As a small business owner, offering extra benefits to your staff can be a great way to incentivise your recruitment and retention programs when you don’t have the same budget as a larger business.
If you choose to provide your workers with additional benefits on top of their regular pay, you need to consider if any of these benefits could be taxable.
Fringe benefits are a payment type, but different from salary or wages. As such, FBT is separate from Income Tax, and is calculated on the taxable value of the benefits you provide.
Generally speaking, a Fringe Benefit Tax (FBT) is tax employers pay on benefits paid to an employee (or their family members). It is a tax imposed on the employer, and therefore it does not affect the employee’s individual income tax liability. However, it may affect certain income thresholds depending on the employee’s personal circumstances.
What is the classification of a cash bonus?
A cash bonus is not liable for FBT. If you pay a cash bonus the employee will pay income tax on the amount.
As an employer, you must self-assess any FBT liability for the FBT year. The FBT year is different to the financial year. Your FBT year is between the 1st of April to the 31st of March.
Employers can generally claim an income tax deduction for the cost of providing fringe benefits, and for any FBT they pay. You may also be able to claim GST credits for items provided as fringe benefits.
Common examples of fringe benefits include:
- Using a work car for private purposes
- Giving an employee a discounted loan
- Paying an employee’s gym membership
- Entertainment such as free tickets to concerts or your Christmas Party
Benefits that are legally required are not fringe benefits; these include:
- Salary and wages
- Contributions to Super Funds
- Employment termination payments
Registering for FBT
If you provide fringe benefits (including those mentioned in the above list) to your employees, the Australian Taxation Office (ATO) recommends registering for FBT.
Employers must be registered for fringe benefits tax (FBT) and are obligated to lodge an FBT return if they’re liable to pay FBT. Generally, you will need to submit your return the same FBT year you are liable to pay FBT.
Which fringe benefits are exempt?
Some benefits are exempt, or have concessions from FBT. Benefits that are exempt from FBT include providing tools or electronic devices (laptops, phones, etc.) that are mainly used for work purposes. Also, living-away-from-home allowances may be an exempt benefit.
‘Minor benefits’ are also FBT-free. A minor benefit is one with a value of less than $300. If you host an event such as a dinner for staff, it will likely be a minor benefit if it is under $300 per head.
Certain not-for-profit organisations like charities, public hospitals and religious institutions may have exemptions or concessions available to them.
FBT and COVID-19
If your employees working from home has resulted in you paying for benefits or items you usually do not provide (computer, internet access, etc.), you may be eligible for FBT concessions and exemptions.
It is important to understand the difference between legally required benefits and how to identify which additional benefits are taxable.
Incorporating fringe benefits into a hiring and retention program can be an excellent way for employers to source and retain top talent. However, to use fringe benefits effectively, employers should know about the types of fringe benefits, their tax obligations, and how to value them appropriately.
If you are unsure if you need to register for FBT or would like some assistance with your FBT return book in a chat with Amanda.