What is the Fringe Benefits Tax (And What Counts as a Fringe Benefit?)

Every business wants to attract the best possible talent. With good people, you can accelerate growth and improve productivity. In real estate, for example, having talented people means you conduct more transactions and make more money.

The problem comes from figuring out how to get the best people in your industry to consider your company as an employer.

Your mission, values, and culture all play parts in this, as does the pay you offer. However, it’s your benefits package that may prove to be the deciding factor. This is especially the case if the rest of your offering is similar to what other companies offer.

Your desire to offer better benefits may lead you to consider registering for the Fringe Benefits Tax (FBT). In this article, we explain what that is and what you need to know about it.

What is the FBT?

The Australian Taxation Office (ATO) describes the FBT as follows:

“Fringe benefits tax (FBT) is paid by employers on certain benefits they provide to their employees or their employees’ family or other associates. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.”

To understand the tax, you also have to understand what a fringe benefit is. It’s simply a benefit that supplements the salary or wage that you offer an employee. However, not every potential benefit counts as a fringe benefit, as we’ll explain a little later.

These fringe benefits can serve as motivators for employees, as well as providing an incentive for talented people to join. Furthermore, they may allow the employee to enter a lower tax bracket.

For example, you could introduce fringe benefits as part of a salary sacrifice program. The sacrificed salary could allow for the benefits, while also shifting an employee down a tax bracket. This may be especially useful if the employee only slightly exceeds the earnings requirement for the higher bracket.

How do You Register for FBT?

You don’t necessarily have to register for FBT if you want to offer fringe benefits for employees. However, the ATO recommends that you do.

You have several options when it comes to registration, including the following:

• You can ask your registered tax agent to complete the registration on your behalf.
• If you’re one of the company’s authorised contacts, you can complete the process by phone. You’ll need to use the Business Enquiries line, which you can find here.
• Assuming you have an Australian Business Number, you can register online at this link.

The process is not especially complex. Plus, you’re able to cancel your FBT registration at any time by following the same process that you used to register.

What Is (and Isn’t) a Fringe Benefit

As mentioned, not every benefit you offer counts as a fringe benefit.

The following benefits usually fall within the FBT bracket:

• The provision of a company car 
• Certain health-related benefits, such as gym memberships 
• Expenses related to entertainment, such as food, drinks, and even cinema tickets 
• Some discounted loans 
• School and childcare fees 
• Private health insurance 
• Any allowances provided to people who have to live away from home to do their job 

Equipment that the employee may need to do their job, such as a smartphone or tablet, isn’t classed as fringe benefits. However, you may be able to get tax deductions on such equipment by other means.

The ATO also highlights several things that don’t count as fringe benefits. These include the following:

• Any shares the employee buys under an approved share purchasing scheme 
• The wages the employee earns 
• Any payments or gifts related to the termination of a contract 
• Any contributions that you, as an employer, make to an employee’s super fund 
• Payment of dividends 
• Benefits you may provide to contractors or volunteers.

The last one is especially important, as it shows that you can only offer fringe benefits to full employees.

There’s another type of benefits that doesn’t fall under fringe benefits. These are the benefits that religious organisations provide to their practitioners.  

Explaining Exempt Fringe Benefits

Within the category of fringe benefits, there are certain things that are exempt from FBT. This means that employers don’t have to pay a tax for providing the benefit.

There are many examples of exempt fringe benefits. However, some of the most common are:

• Any food that the employee consumes on the employer’s premises 
• Any car parking that a small business employer provides 
• Fees related to taxi journeys, as long as they either start or end at the employer’s premises 

This is just a small sample of specific exempt fringe benefits. There are many more, with some being general, while others relate to specific circumstances. It’s best to speak with a tax professional to receive a comprehensive list.

Is FBT Right for You?

As an employer, there are two questions that you need to ask before you register for FBT:

• Do I want to provide fringe benefits to my employees?
• Do I provide enough of the benefits that fall under the FBT to make registering worthwhile?

If you answer “yes” to both questions, it’s likely that your business could benefit from registering. 

Registering for FBT can help you to make your business more attractive to potential employees. This means you attract the best talent while retaining your best people. However, FBT also creates some extra tax issues that you need to account for.

Bottrell Business Consultants can help if you want more information about FBT. Call our office on 02 49 336 888 if you want a free consultation.