Benefits provided to employees or their associates in addition to salary or wages are known as fringe benefits. These benefits are paid for by the employer from pre-tax earnings, making the provision of benefits attractive to employees as it may reduce their taxable income while receiving payment in other forms.
Fringe benefits tax (FBT) may apply based on the type of benefit provided.
Tax is payable because the benefits are a different form of payment by an employer instead of salary and wages. The tax is calculated on the taxable value of the benefit, which reflects the grossed-up salary the employee would have had to earn to pay for the benefits from post-tax earnings.
Employers can generally claim a tax deduction for the benefits and related FBT payable.
Types of Benefits
There are many different types of fringe benefits employers may provide to employees. These include:
- Vehicle owned by the business provided for private use
- Vehicle lease arrangements
- Car parking
- Entertainment, such as golf club membership or tickets to major events
- Expense payments, such as credit cards or health insurance
- Other types include debt waiver, living away from home allowance, or property benefits.
Some benefits provided to employees don’t attract FBT. If you pay for expenses that an employee would otherwise have been able to claim as a work-related tax deduction, FBT won’t apply. For example, if you pay for employees to attend a professional development course, there won’t be any FBT liability on this benefit. COVID-19 tests required for employment are also exempt from FBT.
The fringe benefits tax year runs from 1 April to 31 March. You must then include the reportable amount for each employee on their Single Touch Payroll finalisation by 14 July, so it flows through to their annual income statement.
As with all business transactions, keeping accurate records is essential to determining whether FBT applies or not and how much needs to be included on the employee’s income statement, if any.
If you’re interested in seeing how fringe benefits might apply to your business, talk to us about FBT registration and administration. We can advise on the types of benefits available, how much tax is payable or how to reduce the FBT liability. We’ll also get your bookkeeping software set up to make record keeping easy.