February 28, 2022

The end of FBT year is near – are you prepared?

As the end of FBT year approaches, it’s important to be aware of the benefits you’re providing your employees.

One such benefit is fringe benefits, which are ‘payments’ made to an employee in a form other than salary or wages. This incurs a specific kind of tax known as Fringe Benefits Tax (FBT), which is based on the taxable value of the fringe benefits provided.

What are some examples of fringe benefits?

The list below provides examples of items that can be considered fringe benefits. Keep in mind that these arrangements between employer and employee – even if it’s arranged by a third party – will have FBT applied. So be sure you’re aware of what you’re offering your team.

  • Allowing an employee to use a work car for private purposes
  • Giving an employee a discounted loan
  • Paying an employee’s gym membership
  • Providing entertainment by way of free tickets to concerts
  • Reimbursing an expense incurred by an employee, such as school fees
  • Giving benefits under a salary sacrifice arrangement with an employee

What are examples of items that are not fringe benefits?

It’s important to know what items are not fringe benefits so you know whether FBT applies to them.

Below are some examples of items that are not considered fringe benefits:

  • Salary and wages
  • Shares purchased under approved employee share acquisition schemes
  • Employer contributions to complying super funds
  • Employment termination payments (including for example, the gift or sale at a discount of a company car to an employee on termination)
  • Payment of amounts deemed to be dividends under Division 7A
  • Benefits provided to volunteers and contractors
  • Exempt benefits such as certain benefits provided by religious institutions to their religious practitioners

Employees don’t have to worry about paying the tax on these items, but it is an area of concern that employers need to be careful of. FBT can be a complicated subject, so it’s always best to consult a professional if you have any questions.

What to do before the end of the FBT year

Small business owners need to be aware of their FBT liabilities. This includes understanding what fringe benefits they are providing their employees, and how these benefits may impact their liability.

Employers must self-assess their liability for the FBT year (which ends 31 March) and lodge an FBT return with the Australian Tax Office (ATO). By taking some time now to understand your fringe benefits and calculate your FBT liability, you can avoid mistakes at tax time.

How to reduce your FBT liability

FBT is a significant cost for most small businesses and it’s important to know how you can reduce your liability. Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. However, there are ways in which you may be able to reduce your liability when it comes to FBT.

These methods include:

  • Providing benefits that are income tax-deductible: if your employee is given a benefit that they could otherwise have claimed themselves.
  • Using employee contributions: if your employees contribute to the cost of the FBT themselves through a cash payment to the provider of the benefit, the taxable value of the fringe benefit can be reduced by that amount.
  • Providing a cash bonus: if you provide your employee with a cash bonus instead of a benefit you won’t have to pay FBT, and the employee will pay income tax on the amount.
  • Providing benefits that are exempt from FBT.

What is the Retraining & Reskilling Exemption?

The Australian Taxation Office (ATO) may modify FBT exemptions from time to time, which might affect your FBT liability.

The FBT Retraining & Reskilling Exemption is one such exemption. If you are an employer who provides a benefit that includes training or education to workers who are being made redundant (or will soon be made redundant).

The exemption can be claimed for retraining and reskilling benefits provided on or after October 2, 2020. This exemption should not be included in your 2022 tax return or the reportable fringe benefits amount of your employee.

However, if you have already filed your 2021 FBT return and paid any FBT owing, you can amend it to reduce the FBT paid for retraining and reskilling that is exempt.

In conclusion

FBT is a complex tax that can be difficult to understand, especially for small business owners who juggle other challenges of running a small business. As the end of the FBT year approaches, make sure you take the time now to work out your liability before 31 March.

FBT can be a costly exercise for small businesses, but by consulting a professional and understanding it you can avoid any surprises come tax time.

If you have any questions about FBT or would like help calculating your employee benefits, simply get in touch with our experts at Seriously Good Accounting.

Filed Under: Accounting, Small Business Tax, Tax

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