Fringe Benefits Tax (FBT) – What Every Employer Needs to Know

Fringe Benefits Tax (FBT) – What Every Employer Needs to Know

What is Fringe Benefits Tax (FBT)?

Fringe Benefits Tax (FBT) is a tax that employers pay on benefits provided to their employees, or their employees’ family members, in place of or in addition to salary or wages.

Examples of fringe benefits include:

• Using a company car for personal travel.
• Paying for an employee’s private expenses (e.g., school fees, home utilities).
• Discounted loans or forgiving a debt.
• Providing entertainment (e.g., meals, event tickets).

Who Pays FBT?

• FBT is paid by the employer, not the employee.
• Even if the benefit is provided by a third party or an associate on behalf of the employer, the employer is still responsible for the FBT.

What Counts as a Fringe Benefit?

A fringe benefit is generally any benefit provided to an employee because of their job, and it can include:

• Goods, services, or facilities (e.g., free products or gym memberships).
• Entertainment or recreational activities.
• Insurance policies or financial assistance.

Some benefits are exempt from FBT, such as:

• Work-related tools (like laptops or mobile phones used primarily for work).
• Minor benefits under a certain value (e.g., occasional gifts or meals).
• Superannuation contributions (these have different tax rules).

Types of Fringe Benefits

There are 11 main categories of fringe benefits:

1. Car Benefits – When an employee uses a company car for personal travel.
2. Car Parking – When parking is provided for an employee at or near work.
3. Loans – Low-interest or interest-free loans to employees.
4. Debt Waivers – Paying off or forgiving an employee’s debt.
5. Expense Payments – Reimbursing or paying private expenses, like school fees or utility bills.
6. Housing – Providing accommodation for employees.
7. Board – Providing meals as part of accommodation.
8. Living-Away-From-Home Allowance – Allowances to compensate for living away from home for work.
9. Entertainment – Providing tickets to events, holidays, or recreational activities.
10. Property Benefits – Giving goods or products to employees.
11. Residual Benefits – Any other benefits that don’t fit into the categories above.

How is FBT Calculated?

• FBT is calculated on the grossed-up value of the fringe benefit, which reflects the pre-tax value of the benefit.
• Employee contributions can reduce the taxable value if the employee pays for part of the benefit.
• Employers can also reduce the taxable value using:
  • The Otherwise Deductible Rule – If the employee could have claimed the expense as a tax deduction.
  • Miscellaneous reductions for certain benefits.
  • In-House Fringe Benefits – Discounts on goods or services sold by the employer.

When and How to Report FBT

• The FBT year runs from 1 April to 31 March.
• Employers must self-assess their FBT liability and lodge an FBT return by 21 May each year.
• If lodging through a tax agent, the due date is 25 June.
• If the FBT liability is $3,000 or more, the employer must make quarterly instalments.

Record-Keeping Requirements

Employers must keep records to:

• Show how the taxable value of each fringe benefit was calculated.
• Support any reductions claimed (e.g., employee contributions or Otherwise Deductible Rule).
• Justify the grossed-up value reported on the FBT return.

Reporting on Employee Payment Summaries

• If an employee receives fringe benefits with a total taxable value of over $2,000, the grossed-up amountmust be reported as a Reportable Fringe Benefits Amount (RFBA) on their annual payment summary.
• The RFBA does not affect income tax but can impact other obligations like Medicare levy surcharges and government benefits.

Common FBT Exemptions

Some benefits are wholly or partially exempt from FBT, including:

• Work-related items like laptops or mobile phones.
• Minor benefits (less than $300 and infrequent).
• Meals and accommodation when employees are travelling for work.

How to Reduce FBT Liability

To minimise FBT, employers can:

• Encourage employee contributions towards the cost of the benefit.
• Provide exempt benefits like work-related items or minor benefits.
• Use the Otherwise Deductible Rule where applicable.

What Happens if You Don’t Pay FBT?

• Failing to lodge an FBT return or pay the FBT liability on time may result in:
  • Interest charges on the unpaid amount.
  • Penalties for late lodgement or non-compliance.
• The ATO regularly audits FBT returns, so accurate reporting and record-keeping are essential.

