Here is our webinar on FBT in Australia, the below article is a summary of what is discussed, but for a more in-depth analysis watch the full webinar.
What is FBT in Australia?
Fringe Tax Benefits (FBT) is a tax levied on employers who provide fringe benefits to their employees. Fringe benefits are defined as non-cash benefits that employees receive as part of their employment, in addition to their regular salary or wages. These benefits can include using a company car for personal purposes, paying private expenses, providing entertainment, and other non-monetary goods and services. FBT in Australia is calculated based on the taxable value of these fringe benefits and is charged at the top marginal tax rate plus Medicare Levy.
The purpose of FBT is to ensure that employees are taxed on the value of non-cash benefits they receive, thereby discouraging employers from paying employees in non-wage forms.
Common Fringe Benefits
There are several common fringe benefits that employers may provide to their employees, including:
- Motor Vehicles: Providing employees with company vehicles for business and personal use.
- Expense Benefits: Paying private expenses on behalf of employees, such as private health insurance premiums and other personal expenses.
- Loans and Debt Waivers: Providing loans to employees at interest rates lower than the benchmark rate set by the Australian Taxation Office (ATO) or waiving debts altogether.
- Employee Entertainment: Providing entertainment to employees, such as meals, event tickets, and holidays.
- Residual Benefits: Providing any benefit to employees that does not fit into the other categories and is not taxed under income tax.
Changes in 2023
There are several changes to FBT in 2023 that businesses should be aware of, including:
- Electric Vehicle FBT Exemption: The most significant change in 2023 is the introduction of an FBT exemption for electric vehicles (EVs), which was a key policy of the federal government. This exemption applies to all EVs, including battery electric vehicles, plug-in hybrids, and hydrogen fuel cell vehicles (although these are rare in Australia). The critical requirement for this exemption is that the car must be able to be plugged in. The benefit of this exemption is that all private and business travel becomes completely FBT-free, including novated leases in most cases. In order to qualify the vehicle:
- Must be held and used on/after July 1st, 2022.
- They were valued below $84,916 at first retail sale.
- Not available to sole traders or partners in a partnership.
- Designed to carry a load of less than one tonne and fewer than nine passengers.
- Commercial Car Parking Benefits Confusion: There has been confusion around commercial car parking benefits in 2023. A commercial car parking benefit arises when an employee parks a car on a business premises provided by their employer. This applies when there is a commercial parking station within a one-kilometer radius of where the car is parked, and the lowest fee for all-day parking at that station is more than $9.72 for the 2023 year. The ATO traditionally excluded car parking facilities other than providing all-day parking from the definition of commercial car parking facilities. However, there has been a recent change in the ATO’s interpretation, and now all car parking facilities, regardless of whether they provide all-day parking or not, are considered commercial car parking facilities. This change has caused confusion for businesses in determining whether they need to report and pay FBT for commercial car parking benefits provided to their employees.You’re exempt from paying FBT on car parking benefits if you meet all the following conditions:
- The parking is not provided in a commercial car park.
- For the last income year before the relevant FBT year, either your
- gross total income was less than $10 million
- aggregated turnover was less than $50 million.
Exemptions and Opportunities for Businesses
While FBT can be a significant cost for businesses, there are exemptions and opportunities that can help minimize the impact. Some of the common exemptions and opportunities for businesses to consider include:
In terms of motor vehicle exemptions, if a vehicle is classified as commercial, there are significant concessions in relation to FBT in Australia. The main one is that it must be either a panel van, a ute, or another commercial vehicle, including trucks. However, there are rules around the employee’s private use of these commercial vehicles. It must be limited to travel between home and work, or travel incidental to the duties of employment. Additionally, the private use must be minor, infrequent, and irregular. For example, dropping something off at the post office on the way home from work would be considered fine, but going on a holiday would not be covered under these rules.
So to be eligible for motor vehicle FBT Exemption:
- The vehicle is a Panel Van, Ute or another commercial vehicle. (> 1 tonne carrying capacity)
- The employee’s private use of such a vehicle is limited to:
- travel between home and work
- travel that is incidental to travel in the course of duties of employment
- non-work-related use that is minor, infrequent and irregular
Minor Benefits Exemption
A fringe benefit can be disregarded for FBT purposes if it’s considered minor and infrequent. “Minor” is defined as having a value less than $300. The more challenging criteria is “infrequent,” which depends on each case. For example, 48 taxi trips in a year was considered infrequent in a previous case because they were not regular. The infrequency of the benefit depends on both how often it occurs and whether it’s on a regular schedule. For instance, if you take your team out for lunch with alcohol worth less than $300, but you do it 12 times a year on the third Friday of each month, it would not be considered infrequent as it’s part of a regular employment arrangement and would not qualify for the exemption.
Another important exemption to be aware of is the work-related exemption. Anything that could be deductible to an employee if they purchased it themselves falls under the “otherwise deductible rule.” For example, if you’re a builder and you buy your employee a drill, there is no fringe benefit provided because you can claim a tax deduction for the drill. Similarly, if an employee uses a portable electronic device mostly for business purposes, the employer can purchase it without paying FBT, even if it’s not fully otherwise deductible. This can be beneficial for employees who want to salary sacrifice the purchase of a laptop, for example, and get a tax deduction for the full amount instead of only the business use portion.
Meal Entertainment Exemptions
Meal and entertainment provided to employees on a working day and on the employer’s premises are generally exempt from FBT in Australia. However, if the food and drink are provided off-site and include alcohol and other entertainment, it would not qualify for this exemption.
Strategies to Minimize Risk
To minimize the risk of FBT non-compliance and potential penalties, businesses should consider implementing the following strategies:
- Accurate Record Keeping: Maintaining accurate records of all fringe benefits provided to employees, including the type of benefit, the taxable value, and any employee contributions made towards the benefit.
- Regular FBT Reporting and Payment: Ensuring that FBT is reported and paid to the ATO by the due dates, which are generally on a quarterly basis.
- Seeking Professional Advice: Seeking advice from qualified tax professionals or FBT specialists to ensure compliance with FBT laws and regulations, especially with changes in legislation.
- Reviewing Salary Packaging Arrangements: Regularly reviewing and updating salary packaging arrangements to ensure they comply with FBT laws and regulations, and considering alternative arrangements based on changes in FBT exemptions and opportunities.