Many companies select to reward their employees by offering sure advantages and perks over and above their regular wage and wages. These are often known as fringe advantages, shares Director of Tax Communications at H&R Block, Mark Chapman. However whereas this is usually a helpful solution to incentivise employees, there are potential tax penalties that must be saved in thoughts for each employers and staff.
On this article, we cowl:
- What’s fringe advantages tax (FBT)?
- Which fringe advantages are exempt?
- Does fringe advantages tax have an effect on wage sacrificing?
- Do you pay fringe advantages tax on tremendous contributions?
- How is fringe advantages tax calculated?
- How can an employer cut back its FBT legal responsibility?
- How does an employer report and pay FBT?
- What are reportable fringe advantages for workers?
What’s fringe advantages tax (FBT)?
Should you present advantages to your staff on prime of their regular pay, you possibly can discover that what you are promoting is liable to pay fringe advantages tax (FBT). In keeping with the Australian Taxation Workplace (ATO), this can be a tax paid by the employer – not the worker – on the taxable worth of sure advantages paid to staff. After we seek advice from staff on this context, this additionally covers advantages offered to the household of staff or to associates (akin to pals) of staff.
Examples of fringe advantages
Amongst probably the most generally offered advantages that can provide rise to FBT in Australia are:
- Offering a automobile on your worker that may also be used for personal functions
- Offering free or subsidised automobile parking on your staff
- Offering your employees with “leisure”, akin to meals, drinks, sporting or spare time activities (e.g. shopping for them a spherical of golf, tickets to a sporting occasion, theatre tickets or holidays)
- Both reimbursing an worker for personal bills or paying for such bills on to a 3rd occasion (as an example, paying your worker’s home utility payments or medical insurance premiums)
- Giving your worker a mortgage and charging no curiosity or a lowered charge of curiosity
- Offering lodging to an worker rent-free or at a lowered hire
Which fringe advantages are exempt?
Some advantages are free from FBT, akin to the supply of instruments or digital units (e.g. laptops) which are primarily used for work functions. So-called ‘minor advantages’ are additionally FBT-free. A minor profit is one with a notional taxable worth (what it will be valued at if it have been taxable) of lower than $300 and will embody issues just like the annual employees Christmas occasion, offered the price per head is lower than $300.
There are additionally quite a lot of FBT concessions and exemptions accessible to sure not-for-profit organisations like charities, public hospitals and spiritual establishments.
FBT concessions and exemptions may apply if it’s good to provide your staff advantages you don’t often present due to COVID-19, akin to for those who’re now paying for gadgets that permit your staff to do business from home (e.g. a monitor, keyboard or web entry). The ATO has additional info on its web site relating to COVID-19 and fringe advantages tax.
Does fringe advantages tax have an effect on wage sacrificing?
The principle goal of most wage sacrifice preparations (or wage packaging, as it’s typically known as) is to allow an worker to obtain a mix of revenue and advantages in a tax-effective method, ideally each for the worker and the employer.
→Associated article: Wage sacrifice: What’s it and the way does it work?
Some frequent wage packaging gadgets are:
- Automobile fringe advantages (i.e. novated lease)
- Expense cost fringe advantages (akin to faculty charges, mortgage funds, and so on.)
- Automobile parking fringe advantages
- Superannuation contributions
Some salary-sacrificed gadgets (akin to superannuation) usually don’t have FBT implications however many do, together with vehicles. Novated leases, for instance, give rise to a automobile profit underneath the perimeter advantages tax (FBT) guidelines, and employers usually look to cross some or all of this extra price to staff. So whereas FBT is payable by your employer, it might choose to cut back your wage by the quantity of FBT it has to pay as a part of your wage sacrifice settlement. This could imply that as the present FBT charge is 47%, there could also be little profit in wage packaging a automobile except you pay tax on the highest charge.
Do you pay fringe advantages tax on superannuation contributions?
While salary-sacrificed tremendous contributions usually are not fringe advantages when paid for an worker right into a complying fund, these contributions are accountable for FBT if paid for the advantage of an affiliate, akin to an worker’s partner, or paid to a non-complying superannuation fund.
Wage-sacrificed tremendous additionally counts in the direction of your concessional (before-tax) tremendous contributions cap of $25,000 per 12 months. So for those who’re an worker, it’s good to watch out that the salary-sacrificed quantities, when added to different concessional contributions akin to your employer’s regular contributions plus any private contributions for which you need to declare an revenue tax deduction, don’t exceed this determine. In the event that they do exceed it, the ATO warns you’ll have to pay further tax.
How is fringe advantages tax calculated?