Do You Need Help with FBT?

FBT can be complex, and getting it wrong can be costly. If you need help with calculations, reporting, or minimising your FBT liability, contact us today. We’re here to make it easier for you.

Scenario:

A company provides an $80,000 passenger vehicle to a director for both business and personal use. The car was available to the director for the entire FBT year (1 April to 31 March).

The director kept a logbook showing 40% of the car’s use was for business. No employee contributions were made towards the cost of the car.

Step 1: Determine the Type of Fringe Benefit

This is a Car Fringe Benefit because the company provides a vehicle for both business and private use.

Step 2: Choose a Calculation Method

There are two methods for calculating the taxable value of a car fringe benefit:

1. Statutory Formula Method – Based on the cost of the car and a flat statutory rate.
2. Operating Cost Method – Based on the actual costs of running the car, reduced by the business-use percentage.

In this example, we’ll use the Statutory Formula Method as it’s the most commonly used method.

Step 3: Calculate Taxable Value Using the Statutory Formula Method

Statutory Formula Method Formula:

Taxable Value = Base Value × Statutory Rate × Days Available/365

• Base Value: $80,000 (purchase price of the car)
• Statutory Rate: 20% (for vehicles provided after May 2011, regardless of kilometres travelled)
• Days Available: 365 days (car was available for the entire FBT year)

Calculation:

Taxable Value = $80,000 × 20% × 365/365 = $80,000

Taxable Value = $80,000 × 0.20

Taxable Value = $16,000

Step 4: Gross-Up the Taxable Value

FBT is calculated on the grossed-up value of the fringe benefit. The gross-up rate depends on whether GST credits were claimed on the purchase of the car:

• Type 1 (GST Credit Claimed): Gross-up rate = 2.0802
• Type 2 (No GST Credit Claimed): Gross-up rate = 1.8868

Assuming the company claimed GST credits on the purchase, we’ll use Type 1.

Grossed-Up Taxable Value:

Grossed-Up Value = Taxable Value × Gross-Up Rate

Grossed-Up Value = $16,000 × 2.0802

Grossed-Up Value = $33,283

Step 5: Calculate FBT Payable

FBT is calculated using the FBT rate of 47%.

FBT Payable:

FBT Payable = Grossed-Up Value × FBT Rate

FBT Payable = $33,283 × 47%

FBT Payable = $15,642.91

Summary of Calculation:

• Base Value of Car: $80,000
• Statutory Rate: 20%
• Taxable Value: $16,000
• Grossed-Up Value: $33,283
• FBT Rate: 47%
• Total FBT Payable: $15,642.91

Key Takeaways:

• The FBT payable is $15,642.91 if the company claimed GST credits.
• If no GST credits were claimed, the gross-up rate would be lower (1.8868), and the FBT payable would be $14,618.56.
• No reduction is available for business use unless the Operating Cost Method is used with a valid logbook.

The company can claim several deductions related to the running of the vehicle and the FBT payable. Here’s a breakdown of what’s deductible:

1. Vehicle Running Costs

The company can claim deductions for the operating expenses of the vehicle, including:
✅ Fuel and Oil – All fuel and oil costs for the vehicle.
✅ Repairs and Maintenance – Costs for servicing, repairs, tyres, and general maintenance.
✅ Registration and Insurance – Vehicle registration, comprehensive insurance, and CTP insurance.
✅ Interest on Loan – If the vehicle was purchased using a loan, the interest component of the loan repayments is deductible.
✅ Lease Payments – If the vehicle is leased (not owned), the lease payments are deductible.
✅ Depreciation (Decline in Value) – If the vehicle is owned by the company, it can depreciate the cost of the vehicle over its effective life (usually 8 years for passenger vehicles) using either:

• Diminishing Value Method
• Prime Cost Method

2. FBT Payable

✅ The full amount of FBT payable ($15,642.91 in this example) is tax-deductible.

• This can be claimed as a business expense in the year it is paid or accrued.
• The deduction is claimed in the company’s income tax return, not on the FBT return.

