Understanding Fringe Benefits Tax and Its Important Impacts

Are you familiar with fringe benefit tax? Fringe benefits tax (FBT) is an essential tax concept that every employer and employee should understand. FBT is a tax placed on non-salary benefits that employers provide to their employees, in addition to their salary or wages. In this Business Kitz blog post, we will delve into what FBT is, who is affected by it, and how it is calculated.

What is a fringe benefit?

A fringe benefit is an extra non-wage compensation that an employer provides to employees as a part of their overall compensation package.

Fringe benefits can take many forms, such as these common examples:

  • health insurance,
  • retirement plans,
  • paid time off,
  • childcare assistance,
  • tuition reimbursement, and more.

These benefits are typically offered as a way to attract and retain employees, as well as to enhance employee well-being and job satisfaction. In addition, some fringe benefits can provide tax advantages for both the employer and the employee. Fringe benefits play an important role in the overall compensation package and can have a significant impact on an employee’s overall financial well-being.

What is a fringe benefit tax (FBT) ?

A fringe benefit tax is a tax levied by governments on certain benefits provided by employers to their employees, in addition to their regular salary or wages. Fringe benefits can include things like health insurance, gym memberships, company cars, and more. The tax is designed to ensure that employees are paying taxes on the full value of their compensation, including any benefits they receive. In some countries, such as the United States, fringe benefit taxes are levied at the federal level, while in others they may be administered at the state or local level. The specific rules and regulations governing fringe benefit taxes can vary widely depending on the jurisdiction.

How do fringe benefits offer employers an advantage? 

Fringe benefits offer employers several advantages, including:

  1. Attracting and retaining top talent – By offering a comprehensive benefits package, employers can attract and retain top talent in their industry. This can help to create a competitive advantage in the market and improve employee loyalty.
  2. Increasing employee satisfaction and morale – When employees feel that their employer values their contributions, they are more likely to be satisfied with their job and have higher morale. This can translate into increased productivity, better customer service, and a positive work environment.
  3. Reducing turnover – When employees have access to benefits such as health insurance and paid time off, they are less likely to miss work due to illness or personal reasons. This can help to reduce turnover and absenteeism, which can be costly for employers.
  4. Improving tax benefits – Some fringe benefits are tax-deductible for employers, which can help to reduce their overall tax liability. This can make offering fringe benefits a cost-effective way to compensate employees.
  5. Enhancing company culture – Fringe benefits can help to create a positive company culture that promotes employee well-being and work-life balance. This can help to attract new employees and create a more cohesive team.

Overall, fringe benefits offer employers a valuable tool for attracting and retaining top talent, improving employee satisfaction and morale, reducing turnover and absenteeism, improving tax benefits, and enhancing company culture.

What are the different types of fringe benefits?

Below are the different types of fringe benefits that are recognised by the ATO:

fringe benefits tax
  • Health insurance
  • Life insurance
  • Superannuation contributions
  • Company car or car allowance
  • Work-related training or education
  • Travel or meal allowances
  • Remote area housing or accommodation
  • Tools of the trade allowance
  • Staff discounts or product allowance
  • Long service leave or paid time off
  • Parental leave or childcare support
  • Employee share scheme participation
  • Professional membership fees

How can you submit a fringe benefit tax return?

Submitting a Fringe Benefits Tax (FBT) return can be a daunting task for many business owners. To make the process simpler, follow these steps:

  1. Determine if you are eligible to pay FBT
  2. Gather all relevant information and documents
  3. Calculate your FBT liability
  4. Lodge your FBT return online or by mail
  5. Pay your FBT liability by the due date

Remember to keep accurate records and seek professional advice if needed.

How can you calculating your FBT payable

To calculate your FBT payable, follow these steps:

  1. Determine the gross taxable value of all fringe benefits provided to employees during the FBT year.
  2. Identify the applicable FBT rate, which is currently 47% for most employers.
  3. Multiply the gross taxable value by the FBT rate to determine the FBT payable.
  4. Pay the FBT amount to the Australian Taxation Office (ATO) by the due date.
  5. Report the FBT amount on your business activity statement (BAS).

By following these steps, you can accurately calculate your payable FBT.

Legal Advice

If you have any questions regarding fringe benefits taxes or any legal matters, please do not hesitate to contact our sister company, Legal Kitz. The Legal Kitz team are happy to assist you. You can request to book a free 30-minute consultation with their experienced and highly qualified team via our website now.

Additionally, you can also check out our Business Kitz Subscription to access our full range of legal, commercial and employment document templates.  

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