As we have wrapped up another Fringe Benefits Tax (FBT) year on 31 March, now is the time to review your FBT requirements, whether as an employer or an employee.
To assist you with treading through the dark and murky waters of FBT, we provide guidelines for employers (Part 1) and for employees (Part 2), to help you gain a better understanding of your potential FBT obligations and consequences of providing or receiving fringe benefits.
Part 1: Guidelines For Employers
What is Fringe Benefits Tax (FBT)?
FBT is essentially a separate tax that is payable by employers on certain types of non-cash benefits provided to employees (or their associates) in respect of their employment.
The purpose of FBT is for the Australian Tax Office (ATO) to capture any employee remuneration that is not being included in the employee’s individual tax return as assessable income (i.e. in wages or allowances).
This is to ensure that the ATO will not miss any “income” that has not been taxed. So basically, if an employee has not been taxed on this “income”, then the employer will be liable for it.
Similar to an income tax return, if an employer is liable for FBT, they will need to lodge a separate FBT return and pay the appropriate amount upon lodgement.
The FBT reporting period runs from 1 April to 31 March each year.
So, What Exactly Are Fringe Benefits?
It is common for employers to be providing fringe benefits to their staff, or to the business owners themselves, without even realising it. This can have significant tax consequences and we are always working with our clients to ensure their FBT obligations are met and to review their employee remuneration structure to minimise their exposure to FBT.
Fringe benefits may be difficult to identify as these benefits can be provided by means of cash or non-cash benefits to employees. However, they do not include salary, wages or superannuation that the employees are already being taxed on.
Please be aware that the term “employees” may be used loosely in the FBT world as it can also include the employees’ associates (i.e. spouse or family member), or the business owner.
To assist with identifying potential fringe benefits being provided, we have listed out the most common fringe benefits we come across with medical practices, including ways to minimise your exposure to FBT.
# It is irrelevant if the employee actually uses the car for private purposes – as long as it is “available” for private use, the ATO will automatically deem a car benefit is being provided.
^ A car park is considered to be commercial if it is permanent and available to the public on any given day for all-day parking on a payment of a fee. As such, a car park located at a shopping centre, hospital, hotel or the airport will fall into the definition of a commercial car park, even though penalty rates are being charged.
* A valid log book must be kept for a continuous 12-week period and is valid for a maximum of five years. A log book period does not need to be contained to one year and can continue into the next year so that it covers the required 12 continuous weeks. However, if your business use changes substantially, a new log book is required to be completed before the five-year period ends. Furthermore, a valid log book must also include the purpose of each trip, a simple classification of either “business” or “private” will not suffice.
** For more information about the exemption on electric vehicles, please refer to our article here on this topic.
2023 Key Calendar Dates
The below table provides key dates in relation to your potential FBT obligations.
|31 March 2023||End of FBT reporting period.
Record closing odometer readings on each car provided to employees.
|3 April 2023||Review salary packaging for your employees.|
|28 April 2023||4th instalment of FBT due for the 2023 FBT year (prepayment of 2023 FBT return)|
|19 May 2023||Last day to appoint tax agent for FBT to access extended lodgement and payment due date for the 2023 FBT return.|
|22 May 2023||Lodgement and payment of the 2023 FBT return if not lodged by a tax agent|
|26 June 2023||Lodgement and payment of the 2023 FBT return lodged by a tax agent|
|28 July 2023||1st instalment of FBT due for the 2024 FBT year (prepayment of 2024 FBT return)|
|30 October 2023||2nd instalment of FBT due for the 2024 FBT year (prepayment of 2024 FBT return)|
|28 February 2024||3rd instalment of FBT due for the 2024 FBT year (prepayment of 2024 FBT return)|
Part 2: Guidelines For Employees
One of the perks of being an Australian health care professional is that you can adopt certain strategies to maximise your salary packaging opportunities where your employer is an FBT exempt entity (i.e. a public hospital).
Salary sacrifice involves your employer paying for certain expenses out of your pre-tax salary. This in turn reduces your taxable salary with the ATO and thereby you are essentially using tax-free income to fund your private expenditure. However it does come at a cost to your employer so your salary packaging strategies are subject to certain restrictions, limitations and employer approvals.
If you work for a FBT exempt employer, you can salary package up to $9,009 in everyday living expenses that would usually attract FBT such as groceries, rates, mortgage payments and rent. In addition to this, $2,649 in meal entertainment or venue hire can be salary sacrificed. Both these thresholds will yield nil FBT liabilities for your employer.
Other benefits can also be packaged including self-education, work-related expenses and a novated car lease.
We recommend salary sacrificing items from your pre-tax income that are not deductible in your personal tax return. Deductible expenses such as subscriptions and self-education expenses can then be offset against your post-tax income. We can assist with setting up a salary sacrifice arrangement and packaging benefits to maximise your income and reduce tax payable.
It is important to note that if you are in receipt of over $2,000 in taxable value of certain types of fringe benefits, then it will be required to be reported on your payment summary as reportable fringe benefits. The reportable amount on your payment summary will be grossed up for FBT purposes, which will in turn be recorded in your individual tax return. Common benefits that are excluded from being reportable include car parking, meal entertainment and the private use of a pooled / shared car.
Although the reportable fringe benefits do not generate additional tax payable, this can impact on determining your private health insurance rebate, eligibility for various tax offsets, liability to pay the Medicare Levy Surcharge, Division 293 tax, child support obligations and repayments against student debt (i.e. HELP).
You can find out more by reading to our article here on this topic.
So Where Do I Go From Here?
As you can see FBT is a very tricky and complex area. You may be providing fringe benefits without even knowing it, or equally you could be missing out on tax saving opportunities if you are receiving benefits from your employer.
As an employer, even if you have identified the fringe benefits provided to your employees, there are many different methods in calculating the taxable values of these fringe benefits which may yield very different outcomes.
On top of all this, FBT also has implications on the GST and income tax deductions that can be claimed by your business.
The team at Pilot Partners are experienced in all of these areas and will be able to assist you in navigating through the complex terrain of tax reporting and lodgement.