Guide to Fringe Benefit Tax (FBT)
Fringe benefit tax (FBT) is tax payable on non-cash benefits provided to employees including shareholder employees. It is separate to income tax and charged according to the taxable value of the fringe benefits provided. Employers can make a deduction on the cost of providing the benefits as well as on the FBT tax that they pay.
These benefits include:
- motor vehicles available for private use
- low-interest loans
- free or subsidised or discounted goods
- contributions to funds, insurance and superannuation schemes
Returns are normally filed on a quarterly basis for June, September, December and March. Under specific circumstances, you may be able to elect to file the return annually.
As you may be aware, from 1 April 2021, the marginal tax rate for individuals earning over $180,000 has increased to 39%. The flow-on effect of this is that the FBT single rate has moved from 49.25% to 63.93% and the pooling rate from 42.86% to 49.25%. When adjusting for the tax deductibility of FBT, the new FBT rate means that the fringe benefits are basically charged at the same rate as cash benefits/wages and salaries.
You can choose one of the following methods that best suits your business to calculate your FBT liability. The options depend on whether you only provide attributed benefits or non-attributed benefits. Attributed benefits are benefits assigned to a specific employee while non-attributed benefits can be shared.
Single rate – 63.93%
The rate applies to all benefits provided. Using this method means that you will be paying FBT as if all your employees earn more than $180,000.
Short form alternate rate
Under this method, the short form alternate rate for attributed and non-attributed benefits is 63.93% or 49.25% respectively in quarters 1 to 3. In quarter 4 a washup calculation is done to split between attributed and non-attributed benefits (noting that shareholder employees need to be taxed at the higher rate even if the benefits are non-attributed).
Full alternate rate
Employers can perform a FBT attribution (wash up) calculation in the final quarter (March return). If the single rate is used in the first three quarters.
The process allows employers to use FBT rates that correspond to the personal income tax rates of the employees receiving the benefit. This is particularly important if most of your employees are earning under the top marginal tax rate of $180,000 per annum and in most situations this would be the method that we recommend.
New FBT option
What we normally do is to use 63.93% for the first three quarters and complete an attribution process in the fourth quarter.
There is now a new useful option for employers to be able to split employees between over/under $180,000 of gross earnings. FBT can be paid using 49.25% for employees earning under the threshold. This would save you cost and time in going through the wash up attribution exercise.
With the increased FBT rate to 63.93%, it may be time to revisit the provision of benefits or to restructure the motor vehicle expenses especially if the car is high in business usage in the new financial year. Please get in touch with us to evaluate your FBT position.