In 1986, Australia introduced the fringe benefits tax. This law ensures that the government can tax the full value of each employee’s earnings. What is FBT? Most employers must pay this levy when they give staff members valuable perks, such as memberships or tickets. However, various exemptions and tax deductions can reduce the cost.
Overview – What is FBT?
Businesses need to pay part of each benefit’s taxable value. This sum includes perks supplied to workers’ families. The government expects companies to complete a separate FBT return. An employer must calculate the amount due. It can also hire an accountant to perform this task. The FBT year lasts from 1st April to 31st March.
Companies must pay taxes on numerous services and payments provided to employees. These perks include fitness centre memberships and entertainment. Vehicles used for non-work purposes are taxable as well. The same goes for some benefits associated with salary sacrifice arrangements. Likewise, a loan with special terms qualifies. The FBT also pertains to various other bonuses if they’re not exempt.
Some companies supply more than $2,000 in benefits to specific staff members during the year. In this situation, the correct amount needs to appear on an individual’s income tax payment summary. This rule applies even if an employer runs an FBT-exempt organisation. Reportable fringe benefits appear on individual tax returns. Nonetheless, employees don’t pay taxes on these earnings.
The FBT doesn’t apply to some perks, such as Division 7A dividends. Exemptions also include stock share acquisition programs, super fund contributions and any benefits for contractors. Meals or snacks served at the office aren’t taxable. An employer needn’t pay taxes on a payment or gift given to a staff member at termination, according to the Australian Taxation Office.
When organisations supply work-related equipment, its value normally isn’t taxed. Examples range from tools and electronics to software. Briefcases and certain clothes are exempt, such as high-visibility jackets. The same goes for business-related publications like trade journals. It doesn’t matter if the employer supplies them using a salary sacrifice agreement. They’re excluded from the fringe benefits amount either way.
Under some circumstances, the ATO treats a perk as a “minor benefit.” The FBT doesn’t apply in this situation. It’s not always easy to determine if a service qualifies for this exemption. Its value, purpose and frequency all affect the outcome. A benefit’s value must remain under $300 to qualify. Think about talking to a qualified tax accountant for clarification.
Many organisations gain exemptions from FBT. They include registered charities, public benevolent institutions, public ambulances and certain hospitals. An exemption cap of $17,000 or $30,000 applies to some organisations. Normally, the tax doesn’t pertain to perks received by unpaid volunteers. The ATO often exempts religious institutions as well.
Even if a company doesn’t qualify for exemptions, it can usually save money by claiming tax deductions and GST credits. Businesses may deduct the tax from their income taxes after they pay FBT. The government also lets them claim each perk’s actual expense as a deduction. This policy results in partial reimbursement.
Although taxable benefits may complicate a company’s finances, they play an important role in staff satisfaction. Happy employees often work harder and show greater loyalty. They also reduce recruitment costs. Does your New South Wales small business need help to simplify FBT compliance? If so, turn to the experienced professionals at Alliance Accounting. Please contact us today to learn more about our affordable tax services.