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Tax Law - An introduction to the Fringe benefits tax(FBT)

Date: February 22, 2012

Authors: Jonathan Lim B.A., LL.B. (Hons)

Origins

In former times, it was common for employers to reward employees by means other than salary and wages. Providing the employee with a car, a holiday or a lavish meal could be a way of circumventing tax. Fringe benefits were rarely taxed before the introduction of FBT (even though technically there was a fringe benefits provision in the old Tax Act) and were a way to reward employees without losing a part of the reward to tax.

FBT: The basics

In 1986 the government introduced FBT to diminish such activities.

Fringe benefits tax is a tax payable, by the employer, for benefits other than salary or wages which are provided to employees or their associates. The employer must complete an annual FBT return, self-assessing the fringe benefits provided during the relevant income year.

The rate of FBT is the equivalent of the top marginal rate of tax (now 46.5%). This punitive tax rate effectively prevents fringe benefits from being used to circumvent income tax.

Benefit

A benefit will be considered a fringe benefit if:

  • it was provided in respect of employment;

  • it was provided because the employee was an employee (regardless if current, former or future); and

  • it is something other than salary or wages.

Benefits do not just include assets or chattels, but can include rights, privileges or services.

Examples of fringe benefits include:

  • permitting the employee to use a work car for private purposes;

  • giving the employee a cheap loan; or

  • provide entertainment to the employee, such as tickets to a sports event or a lavish meal.

To employees or their associates

Fringe benefits can be subject to FBT even if the employer provides the benefit to an associate of the employee (such as a family member), so long as the benefit was provided in respect of the employee’s employment.

Payable by the employer

Note that even though a fringe benefit is a benefit to the employee, it is the employer who actually completes FBT returns and pays FBT. This is because of the greater difficulty of enforcing the FBT against the employee.

Fringe benefit categories

Some forms of fringe benefit have their own categories in the tax law provisions. Because FBT must be paid on the value of the fringe benefit, a lot of the reason for categorisation is to identify correctly when a fringe benefit falls within a particular category, and setting out rules for their valuation.

The following are categories with regards to the application of the FBT:

  • car fringe benefits;

  • loan fringe benefits;

  • debt waiver fringe benefits;

  • expense payment fringe benefits;

  • housing fringe benefits;

  • board fringe benefits;

  • airline transport fringe benefits;

  • living-away-from-home allowance fringe benefits;

  • residual fringe benefits;

  • property fringe benefits;

  • providing entertainment fringe benefits; and

  • car parking fringe benefits.

FBT exemptions

Certain fringe benefits from employers are specifically excluded from FBT (and therefore remain attractive ways to reward employees, since income tax does not apply either):

The following items are not subject to FBT:

  • mobile phones and other portable electronic devices (e.g. laptops, calculators, portable printers);

  • briefcases; and

  • most minor benefits valued at less than $300.

The following are also exempt from FBT:

  • items that are used specifically for work;

  • employee relocation expenses;

  • superannuation contributions; and

  • employment termination payments.

Conclusion

If you have concerns about FBT, call LAC Lawyers and we can provide advice and assistance.

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