Fringe Benefits Tax (FBT) is a tax that employers pay on certain benefits they provide to their employees or their employees’ associates (typically family members). These benefits can be in addition to, or part of, the employee’s salary or wages.
Here’s a comprehensive look at what FBT is, how it works, and what employers need to know.
What is FBT?
FBT is a tax applied to the value of various non-cash benefits provided to employees. These benefits can include things like:
- Company cars: When an employer provides a car for an employee’s private use.
- Entertainment: Such as free tickets to concerts or sporting events.
- Expense payments: Reimbursement of personal expenses, like school fees or health insurance.
- Loans: Providing low-interest or interest-free loans to employees.
How is FBT Calculated?
FBT is calculated based on the taxable value of the fringe benefits provided. The ATO provides specific methods for calculating the taxable value of different types of benefits. The FBT year runs from 1 April to 31 March, and employers must lodge an FBT return and pay any FBT liability by 21 May each year.
Types of Fringe Benefits
There are several types of fringe benefits, each with its own rules for valuation and reporting:
- Car Fringe Benefits: When a car is made available for private use by an employee.
- Loan Fringe Benefits: When an employer provides a loan to an employee at a reduced interest rate.
- Expense Payment Fringe Benefits: When an employer reimburses an employee for expenses incurred.
- Housing Fringe Benefits: When an employer provides housing to an employee.
- Living-Away-From-Home Allowance (LAFHA): When an employer compensates an employee for additional costs incurred because they are living away from their usual place of residence for work.
Exemptions and Concessions
Certain benefits are exempt from FBT or receive concessional treatment. For example:
Work-related items
Laptops, mobile phones, and tools of trade provided primarily for work purposes. Items primarily used for work purposes, such as laptops, tablets, mobile phones, and tools of trade, are exempt from FBT. Each employee can receive one of each type of item per year.
Minor benefits
Benefits with a value of less than $300, provided infrequently and irregularly. Benefits that are infrequent, irregular, and valued at less than $300 (GST inclusive) are exempt from FBT. Examples include small gifts or occasional meals.
Remote area benefits
Certain benefits provided to employees working in remote areas.
Car Parking
Car parking benefits are exempt if the employer’s group-wide turnover is less than $50 million and the parking is not provided at a commercial car park station.
Electric Vehicles
Zero or low-emission vehicles (battery electric, hydrogen fuel cell, or plug-in hybrid electric vehicles) can be exempt from FBT if they meet certain conditions, such as being first held and used on or after 1 July 2022 and being below the luxury car tax threshold.
Note that from 1 April 2025, plug-in hybrid electric vehicles will no longer qualify for this exemption unless specific conditions are met.
Fly-In Fly-Out Transport
Transport provided to employees working in remote areas under fly-in fly-out arrangements is exempt from FBT.
Relocation Expenses
Certain relocation expenses, such as costs associated with moving an employee’s household, are exempt from FBT.
These exemptions can help reduce the FBT liability for employers while still providing valuable benefits to employees.
Reporting and Paying FBT
Employers must:
- Register for FBT: If they provide fringe benefits to employees.
- Keep Records: Maintain detailed records of all fringe benefits provided.
- Lodge an FBT Return: Annually, detailing the fringe benefits provided and the FBT payable.
- Pay FBT: By the due date, typically May 21 each year.
FBT Rates for 2025
For the FBT year ending 31 March 2025, the rates and thresholds are as follows
- FBT Rate: 47%
- Type 1 Gross-Up Rate: 2.0802 (used when the benefit provider is entitled to a GST credit)
- Type 2 Gross-Up Rate: 1.8868 (used when the benefit provider is not entitled to a GST credit)
Penalties for FBT non-compliance
Non-compliance with Fringe Benefits Tax (FBT) obligations can lead to significant penalties imposed by the Australian Taxation Office (ATO). Here are some key penalties for FBT non-compliance:
Failure to Lodge on Time
If you fail to lodge your FBT return by the due date, you may incur a Failure to Lodge (FTL) penalty. This penalty is calculated based on the size of your business and the length of the delay.
General Interest Charge (GIC)
If you do not pay your FBT liability by the due date, the ATO will apply a General Interest Charge (GIC) on the unpaid amount. The GIC is calculated daily and compounds until the debt is paid.
Administrative Penalties
The ATO can impose administrative penalties for errors or omissions in your FBT return. These penalties can be significant, especially if the errors are deemed to be due to recklessness or intentional disregard of the law.
Audit and Review Penalties
If the ATO conducts an audit or review and finds that you have underreported your FBT liability, additional penalties may be applied. These penalties can vary depending on the severity and nature of the non-compliance3.
Penalties for False or Misleading Statements
Providing false or misleading information in your FBT return can result in substantial penalties. The amount of the penalty depends on the extent of the misinformation and whether it was intentional.
Record-keeping for FBT Compliance
To ensure compliance with Fringe Benefits Tax (FBT) regulations, it’s essential to maintain accurate and detailed records. Here are the key records you should keep:
Employee Declarations
Obtain declarations from employees for benefits such as car parking, living-away-from-home allowances, and meal entertainment. These declarations help substantiate the fringe benefits provided.
Travel Diaries
For benefits related to travel, such as accommodation and meals, keep travel diaries that detail the purpose and duration of the travel.
Logbooks
Maintain logbooks for vehicles provided to employees. These should record the business and private use of the vehicle to accurately calculate the taxable value of car fringe benefits2.
Expense Receipts
Keep receipts and invoices for all expenses related to fringe benefits, such as entertainment, accommodation, and travel costs.
Employment Contracts
Retain copies of employment contracts and any agreements related to the provision of fringe benefits.
Valuation Records
Document the methods used to value fringe benefits, including any market valuations, lease agreements, and calculations for benefits like housing and car parking.
Alternative Records
From 1 April 2024, employers can use existing business records instead of statutory evidentiary documents for certain benefits, provided these records meet the ATO’s requirements.
Conclusion
FBT is an important aspect of tax compliance for employers in Australia. Understanding the types of fringe benefits, how to calculate FBT, and the reporting requirements can help businesses manage their tax obligations effectively.
If you need further assistance or have specific questions about FBT, consulting with a tax professional or the ATO can provide additional guidance.
| Contributor details |
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| Heryati Ramlan, affectionately known as Yati, is a trusted tax professional with years of experience. She began her career as a bookkeeper before focusing on solely on taxation. Yati has spent the last 10 years working with boutique accounting firms and assisting clients with their financial and tax obligations. |