Fringe Benefits Tax – what you need to know
Fringe Benefit Tax (FBT) is a tax paid by employers who provide certain benefits to employees and their associates. The main type of benefits provided are entertainment (including meals and tickets to events) and providing an employee the use of a car for private use.
If a FBT benefit has been provided, it can be reduced by an employee contributing to reduce the benefit provided. This can be a cost-effective strategy and is frequently used in car salary packaging. Any contribution made by an employee (or associate) is income to the business and GST applies. For example, if Cathy was making a personal contribution of $2,200 to the business toward the car benefit, then the business would include $2,000 of income and remit $200 GST to the ATO in the BAS lodgement.
Minor Benefits Exemption
Some benefits provided have concessional treatment and there are some FBT exemptions that may apply. The main FBT exemption used by businesses is the minor benefit exemption. As a general rule, if the FBT benefit is less than $300 (ie $299 or less), and it has been provided irregularly and infrequently, the minor benefit exemption should apply. Even though there is a FBT exemption, there is no tax deduction, and no GST credits can be claimed. The tax situation changes where a business pays FBT and then the expense becomes deductible and GST can be claimed. Our advice to business wishing to use the FBT minor exemption is to not claim the GST on these expenses.
Car Fringe Benefit
Where a car benefit is provided, the FBT benefit can be calculated based on two methods, Statutory method based on car purchase price or Operating Cost Method (OCM) based on the car operating costs. Where information is available, we calculate the FBT benefit provided using both methods and elect to use the method that has the lowest FBT benefit.
Please remember to ensure that you record the odometer reading on 31 March 2021 on all cars provided to employees for their private use.
The OCM usually results in a lower FBT benefit where a valid logbook is in place and the private use of the car is low. The negative of using OCM is the paperwork that needs to be retained regarding running costs of the car and ensuring that the logbook is valid. More information on what is needed for a valid logbook can be found in the following link. https://www.ato.gov.au/Business/Income-and-deductions-for-business/Deductions/Deductions-for-motor-vehicle-expenses/Logbook-method/#Whattorecordinyourlogbook
Where To Find Help
More information on FBT benefit can be found on the following ATO link .
If you are concerned about any possible FBT benefits your business has provided and would like more information, please call our office.