Made simple: Fringe benefits tax guide for employers

Navigating Fringe Benefits Tax (FBT) can be one of the more complex aspects of running a business. For employers, understanding FBT isn’t just about compliance — it’s about finding opportunities to optimise your tax position while managing the benefits you provide to employees effectively.

This guide is your go-to resource for understanding FBT, covering everything from calculating liabilities to leveraging exemptions and minimising costs. With over four decades of expertise, Liston Newton’s business accountants are here to simplify FBT compliance, ensuring you stay on track and save where possible.

Here’s what we’re going to talk about:

1. Understanding Fringe Benefits Tax (FBT)
2. Employer obligations for Fringe Benefits Tax
3. Calculating Fringe Benefits Tax
4. Registering and reporting Fringe Benefits Tax
5. Minimising FBT liability
6. Avoiding common FBT mistakes
7. A checklist for FBT compliance
8. How Liston Newton can help with FBT compliance
9. Frequently asked questions
   

There are plenty of nuances to consider here. However, with over 40 years of experience, our business accountants know precisely how to help you meet your FBT obligations in the most tax-efficient way possible. Get in touch, and let’s set up a free consultation.

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First, a bit of background

Fringe Benefits Tax (FBT) is an important part of Australia’s taxation system, designed to ensure fairness when it comes to non-cash benefits provided to employees. For employers, understanding FBT is essential not only for compliance but also for managing the financial implications of employee benefits effectively.

Examples and specifics

FBT is a tax paid by employers on certain non-cash benefits provided to employees or their associates. These benefits, often referred to as fringe benefits, are offered in addition to or instead of a regular salary or wage.

Examples of taxable fringe benefits include:

• Company cars are used for personal purposes.
• Low-interest loans provided to employees.
• Housing allowances that support employees’ living expenses.
• Expense reimbursements for personal items, such as utility bills.
• Entertainment benefits, such as tickets to events, corporate dining, or recreational activities.
  

These benefits are considered valuable forms of compensation, and the tax ensures they are treated equitably compared to cash payments. We’ve written a more detailed breakdown of Fringe Benefits Taxes — it’s worth reading after you’re done with this blog.

Employer obligations for fringe benefits tax

As an employer, managing Fringe Benefits Tax (FBT) is a critical responsibility. Ensuring compliance with FBT laws protects your business from penalties and streamlines your financial management. Below, we outline the key obligations employers must meet, including who is responsible, the financial year for FBT, and special considerations for small businesses.

Who is responsible for FBT?

Employers are solely responsible for managing FBT obligations. This includes:

• Calculating FBT liabilities: Accurately determining the taxable value of all fringe benefits provided.
  
• Paying FBT: Lodging returns and making payments to the Australian Taxation Office (ATO).
  
• Maintaining detailed records: Tracking all benefits provided to employees, their values, and any employee contributions.
  
• Reporting fringe benefits on payment summaries: Employers must include these on annual income statements or payment summaries for benefits exceeding $2,000 per employee (grossed-up value).
  

Failing to meet these obligations can result in financial penalties, making accurate record-keeping and timely reporting essential.

Do small businesses need to pay FBT?

Yes, small businesses are subject to FBT like any other employer. However, certain concessions and exemptions are available:

Small business FBT exemptions include:

1. Work-related items: Tools, equipment, and devices used primarily for work purposes, such as laptops or mobile phones.
   
2. Minor benefits: Items valued under $300 and provided infrequently, such as small gifts or meals.
   
3. Car parking exemption: This is for small businesses operating from premises that do not qualify as commercial parking stations.
   

Understanding and leveraging these exemptions can significantly reduce FBT liabilities for eligible small businesses.

What is the FBT financial year?

The FBT financial year runs from 1 April to 31 March, which differs from the standard tax year of 1 July to 30 June.

Employers must account for all fringe benefits provided within this period and ensure timely compliance with:

• Record-keeping deadlines: Maintain complete documentation for benefits provided during the FBT year.
• FBT returns: Lodge your FBT return with the ATO by 21 May following the close of the FBT financial year. Extensions may apply if you work with a registered tax agent.
  

