Until the introduction of Fringe Benefits Tax it was possible to reduce your tax bill by receiving non-cash benefits as a replacement for your gross salary. You could even transfer those benefits to family members. However, in 1986, the FBT Act was introduced to deal with this issue and increase the tax receivable by the ATO. As the employer was liable for this tax and not the employee, it made it more expensive to employ staff for businesses and made it less palatable for small business to provide these benefits unless they were necessary for the staff member to undertake their duties, such as a company vehicle for those that need them.
In order for the FBT to be payable three primary conditions must be present:
- There must be an employer/employee relationship
- The employer must give a fringe benefit that comes under the broad description of a benefit under FBT rules e.g. private use of a work vehicle
- The benefit isn’t exempt under FBT rules such as a laptop for business use although these are restricted to one per year
It is also important to note that an FBT liability exists if you provide a benefit to former employees or people you intend to employ in the future.
Some other points to note for FBT:
- FBT year runs from 1st April to 31st March each year, FBT return due in mid-May
- Salary & Wages do not fall under this legislation
- FBT does not create a liability on items you pay for your employees which are tax deductible such as professional membership fees
- If your annual liability is calculated as higher then $3,000 you are required to enroll into the quarterly instalment scheme
- There is more than one method of calculating FBT liabilities for items such as cars
- Salary packaging is a means of you reducing your personal tax liability but certain items could lead to an FBT liability for the employer
- While FBT liable benefits may not be attributable to an employee’s income tax, they are used to calculate total salary for items such as Medicare Surcharge