3. GST Credits

The company can claim GST credits on the following expenses:
✅ Purchase Price of the Vehicle – If the company is registered for GST, it can claim the GST component of the purchase price, up to the luxury car limit ($77,565 for fuel-efficient cars and $71,849 for other cars in 2024-25).
✅ Running Costs – GST credits can also be claimed on fuel, maintenance, insurance, and other running expenses.

• These GST credits are claimed in the company’s Business Activity Statement (BAS).

4. Depreciation Limitations (Luxury Car Limit)

If the vehicle is a luxury car (i.e., purchase price exceeds the luxury car limit), the company can:

• Only depreciate up to the luxury car limit ($71,849 or $77,565 depending on the type of car).
• Claim GST credits only on the luxury car limit amount, not the full purchase price.

Example: For an $80,000 vehicle, the company can only depreciate and claim GST credits up to the luxury car limit.

5. Employee Contributions

If the director makes any employee contributions towards the running costs of the vehicle (e.g., fuel or maintenance), the company can:
✅ Reduce the FBT liability by the amount of the contribution.
✅ Still claim a deduction for the full running costs of the vehicle.

Summary of Deductions:

• Running Costs: Fuel, maintenance, insurance, registration, and depreciation.
• FBT Payable: Fully deductible as a business expense.
• GST Credits: Claimable on purchase price (up to the luxury car limit) and running costs.
• Depreciation: Limited to the luxury car limit for passenger vehicles.

Let’s calculate whether the company would be out of pocket after taking into account the deductible expensesand the FBT payable in this example.

Recap of Example Details:

• Vehicle Cost: $80,000
• FBT Payable: $15,642.91
• Business Use: 40% (according to logbook)
• Running Costs Estimate:
  • Fuel and Oil: $4,000 per year
  • Repairs and Maintenance: $2,000 per year
  • Insurance and Registration: $3,000 per year
  • Depreciation: Limited to the luxury car limit ($71,849 in 2024-25)
• Company Tax Rate: 25%

Step 1: Calculate Allowable Deductions

1. Running Costs Deduction

Total Running Costs = 4,000 + 2,000 + 3,000 = $9,000

Since the vehicle is used 40% for business, the company can claim:

Deductible Running Costs=$9,000×40%=$3,600

2. Depreciation Deduction

• The vehicle cost exceeds the luxury car limit, so depreciation is limited to $71,849.
• Assume using the Diminishing Value Method (25% for cars).

Depreciation = $71,849 × 25% = $17,962.25

Since the vehicle is used 40% for business:

Deductible Depreciation = $17,962.25 × 40% = $7,184.90

3. FBT Payable Deduction

FBT Deduction = $15,642.91

This is fully deductible as a business expense.

Total Allowable Deductions:

Total Deductions = Running Costs + Depreciation + FBT

Total Deductions = $3,600 + $7,184.90 + $15,642.91= $26,427.81

Step 2: Calculate Tax Benefit from Deductions

Assuming the company is taxed at the corporate tax rate of 25%, the tax benefit is:

Tax Benefit = Total Deductions × Tax Rate

Tax Benefit = $26,427.81 × 25% = $6,606.95

Step 3: Determine Net Out-of-Pocket Cost

Net Cost = FBT Payable − Tax Benefit

Net Cost = $15,642.91 − $6,606.95 = $9,035.96

Summary:

• Total FBT Payable: $15,642.91
• Total Deductions: $26,427.81
• Tax Benefit from Deductions: $6,606.95
• Net Out-of-Pocket Cost: $9,035.96

Conclusion:

Yes, the company is out of pocket by $9,035.96 after taking into account all allowable deductions and the tax benefit, assuming a 25% tax rate.

Why?

• The FBT payable is higher than the tax benefit from the deductions.
• This is due to the grossed-up value used for FBT calculations.
• The lower 25% tax rate results in a smaller tax benefit compared to the 30% rate.

Do You Need Help with FBT?

FBT can be complex, and getting it wrong can be costly. If you need help with calculations, reporting, or minimising your FBT liability, contact us today. We’re here to make it easier for you.