FRINGE BENEFITS TAX (FBT)
Although a detailed discussion of FBT is out of the scope of this course, a basic understanding of FBT is useful in the preparation of the
individual tax return.
FBT was introduced in Australia in 1986. Prior to this, non-cash benefits provided to employees were taxable to the employee. In practice, these
were rarely included in assessable income by employees due to the difficulty in determining the value of fringe benefits and the administrative
difficulty for the ATO in dealing with non-compliance.
To simplify compliance and administration, FBT is levied on employers, rather than employees. Fringe benefits are taxed at a rate equivalent to
the top marginal tax rate plus Medicare levy (currently 47%).
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Fringe Benefits can be provided by:
• an employer
• an associate of the employer, or
• a third party under an arrangement with an employer.
Benefits provided to any employee’s associates in respect of the employee’s employment will be included as fringe benefits provided to the
employee.
Employees may enter into a salary sacrifice arrangement with their employer for non-cash benefits, such as the provision of a car, low interest
loans, laptops and other equipment and a range of other non-cash benefits. The employee does not pay income tax on the value of the noncash benefits, however the employer may be liable for Fringe Benefits Tax (FBT).
FBT is payable by the employer on the grossed-up value of the fringe benefit. This gross-up has the effect that the FBT is calculated as if the
employer provided a benefit with a taxable value that included the FBT payable by the employer.
When determining the amount of FBT to pay, there are two possible gross-up factors used by the employer – 2.0802 for benefits where the
employer is entitled to a GST input tax credit and 1.8868 for other benefits.
In determining the amount by which an employee’s cash salary will be reduced due to the provision of a fringe benefit, the employer will take
into consideration not only the cost of the benefit, but any FBT liability incurred as a result of the provision of the benefit.
EXEMPT BENEFITS
Some benefits are exempt from FBT. Where a benefit is exempt it is not considered to be a fringe benefit. The following work-related benefits
are not considered to be fringe benefits provided they are used primarily for work purposes:
• a portable electronic device such as a mobile phone, car phone, portable GPS, calculator, personal digital assistant, portable printer,
electronic diary, notebook, laptop or similar portable computer
• protective clothing required for employment
• a briefcase
• a tool of trade
• item of computer software
The exemption, if applicable, extends to one item per FBT year that have substantially identical functions, unless the item is a replacement
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item or, for portable electronic devices, unless the employer is a small business (aggregate turnover less than $10m).
Where an amount is salary sacrificed into an exempt fringe benefit, the employee will not pay tax on the amount and the employer will not be
liable for FBT.
No deduction can be claimed for the decline in value of an item purchased under a salary sacrifice arrangement.
FBT EXEMPTION – OTHERWISE DEDUCTIBLE RULE
Where an employee receives a benefit, and the employee would have been entitled to an income tax deduction for the expenditure had the
employee incurred the expense (e.g. work related telephone expenses), the taxable value of the benefit is reduced by the amount of the
notional deduction. The employer will only be liable for FBT on any private proportion of the expenses.
FBT – CAR AND OTHER VEHICLE EXPENSES
The provision of a vehicle that has a carrying capacity of either 1 tonne or more or 9 or more passengers will be exempt from FBT if the
employee’s use of the 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 (for example occasional use of the vehicle to remove domestic rubbish)
For other cars (those with a carrying capacity of less than 1 tonne and fewer than 9 passengers), the FBT on the private use of the vehicle can
be calculated using the ‘statutory formula’ method.
Using this method, the FBT taxable value of the vehicle is calculated as a percentage (generally 20%) of the base value of the vehicle, rather
than the actual cost of providing the vehicle. This method may result in the FBT payable by the employer being lower than the income tax
that would have been payable by the employee had they used after tax dollars to pay for the vehicle expenses. This will result in an overall tax
benefit to the employee.
There are a range of other FBT exemptions which may allow employees to obtain tax concessions for what would otherwise be non-deductible
expenses.
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ITEM IT1 – TOTAL REPORTABLE FRINGE BENEFITS AMOUNTS (RFBA)
The value of the fringe benefit is not included in the assessable income of the employee, as the employer will generally have paid Fringe
Benefits Tax (FBT) on this. However, if the taxable value of non-exempt fringe benefits provided to an employee exceeds $2,000 in a FBT year
(1 April to 31 March) the employer must record the grossed-up taxable value of those benefits on the Income Statement or PAYG Payment
Summary for the corresponding income year (1 July to 30 June).
Reportable fringe benefits are grossed-up using the gross-up factor of 1.8868. This grossed-up amount reflects the amount a taxpayer would
have to earn before tax (at the top marginal rate plus Medicare), to receive a benefit of that value.
The grossed-up amount is known as the Reportable Fringe Benefits Amount (RFBA) and must be included in the income test section of the
tax return at Item IT1.
By including the reportable fringe benefit amount on the Income Statement / PAYG Payment Summary, employees with access to salary
packaging are unable to avoid surcharges and child support obligations and gain access to more Government benefits than they would
otherwise be entitled to.
