What is FBT?
Items provided to employees that are not cash and do not come from their regular salary are known as fringe benefits.
- They consist of things like
- Taking personal use of work vehicles
- granting discounted loans to employees
- Covering the cost of gym memberships
- amusement such as event tickets
- Paying back a worker's personal expenses
- Benefits associated with agreements for salary sacrifice
Anything you provide to an employee could be considered a fringe benefit, so there are a ton more examples available.
Nevertheless, the following things are unquestionably not fringe benefits:
- Wages and Salaries
- Purchases of company shares made by employees under employee share acquisition plans (unless a loan agreement is in place to purchase shares)
- Contributions to superannuation
- Payments for employee termination
As long as they are primarily used for work, the following work-related items that are frequently included in salary sacrifice agreements are exempt benefits (limits apply):
- a transportable electronic gadget
- A piece of software for computers
- a piece of protective apparel
- A purse
- a practical instrument.
- Other exclusions include small and sporadic benefits as well as costs that the employee would otherwise be able to deduct.
Not-for-profit organisations, charitable organisations, and places of worship are also eligible for a number of additional exemptions and concessions.
Asking an employee if they receive a personal benefit from the benefit in question outside of work is a really simple way to determine what constitutes a fringe benefit and what does not.
The purpose of FBT is to prevent employers from offering non-salary benefits to workers in an effort to evade paying income taxes.
FBT is a tax that requires the employer to impose the same level of taxation as if the worker had been paid a salary, was subject to top marginal taxation, and had to use their after-tax income to pay for the benefit.
What is the exemption for minor benefits?
A benefit is classified as a "minor benefit" and exempt from FBT if it has less than $300 in notional taxable value and is deemed unreasonable to be considered a fringe benefit.
Many factors are taken into account when determining whether a benefit is deemed "unreasonable," including the frequency and regularity of the minor benefits, the benefit's total value alone and in combination with other benefits, the difficulty of determining the benefit's value, and the circumstances surrounding the benefit's delivery.
How is the FBT determined?
FBT computations are intricate, and various benefit kinds have distinct formulas.
Determining the benefit's value is essentially the first step. This is usually the benefit's cost to the employer (including GST), though the computation varies depending on the kind of benefit.
The taxable value is then obtained by "grossing up" the benefit's value. The term "grossing up" refers to raising the taxable value of benefits to the amount that, after taxes, employees would have to earn at the highest marginal tax rate (including the Medicare levy) in order to purchase the benefits.
What is the rate of FBT?
The total amount owed for FBT is 47%. This consists of the highest marginal income rate of 45% taxed income plus an extra 2% for the Medicare levy.
Why do businesses provide perks to employees?
Considering how much of an administrative nightmare it all seems, why do businesses even bother?
Benefits and perks are typically provided to recruit, hire, and retain staff. A company can use fringe benefits to attract more applications in order to hire a top-tier employee.
Tech companies have introduced benefits like Google's free cafeteria for all meals of the day ("food consumed on premises" is one exemption), transportation scooters, and education subsidies (also an exemption) by means of some very shrewd exemptions.
Imparting to your staff a sense of worth, support, and availability improves the work environment and supports various aspects of work-life balance and productivity.
Under certain conditions, employees may receive tax benefits from fringe benefits, resulting in lower income tax payments.
What information about FBT should employees know?
Not all fringe benefits are reportable, but if your reportable fringe benefits taxable total exceeds $2,000 in the FBT year (1 April to 31 March), you must include it on your income tax return.
The good news is that this amount will be disclosed to you and included in your payment summary by your employer. Your summary will include a special section labeled "reportable fringe benefits amount."
Fringe Benefits are included in your adjusted taxable income (ATI), which is used to determine other things like the Medicare levy and required HECS or HELP repayments, even though they are not taxable income. Aside from your tax return, your adjusted taxable income affects things like Centrelink benefits and child support obligations.