Key takeaways for employer obligations

To summarise:

• Employers bear full responsibility for FBT calculation, payment, and reporting.
• Small businesses should explore available exemptions to reduce liability.
• Adhering to the FBT financial year and submission deadlines is essential for compliance.
  

By understanding these obligations and implementing clear processes, you can minimise risks and ensure your business complies with FBT laws.

Calculating fringe benefits tax

Calculating Fringe Benefits Tax (FBT) is a critical step for employers to ensure compliance and avoid penalties. The process involves determining the taxable value of fringe benefits, applying gross-up rates, and using the FBT rate to calculate the final amount payable. Below is a detailed guide to help employers understand and navigate this calculation process.

Determining the taxable value of fringe benefits

The taxable value is the foundation for calculating FBT. It represents the value of a benefit provided to an employee, which varies depending on the type of benefit and valuation method used.

Key valuation methods include:

• Car fringe benefits, calculated using either:
  1. The statutory formula method applies a set percentage based on the car's value.
  2. The operating cost method, which considers the actual costs of running the car, is reduced by any personal-use contribution from the employee.
• Loan fringe benefits: Calculated by comparing the interest charged to the applicable benchmark interest rate set by the Australian Taxation Office (ATO).
• Housing benefits: Determined based on the market rental value minus any rent paid by the employee.

Accurate record-keeping is critical to substantiate the taxable value of these benefits.

Applying gross-up rates

Once the taxable value is determined, it must be grossed up to reflect the pre-tax equivalent. This ensures the benefit is taxed equitably compared to regular salary.

The gross-up rate depends on whether GST credits can be claimed:

1. Type 1 benefits (gross-up rate: 2.0802): Applicable when the employer can claim GST credits for the benefit.
2. Type 2 benefits (gross-up rate: 1.8868): Used when GST credits cannot be claimed.

For example, if a company car has a taxable value of $10,000 and the employer can claim GST credits, the grossed-up value is:

• $10,000 × 2.0802 = $20,802.

Calculating the FBT payable

After grossing up the taxable value, apply the FBT rate to calculate the final liability. As of the 2024-25 FBT year, the rate is 47%.

Example Calculation:

• Taxable value: $10,000.
• Grossed-up value (Type 1 rate): $10,000 × 2.0802 = $20,802.
• FBT payable: $20,802 × 47% = $9,777.94.
  

This calculation ensures the tax is applied fairly and accurately, reflecting the value of the benefits provided.

Key considerations for accurate calculations

Employers must ensure the following:

• Record-keeping: Maintain detailed records of the benefits provided, employee contributions, and valuation methods used.
• GST treatment: Understand whether GST credits apply to each benefit.
• Employee contributions: Contributions from employees reduce the taxable value and, consequently, the FBT liability.
  

Employers should regularly review calculations to avoid errors and ensure compliance with ATO guidelines.

Registering and reporting fringe benefits tax

Ensuring compliance with Fringe Benefits Tax (FBT) begins with proper registration and accurate reporting. Employers must follow specific processes to manage their obligations effectively and avoid penalties. Below, we outline the steps to register for FBT and meet annual reporting requirements.

How do I register for FBT?

Registering for FBT is the first step for employers providing taxable fringe benefits to employees. The process involves:

1. Determine eligibility
   • Assess whether your business provides benefits subject to FBT, such as company cars, entertainment allowances, or low-interest loans.
   • Exempt benefits (e.g., work-related tools or minor benefits under $300) do not require FBT registration but should be documented.
     
2. Register with the ATO
   • Log in to the ATO Business Portal using your myGovID.
   • Navigate to the "Manage registrations" section and select "Register for Fringe Benefits Tax."
   • Alternatively, consult a registered tax agent to handle the registration process.
     
3. Maintain accurate records
   • Document all fringe benefits, including taxable values, gross-up calculations, and employee contributions. These records are essential for both compliance and reporting.
     