FBT is payable based mostly on the grossed-up ‘taxable worth’ of the profit offered. This ‘grossing up’ course of is meant to mirror the gross, before-tax wage staff must earn so as to purchase the advantages offered by an employer after paying tax. Fringe advantages are break up into Sort 1 and Sort 2 advantages. The precise calculation may be complicated and it’s possible you’ll need to search the help of an accountant, however the course of from an employer’s perspective is summarised as follows by the ATO:
- Work out the taxable worth of every fringe profit you present to every worker. The foundations for calculating the taxable worth of a fringe profit range in keeping with the kind of profit.
- Determine the whole taxable worth of the perimeter advantages you present on your staff for which you’ll declare a GST credit score, akin to vehicles, automobile parking, leisure and items (Sort 1 advantages).
- Work out the grossed-up taxable worth of those Sort 1 advantages by multiplying the whole taxable worth by the sort 1 gross-up charge (at present 2.0802).
- Determine the whole taxable worth of advantages offered on your staff for which you can not declare a GST credit score, for instance, provides you made that have been GST-free, akin to faculty charges, loans, medical insurance and reward vouchers (Sort 2 advantages).
- Work out the grossed-up taxable worth of those Sort 2 advantages by multiplying their complete taxable worth by the sort 2 gross-up charge (at present 1.8868).
- Add the grossed-up quantities from steps 2 and 4. That is your complete Fringe Advantages Taxable quantity.
- Multiply the whole Fringe Advantages Taxable quantity (from step 5) by the FBT charge (at present 47%). That is the whole FBT quantity you might be liable to pay.
Notice: if you’re unsure if a profit you present is a Sort 1 or Sort 2 profit, verify along with your accountant or contact the ATO.
Hypothetical instance:
Let’s assume you present a automobile to a member of employees which they’ll use privately (Sort 1 profit). The taxable worth of the profit is $10,000 in the course of the 2020/21 FBT 12 months. The FBT you would need to pay as an employer can be labored out as follows:
Taxable Worth $10,000
Multiplied by Gross-up charge x 2.0802
Grossed-up taxable worth $20,802
FBT Fee 47%
FBT Payable (rounded) $9,777
If you’re an employer yow will discover extra info on how you can calculate your FBT legal responsibility on the ATO web site.
Can an employer cut back its FBT legal responsibility?
It’s attainable to cut back your FBT legal responsibility, and even get rid of it altogether, by asking your worker to make a money contribution in the direction of the price of the profit offered to them, in keeping with the ATO. Every greenback that they pay in the direction of the supply of the profit reduces the taxable worth of the profit by the identical quantity. Providing staff larger salaries as an alternative of giving them fringe advantages is one other solution to keep away from paying FBT.
There are additionally varied FBT concessions and exemptions accessible that may cut back or get rid of FBT, as talked about earlier on this article.
How does an employer report and pay FBT?
The FBT 12 months runs from 1 April to 31 March, so now could possibly be a superb time to find out if what you are promoting must register for and pay FBT.
Should you present advantages to your staff and suppose you may need an FBT legal responsibility, step one it’s good to take is to register for FBT with the ATO. Your tax agent or accountant can assist you with that course of.
If in case you have offered fringe advantages on your staff, you should then lodge an FBT return. The most recent date for lodging an FBT return is often 21 Could, although for those who use a tax agent it’s possible you’ll qualify for an prolonged deadline.
Should you haven’t paid FBT earlier than, or if the quantity of FBT you needed to pay for the earlier 12 months was lower than $3,000, you solely make one cost for the 12 months if you lodge your FBT return. In any other case, FBT is payable quarterly via your exercise statements for the subsequent FBT 12 months.
What are reportable fringe advantages for workers?
As identified earlier, FBT is payable solely by employers. Nonetheless, if the quantity of fringe advantages offered to an worker exceeds $2,000 in an FBT tax 12 months, the determine should be reported within the year-end revenue assertion offered to staff and is then included on that worker’s tax return.
This isn’t taxable revenue, so there aren’t any direct revenue tax or Medicare levy penalties for the worker. Nonetheless, these reportable fringe advantages (RFBs) may be taken under consideration in understanding quite a lot of different advantages and obligations, together with household tax advantages, the Medicare levy surcharge, personal medical insurance rebate, little one help funds, superannuation co-contributions, Greater Training Mortgage Program (HELP) repayments, and varied tax offsets.
Keep in mind, if RFBs would influence you negatively, you’ll be able to agree to cut back your employer’s FBT legal responsibility (and therefore your RFBs) by making a dollar-for-dollar contribution out of your post-tax wage to your employer to pay for the perimeter advantages it gives you.
→Associated article: Non-public medical insurance and tax: How does it work?
For extra info on fringe advantages tax and reportable fringe advantages, you’ll be able to head to the ATO web site or contact the ATO straight. If you’re an employer, you might also like to debate your FBT legal responsibility with a registered tax agent or accountant.
Foremost picture supply: Blue Planet Studio/Shutterstock.com
This text was reviewed by our Sub-editor Tom Letts and Deputy Editor Sean Callery earlier than it was printed as a part of our fact-checking course of.