Fringe Benefits Tax (FBT)

Wondering if your business is liable to pay fringe benefits tax (FBT)?

Do you offer your employees benefits in addition to salary and wages? If so, you may need to report Fringe Benefits Tax (FBT) to the Australian Taxation Office.

Providing employees fringe benefits can form part of a broader remuneration package, but as a business owner and employer, you need to be aware of what is required of you. FBT is levied on most non-cash benefits that an employer provides in respect of employment. It is a separate tax from income tax and is paid by the employer only, not the employee.

What is Fringe Benefits Tax (FBT)?

Certain benefits provided to employees or their associates in addition to salary or wages are known as fringe benefits. These fringe benefits are provided in respect of employment, meaning they are connected to an individual's employment status and often supplement wages or salaries. They are paid for by the employer from pre-tax earnings, making these benefits attractive to employees as it may reduce their taxable income while receiving payment in other forms.

For example, if an employer provides an employee with a company car for both work and personal use, that car is considered a fringe benefit. Rather than increasing the employee’s salary, the employer covers the cost of the vehicle. While the employee benefits from having access to the car, the employer may be required to pay Fringe Benefits Tax (FBT) on the value of that benefit.

FBT is a tax paid, based on the type of fringe benefits provided. Employers must determine when a fringe benefit arises and its taxable value for FBT purposes. The taxable value is generally the cost to the employer of providing the benefit. Tax is payable because the benefits are a different form of payment by an employer instead of salary and wages. The legislation governing FBT is outlined in the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). Employers are liable for any applicable FBT on fringe benefits they provide to employees and their families.

The tax is calculated on the taxable value of the fringe benefits, which reflects the grossed-up salary the employee would have had to earn to pay for the benefits from post-tax earnings.

Going back to the car example, if an employer provides an employee with a company car that can be used for both work and private purposes, the private use portion is considered a fringe benefit.

If the car costs the employer $40,000 and the taxable value of the private use for the FBT year is calculated at $12,000, that $12,000 becomes the taxable value of the benefit.

For FBT purposes, that amount is then grossed-up to reflect the salary the employee would have needed to earn (before income tax) to pay $12,000 from their after-tax income. The employer then pays FBT on the grossed-up amount at the applicable FBT rate.

This ensures the tax outcome is broadly comparable to the employer paying the employee additional salary instead of providing the car as a benefit.

Employers can generally claim a tax deduction for the fringe benefits and related FBT payable.

Fringe benefits exist to give employers flexibility in how they structure employee remuneration. Instead of paying all compensation as cash salary or wages, a business may provide part of an employee’s total package in other forms, such as a company car or other non-cash benefits. This can make remuneration packages more attractive, practical, or aligned with operational needs. However, to ensure fairness in the tax system, Fringe Benefits Tax (FBT) applies so that providing a benefit is taxed in a broadly comparable way to paying additional salary. In this way, fringe benefits offer flexibility, while FBT maintains tax integrity.

Types of Benefits

‍There are many different types of fringe benefits employers may provide to employees. These may include:

• Motor vehicle owned by the business provided for private use;
• Motor vehicle lease arrangements;
• Car parking;
• Entertainment, such as golf club membership or tickets to major events;
• Expense payments, such as credit cards or health insurance;
• Other types include debt waiver, living away from home allowance, or property benefits;
• Company car, private health care, and fitness club membership are also common examples of fringe benefits.
• A salary sacrifice arrangement involving the provision of certain benefits.

Fringe benefits may be provided to an employee or to their family members or other associates, and the employer is generally liable for any applicable FBT on those benefits. This applies even where the benefit is provided by a third party under an arrangement with the employer. For example, if an employer arranges and pays for an employee’s gym membership directly with a fitness provider, the gym is supplying the benefit, but the employer remains responsible for any FBT liability. While these benefits can form part of a broader remuneration strategy to attract, retain and motivate employees, employers must ensure they understand when FBT obligations arise and how those benefits are taxed.

Some fringe benefits provided to employees don’t attract fringe benefits tax. If you pay for expenses that an employee would otherwise have been able to claim as a work-related tax deduction, fringe benefits tax won’t apply. For example, if you pay for employees to attend a professional development course, there won’t be any FBT liability on this benefit.

‍FBT Exemptions and Concessions

Fringe benefits tax (FBT) exemptions and concessions play a significant role in reducing the FBT liability for employers. Exempt fringe benefits are specific benefits that are not subject to FBT, meaning employers do not need to include them in the employee’s payment summary or pay FBT on their value. Common examples of exempt benefits include work-related items such as mobile phones, laptops, and tablets, provided they are primarily used for business purposes. Other exempt benefits can include certain tools of trade, protective clothing, and briefcases.