Our tax compliance accountants will ensure you’re set up and ready to meet your FBT obligations.

What are the FBT reporting requirements?

Employers are required to report and lodge FBT returns annually, ensuring all taxable fringe benefits are accurately declared. Key reporting obligations include:

1. Lodge your FBT return
   • The FBT return must be lodged with the ATO by 21 May following the end of the FBT financial year (1 April to 31 March).
   • If you use a registered tax agent, you may be eligible for an extended lodgement deadline.
     
2. Include fringe benefits on employee payment summaries
   • For employees receiving benefits with a grossed-up value exceeding $2,000, you must include this amount on their payment summaries or income statements.
   • These figures help employees understand their total compensation package and any tax implications.
     
3. Ensure accuracy and completeness
   • Double-check calculations for taxable values, gross-up rates, and exemptions applied.
   • Maintain consistency between FBT returns and employee payment summaries.

Penalties for non-compliance

Failing to register or report FBT correctly can lead to significant penalties, including:

• Late lodgement penalties: Fees applied for failing to submit returns on time.
• Audit penalties: Increased liabilities if discrepancies are identified during an ATO audit.
• Interest charges: Applied to any unpaid FBT liabilities.
  

Proper registration and timely reporting are essential to avoid these risks and ensure your business remains compliant.

Best practices for FBT reporting

To streamline the registration and reporting process, consider the following best practices:

• Set reminders for key dates: Ensure you meet the 21 May lodgement deadline to avoid penalties.
• Review benefits regularly: Conduct periodic audits to identify taxable benefits and ensure accurate reporting.
• Leverage professional support: Working with a tax advisor or accountant can simplify the process and provide expert insights into minimising liabilities.

What employers are exempt from FBT under 57A?

Section 57A of the Fringe Benefits Tax Assessment Act provides FBT exemptions for certain employers in the not-for-profit sector. This exemption applies to employers such as public benevolent institutions (PBIs), health promotion charities (HPCs), and some hospitals.

Employers eligible for the 57A exemption include:

• Public benevolent institutions (PBIs): Organisations that relieve individuals facing poverty, distress, or disadvantage.
• Health promotion charities (HPCs): Entities focused on improving community health outcomes.
• Certain hospitals and ambulance services: Public and non-profit hospitals, as well as qualifying ambulance services, can claim this exemption.
  

Key benefits of the 57A exemption:

• Eligible employers are exempt from paying FBT on fringe benefits provided to employees, up to a capped threshold.
• The cap for PBIs and HPCs is currently $30,000 grossed-up value per employee, while for hospitals, it is $17,000 grossed-up value per employee.
• Benefits exceeding these caps are subject to regular FBT rules.
  

If your organisation qualifies under Section 57A, our team can assist with managing exemptions and ensuring compliance with ATO regulations.

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How Liston Newton can help with FBT compliance

Managing Fringe Benefits Tax (FBT) is a complex process, but you don’t have to navigate it alone. At Liston Newton, we specialise in simplifying FBT compliance for businesses of all sizes. With over 40 years of experience, our team provides tailored strategies to help you minimise liabilities, maximise exemptions, and ensure every aspect of your FBT obligations is handled with precision.

Our comprehensive FBT services include:

• FBT registration and reporting: We’ll guide you through registering for FBT and ensure your returns are prepared and lodged accurately and on time.
• Tax-efficient structuring: Our experts identify opportunities to reduce your FBT liability through effective salary packaging, exemptions, and employee contributions.
• Ongoing support and reviews: Stay ahead of compliance requirements with regular financial reviews and expert advice tailored to your business needs.
  
  

Navigating FBT can be challenging, but with Liston Newton by your side, you can focus on growing your business while we handle the details. Our team is dedicated to providing clear, actionable advice to keep your business compliant and optimised for success.

Ready to simplify your FBT obligations?

Contact our business accountants to learn more about how we can help, or contact us today to speak with one of our experts. Let us simplify FBT compliance and help your business thrive.

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