FBT EXEMPT EMPLOYERS (S 57A OF THE FBT ACT)
Some organisations are exempt from FBT. Benefits provided by these organisations may be exempt where the total grossed-up value of
certain benefits (which are benefits not otherwise exempt) provided to each employee during the FBT year is equal to or less than the capping
threshold. If the total of the grossed-up value of fringe benefits provided to an employee is more than the capping threshold, the organisation
will need to pay FBT on the excess.
These exempt organisations include:
• Registered public benevolent institutions (PBI), other than hospitals, endorsed by the ATO (capping threshold $30,000)
• Registered health promotion charities endorsed by the ATO (capping threshold $17,000)
• Public and non-profit hospitals (Capping threshold $17,000). For benefits provided by a state department of health, the exemption only
applies to an employee whose duties are exclusively performed in connection with a public hospital
• Public ambulance services (Capping threshold $17,000)
The full capping threshold applies even if the employer did not employ the employee for the full FBT year.
Employees of these organisations can benefit from salary sacrificing into benefits other than those that are exempt from FBT or subject to
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concessional treatment. Although the employer is exempt from FBT, the taxable value of the fringe benefit is still grossed up and included as a
RFBA on the Income Statement.
A RFBA will be treated differently for Family Tax Benefit (FTB) and certain tax offsets if the employer is exempt from paying FBT under s57A
of the FBTAA on the amount. For these amounts, the income tests for FTB and dependant tax offsets use the actual value of the fringe benefit
rather than the grossed-up amount.
The amount included on the Income Statement, and transferred to the tax return, will always be the grossed-up amount. The Income
Statement will record RFBAs as either:
• Reportable fringe benefits – exempt amount, which will be transferred Item IT1, Label N of the tax return, or
• Reportable fringe benefits – non-exempt amount, which will be transferred to Item IT1, Label W of the tax return.
The ATO will apply the correct amount for the income tests, based on the information on the tax return.
An employee may change roles within an organisation that is eligible for exemption under section 57A. For instance, an employee of a state
health department may work as a nurse in a hospital (57A exempt duties) for part of the FBT year and in an administration role at head office
(non-exempt duties) for the remainder of the year. If the taxpayer is an employee who performs both exempt and non-exempt duties during
the year while receiving reportable fringe benefits, and the combined value of the fringe benefits exceeds $2,000, they will have both an exempt
amount and a non-exempt amount shown on their Income Statement.
Where the employer does not report the RFBA through STP, employees must be provided with two payment summaries. One payment
summary will show the section 57A exempt reportable fringe benefits amount with “Yes”. The other payment summary will show the nonexempt reportable fringe benefits amount with “No” selected.
No more than two payment summaries are required, even if the employee has several periods of exempt and non-exempt service. All of the
exempt amounts should be reported in one payment summary and all of the non-exempt amounts in a second payment summary.
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ITEM IT2 – REPORTABLE EMPLOYER SUPER CONTRIBUTIONS (RESC)
Under the superannuation guarantee (SG) scheme, employers are generally required to provide a minimum level of superannuation support for
each of their employees.
The SG rate was 10.5% for the 2023 year, increased to 11% from 1 July 2023. This amount is not assessable income to the employee. It will
be shown on the Income Statement as an Employer superannuation contribution liability. It is there for information only and should not be
transferred to the tax return.
Tax is paid on the SG contributions by the superannuation fund (at a rate of 15%). High income earners may be liable for an additional 15% tax
on these contributions.
If an employer makes contributions above the SG amount on behalf of an employee – for example, under a salary sacrifice arrangement – the
additional amounts are required to be reported on the employee’s Income Statement as Reportable Employer Superannuation Contributions if:
• the contributions are more than the employer is required to pay by law, an industrial agreement or the super fund’s governing rules, and
• the employee has the capacity to influence the amount the employer contributes.
The employee does not pay income tax on these contributions. The superannuation fund pays tax on the contributions in the same manner as
the SG contributions. The employee will have on overall tax saving on these contributions if their marginal tax rate is greater than the tax paid
by the superannuation fund (15% for most employees, 30% for high income earners).
Although the employee does not pay tax on these additional superannuation contributions, the amount is reported on the Income Statement
as a Reportable Employer Superannuation Contribution (RESC). RESCs are recorded in the Income Test section of the tax return, at Item IT2,
and may affect a taxpayer’s entitlement to certain benefits and liability for certain payments.
If an employer incorrectly includes amounts paid by them under the SG scheme, the employee should ask the employer to correct the
information submitted to the ATO. Alternatively, a schedule of additional information may be submitted to the ATO with the income tax return
explaining why the amount has not been included at Item IT2 of the return.
From 1 January 2020, an employer cannot use salary sacrifice contributions to reduce the earnings amount on which an employee’s
superannuation guarantee amount is calculated or to satisfy all or part of their superannuation guarantee contributions obligations.