Are you dabbling in fringe benefits and you don’t even know it?
At 47% tax in the dollar it definitely pays to know if your business should be paying fringe benefit tax (FBT) or not. The FBT year runs from 1 April to 31 March, so now is the time to assess your business’s FBT status.
It is quite common for businesses to be caught out in this area and there are heavy penalties from the ATO for businesses that are incorrectly reporting fringe benefits or avoiding paying FBT altogether.
So what is a fringe benefit?
A fringe benefit is any kind of benefit provided to an employee, their family, associates or any other third party under a business arrangement. If you are a director and conduct your business through a company or trust, you may also be an employee.
Fringe benefits tax is separate to income tax and is calculated on the taxable value of the fringe benefits provided. The fringe benefit tax (FBT) rate is 47%.
So it pays to know if you are providing, or deriving (if Director and employee), fringe benefits from your business as there is a process that you need to manage and tax to be paid.
The types of things that attract fringe benefit tax include:
- Allowing an employee to use a work car for private purposes (some exceptions apply for travel between home and work)
- A car park
- Giving an employee a cheap loan
- Waiving a debt that an employee owes the business
- Paying an employee’s private health insurance costs
- Providing cleaning services for an employee’s private residence
- Reimbursing a non-business expense incurred by your employee (such as school fees or private health insurance)
- Providing entertainment by way of food, drink, recreation and/or travel and accommodation
- Providing free or cheap accommodation
- Where boarding entitles your employee to meals
- Living away from home allowances
- Providing property such as goods, real estate property or other property such as shares and bonds etc.
- Salary sacrificing packages (excluding superannuation payments)
Fringe benefits are not just limited to these things listed above. Basically anything that an employee derives that is seen to provide a benefit may be included and these are classified as Residual fringe benefits such as:
- Use of employer’s property, for example, video camera or television
- Provision of a service, for example, advice given by a solicitor
- Private use of a motor vehicle that is not a ‘car’ for FBT purposes, for example, a one tonne utility.
So you can see that there are a lot of things that may attract FBT and if you are not aware of these and it catches up with you down the track you could be in deep water.
So what should you be doing if you are providing fringe benefits?
If your business is providing fringe benefits to your employees or yourself if you are a Director/employee, you are required to:
- Register for FBT
- Keep FBT records
- Understand what benefits are exempt from FBT
- Calculate how much FBT you have to pay
- Report fringe benefits on your employees’ payment summaries
- Lodge a return and pay FBT to the ATO.
If you are unsure of whether any of the above applies to you, then contact us and we will arrange a review of your circumstances and let you know if you have an FBT issue. You do need to be certain of your position on this, because the ATO are looking out for certain “flags” in your tax returns to then initiate a review into your FBT position. Call us to arrange a review if you are not 100% confident of your position on this.
The You Tube video below has been put together by the ATO. It highlights some of the common fringe benefits that business owners overlook for FBT.