Small business owners are responsible for ensuring that their operations are compliant with various tax laws in their jurisdiction. One of the taxes that business owners may encounter is Fringe Benefits Tax (FBT). FBT is a tax that the Australian Taxation Office (ATO) levies on non-cash benefits provided to employees, including their family members or associates. 

Read on as we go through this guide for small business owners on Fringe Benefits Tax.

An Overview of Fringe Benefits Tax

Fringe Benefits Tax (FBT) is a tax that employers pay on specific benefits they provide to their employees. FBT is separate from income tax, and it is calculated on the taxable value of fringe benefits that employers provide. The taxable value of fringe benefits is the amount that the employee would have to pay for the benefit if they had paid for it themselves. For example, if an employer provides an employee with a car for private use, the taxable value of the benefit would be the cost of running the car for the year, including depreciation, registration, and insurance.

The 4 Types of Fringe Benefits

The ATO recognises various types of fringe benefits that employers may provide to employees, including:

1. Cars: Cars provided to employees for private use are one of the most common fringe benefits. Employers may provide a car to an employee for business purposes, and if the employee uses the car for private purposes, the employer would be liable for FBT.

2. Loans: Employers may provide employees with loans, and if the loan is interest-free, or the interest rate is below the ATO’s benchmark rate, the employer would be liable for FBT.

3. Entertainment: Employers may provide their employees with entertainment benefits, such as tickets to concerts, sporting events, or theatre shows. If the entertainment is not exempt, the employer would be liable for FBT.

4. Housing: Employers may provide their employees with housing benefits, such as rent-free or subsidised accommodation. If the housing benefit is not exempt, the employer would be liable for FBT.

Exemptions and Concessions

The ATO provides various exemptions and concessions for FBT. The most common exemptions include:

• Minor Benefits: Benefits that are less than $300 in value are exempt from FBT.

• Work-Related Items: Benefits that are provided to employees for work-related purposes, such as laptops, mobile phones, and tools, are exempt from FBT.

• Car Parking: Employers may provide car parking benefits to their employees, and if the car park is used for work-related purposes, the benefit is exempt from FBT.

Calculating Fringe Benefits Tax

Employers must calculate FBT on the taxable value of the fringe benefits they provide to their employees. The FBT rate for the 2021 financial year is 47%. The FBT liability is the taxable value of the fringe benefits multiplied by the FBT rate.

For example, if an employer provides an employee with a car for private use, and the taxable value of the benefit is $20,000, the FBT liability would be $9,400 (i.e., $20,000 x 47%).

Reporting Fringe Benefits Tax

Employers must report FBT to the ATO annually. The FBT year runs from 1 April to 31 March, and the FBT return is due by 21 May. Employers must provide their employees with a payment summary of fringe benefits by 14 July.

Penalties for Non-Compliance

Employers who fail to comply with FBT regulations may face penalties and interest charges. The ATO may also conduct audits to ensure that employers are complying with FBT regulations.

Conclusion

Fringe Benefits Tax is a tax that employers must pay on non-cash benefits they provide to their employees. Employers must be aware of the types of fringe benefits that are subject to FBT, as well as the exemptions and concessions that are available. Employers must also calculate and report FBT to the ATO annually to avoid penalties and interest charges. Small business owners must ensure that they are compliant with FBT regulations to avoid potential legal and financial consequences.

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