
$50 tax deductible
Clients portion
$100 non-deductible |
Employees portion
$50 fringe benefit
Clients portion – No FBT
|
|
Employee has meal in restaurant while travelling on business trip
|
Tax deductible
|
No FBT (”otherwise deductible” rule)
|
|
Employee has meal in
an “in-house canteen” |
Tax deductible
|
Exempt from FBT
|
|
Employer provides sandwiches
and juice for working lunch in office (not entertainment) |
Tax deductible
|
Exempt from FBT
|
|
Employer provides substantial
lunch with wine for employees in
office but not in “canteen” |
Non-deductible
|
Exempt from FBT
|
|
Employer provides social function
for employees in office |
Non-deductible
|
Exempt from FBT
|
|
Employer provides social function
for employees and associates in office |
Cost per employee
Non-deductible
Cost per associate
Tax deductible |
Cost per employee
Exempt benefit
Cost per associate
Taxable fringe benefit |
|
Employer reimburses employee for cost
of private party |
Amount reimbursed is tax deductible
|
Taxable fringe benefit
|
|
Employer provides employee
and associates with theatre tickets |
Tax deductible
|
Taxable fringe benefit
|
Q How does a bookkeeper help to ensure the right information is kept or provided to work out the FBT obligation?
A Obtain from the accountant advice on which method the accountant wishes used to record and therefore value the Entertainment Fringe Benefit
The types of entertainment benefit changes the records required:
a. Meal Fringe Benefits (in connection with food or drink)
b. Expense payment FB (purchase of tickets)
c. Property FB (providing food & drink i.e. giving the food to them or paying for supply of food that is not prepared food, does not include restaurant. It would not be paying for lunch or dinner)
d. Residual (Providing accommodation or transport)
For b, c & d need to tag and report the amount paid per employee
For this can be identifying and then dissecting the amount per the table above for each incident or:
1. 50/50 split method, Fringe Benefits Taxable Value is deemed to be 50% of the total meal expenditure
2. 12 week register method, classify each incident according to the above table and then establish the Fringe Benefits Taxable Value percentage of the total and use this for the year
Bookkeepers Recording & Reporting Recommendation
Use a tagging system, for some clients use job numbers for some maybe it requires a change to the chart of accounts
Cars: dissect or tag the expenses for each unique vehicle
Entertainment (meal benefit), use the 50 / 50 method so ensure all meal entertainment expenses are tagged or allocated to one chart of account line and this is advised to the accountant (remember this type of FB doesn’t have to be reported on each employees PAYG Summary.
All other benefits, tag them. Because these expenses are typically part of an employee’s package then many employers would/should allocate such expenses to one account called Salary package expenses. If they are expenses outside of the package then maybe it’s an account simply called Fringe Benefits. At least the amounts are then caught and obvious for each FBT year reporting.
Who pays FBT on the BAS?
- Businesses that have cars as a salary package
- Businesses with high Entertainment expenses
- Not for Profit Organisations Salary Sacrifice Packages
- Living Away Allowance for employees.
Note If FBT is under $3,000 or more in the previous year, the ATO will provide an amount based on the most recent FBT assessment.
Bookkeeper Role
If a business purchases a car or some other expense that is subject to FBT within the period of the BAS then it’s important to advise the Accountant of the acquisitions as the installment rate may need varying.
Are some benefits exempt from FBT?
Some benefits provided to employees are exempt from FBT. These can be:
Items not subject to FBT
- Salary and Wages
- Acquisition of shares under employee approved scheme
- Superannuation employer contributions
- Termination payments that includes a company car given or sold
- Certain Benefits provided by religious institutions to their religious practitioners
Items exempt from FBT
- Minor benefits <$300
- Portable Electronic Device
- Computer Software
- Protective Clothing
- Briefcase
- Tool of Trade
FBT fields on the BAS?
F1 – ATO provided amount
Write the F1 amount at 6A in the Summary Section
Varying Installment amount
F2, F3, F4 are used for varying installment amount
|
Warning A penalty is incurred if the varied amount is under 90% of the actual FBT Liability therefore seek Accountants’ Advice before varying. |
F2 – Estimated FBT for the year
- F2 = Estimated grossed up FBT Liability for the year ended 31st March
- F3 – Varied amount for the quarter and place same amount In 6A
if negative write ‘zero’ and place negative value in 6B
Formula for F3
F2 x Relevant Percentage (see table for %) LESS previous installment liabilities and credits claimed
| Quarter ending |
Relevant percentage
|
| 30 June |
25%
|
| 30 September |
50%
|
| 31 December |
75%
|
| 31 March |
100%
|
F4 – Reason code for variation for varying FBT installment amount, see below possible reasons.
| Reason |
Code
|
| Current business structure not continuing |
22
|
| Change in fringe benefits for employees |
30
|
| Change in employees with fringe benefits |
31
|
| Fringe benefits rebate now claimed |
32
|
GST and FBT?
Calculation of FBT return may also incur an adjustment to GST in the next BAS lodged. The accountant will provide a GST Adjustment amount to be added to the BAS. This amount will either increase or decrease G1 and 1A or G11 and 1B respectively.
When to pay FBT on the BAS?
Quarterly Lodgement 28th
Summary
If your business (or your clients business) provides fringe benefits to employees you need to:
- calculate how much FBT you have to pay
- keep the necessary FBT records
- register for FBT
- report fringe benefits on your employees’ payment summaries
- lodge a return and pay FBT to the ATO
· understand which benefits are exempt from FBT
Although this information refers only to fringe benefits provided to employees, fringe benefits can also be provided to an employees’ friends or associates (such as a family member).
