What is Fringe Benefit Tax (FBT)?

fringe benefit tax

We’re not going to get too technical here – just the basics and some figures to show the impact.

In reality, companies could have many employees receiving all types of benefits, which result in multiple (and complex) calculations. We won’t get into that, but the ATO has! Its can be found here.

Fringe Benefit Tax
Example
Who pays?
When is FBT payable?
Employee contributions and motor vehicles
What about allowances?
And reimbursements?
Staff shouts, vouchers, gifts
Other options

Fringe Benefit Tax (FBT)

A fringe benefit is where an employee receives a non-cash benefit in their role as an employee. The most common non-cash benefits are:

  • Private use of a company vehicle
  • The company paying health and other insurances
  • The company paying for gym membership
  • Low-interest (or interest-free) loans

FBT applies to all entities that provide provide non-cash benefits to an employee.

The questions arise – are these benefits taxed, and who pays?

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Example

Here’s a simple example showing the difference between two employees receiving the same remuneration value, but in different forms.

Jane receives a gross salary of $85,000. Before it gets into her hands, the employer has withheld $19,800 and pays it directly to the ATO.

  • Jane receives the net amount of $65,200, and the employer claims the expense of $85,000.

I think we’re all OK with this.

What if John receives a salary of only $65,000 and has the use of a company vehicle valued at $20,000?

  • Under the PAYGW system, John pays $12,950 in tax, receiving a net salary of $52,050. He also has the use of the vehicle.
  • The company can claim expenses for his $65,000 wages and costs associated with owning the vehicle – including fuel, insurance, loan and interest payments, maintenance and repairs.

Fair? We think not, and more importantly, the ATO thinks not.

Fringe Benefit Tax aims to square things up

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Who pays?

Employee

Wages are subject to PAYE which the employer deducts on employee’s behalf; so the employee pays tax on wages, based on his or her level of income.

In the previous example, Jane pays $18,970 and John pays $12,520.

Employer 

The employer pays Fringe Benefit Tax to Inland Revenue at a rate of 63.93% per annum from 1 April 2021* plus any necessary adjustment to account for John’s top tax rate, the days the vehicle wasn’t available for him to use (perhaps while travelling or in the workshop), and any contributions he makes.

This link will take you to the IRD calculators (yes, there are three!), to get an indication of

* Prior to 1 April 2021, the rate was 49.25%. The increase arises because FBT needs to take into account the new highest tax tier of 39% (previously 33%).

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When is FBT payable?

Employers are required to lodge their FBT returns annually. The return requires details of the employee, the benefit provided and its value, and whether or not the employee has contributed anything for the benefit.

The FBT year runs from 1 April to 31 March. Any FBT payable is due by 21 May (if you lodge your own return) and 25 June (if you have a tax agent that lodges your return for you).

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Employee Contributions and motor vehicles

If a business vehicle is available to an employee, it’s considered a non-cash benefit where the car is taken to be available for private use (used or allowed to be used for private purposes). Employees are able to reduce the taxable value of the benefit by contributing to the cost of a fringe benefit. This can reduce the FBT liability to nil.

In short, the employee pays the business for this benefit, which the business must include within its taxable income.

You can read more about the deductibility of motor vehicle expenses and entity types in our blog What motor vehicle expenses can I claim for my business?

Employees can also make after-tax contributions towards the cost of other fringe benefits received also.

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What about allowances?

Employee allowances are usually amounts paid to employees to cover things such as an employee’s accommodation, meals, internet, phones, clothing, and fuel. These are taxed through the PAYG Withholding system and aren’t subject to FBT.

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And reimbursements?

Reimbursements are where the employee pays a bill on behalf of the company. The most common are accommodation and fuel.

The employee provides a receipt to the employer and receives the reimbursement. The company records this as a tax-deductible expense.

Reimbursements aren’t included within the FBT regime.

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Staff shouts, vouchers, gifts

Provided these are less than $300 (inclusive of GST) per year, per employee, these costs are exempt from FBT.

The nature of the expense will impact whether or not it’s tax-deductible to the business. Check out our short-and-sweet blog here.

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Other options

With the FBT rate of 47%, many employers are wondering if the paperwork and tax payments are worth it.

Consider the following options:

  • Sell the company vehicle to the employee or go down the reimbursement or allowance route
  • Increase wages to allow employees to pay for gym memberships (etc) themselves
  • Provide a gift or vouchers

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