Additionally, benefits provided for charitable or community purposes, such as those offered by public benevolent institutions or certain not-for-profit organisations, may also be exempt from FBT. The Australian Taxation Office (ATO) outlines a range of FBT exemptions and concessions, including those for minor benefits (with a low value and infrequent occurrence), remote area housing, and specific types of meal entertainment.

Employers can also claim concessions on benefits that are not fully exempt, which can reduce the taxable value of the benefits provided. For example, remote area housing concessions can significantly lower the FBT payable on accommodation provided to employees in remote locations. Understanding and applying these FBT exemptions and concessions can help employers manage their FBT liability, ensure compliance, and maximise the value of benefits provided to employees.

Can an employer reduce their FBT liability?

Legally reduce the taxable value of reportable fringe benefit amount.

It is possible for employers to minimise or completely avoid their Fringe Benefits Tax (FBT) liability by asking employees to contribute financially towards the cost of a given benefit. This way, every dollar that the employee pays will correspondingly reduce the taxable value of the benefit being provided.

Employers can also opt to offer higher salaries instead of fringe benefits as an alternative method of avoiding FBT payments.

Fringe benefits provided by employers to employees are not considered taxable income, and thus there is usually no direct effect on the employee's income tax or Medicare levy. However, receipt of fringe benefits can have an indirect impact on a number of other circumstances and obligations, such as family tax benefits, Medicare levy surcharge, private health insurance rebate, child support payments, superannuation co-contributions, Higher Education Loan Program (HELP) repayments and various tax offsets.

This means that fringe benefits do not pass through the employee's pay packet untouched; instead, fringe benefits will be taken into account when determining eligibility for certain payments or deductions (eg. payments from Services Australia).

If fringe benefits are creating a negative financial outcome for an employee, they may agree with their employer to reduce their company's fringe benefit tax liability by making a dollar-for-dollar contribution from their post-tax salary, which will go towards payment for the fringe benefit provided to them. This allows employees to receive their fringe benefit without incurring any additional tax burden. Additionally, the arrangement could also improve their eligibility for certain payments or deductions. It is important to remember that this arrangement must be agreed upon between both the employer and employee; otherwise, it may not provide the desired outcome.

Additionally, some benefits, such as public transport fares, may qualify for complete exemption from FBT provided certain conditions such as eligibility requirements are met.

What is a Reportable Fringe Benefits Amount (RFBA)?

When the taxable value of fringe benefits paid to an employee in an FBT year exceeds $2,000, then it is considered a Reportable Fringe Benefit Amount (RFBA).

This amount must be reported on the employee's end of financial year income statement or payment summary.

Do you pay fringe benefits tax on superannuation contributions?

When it comes to fringe benefits tax (FBT) and superannuation contributions, salary-sacrificed amounts are not considered fringe benefits when associated with an employee's complying fund. However, if these payments are made to an associate, such as the employee's spouse or a non-complying superannuation fund, then FBT will apply.

Superannuation caps

It is also worth noting that salary-sacrificed amounts do count towards the concessional (before-tax) superannuation contribution cap of $30,000 per annum. Therefore, employees need to be mindful that their total concessional contributions — including their employer's normal contributions plus any personal contributions they want to claim an income tax deduction on — do not exceed this limit.

Should they exceed it, the Australian Taxation Office (ATO) cautions they may incur additional tax liability. To avoid this, individuals should pay particular attention to their overall concessional superannuation amount and ensure their salary-sacrificed amount does not push them over the stipulated threshold.

How is a fringe benefit calculated?

Fringe Benefits Tax (FBT) is calculated on the value of the benefit an employee receives during the FBT year (1 April to 31 March). Employers must work out the taxable value of each benefit provided and self-assess any FBT payable.

In simple terms, the taxable value is generally the cost to the employer of providing the benefit, or the value of the private use component.

That amount is then “grossed-up” to reflect what the employee would have needed to earn in salary (before tax) to pay for the benefit themselves. The FBT rate (currently 47%) is then applied to that grossed-up amount to determine how much tax the employer must pay.

Example:
If the private use of a company car has a taxable value of $12,000 for the year and the employer can claim GST credits, the amount is grossed-up (currently 2.0802):

$12,000 × 2.0802 = $24,962

FBT is then calculated at 47%:

$24,962 × 47% = $11,732 FBT payable

So even though the employee’s benefit is valued at $12,000, the employer pays $11,732 in FBT because the system is designed to mirror the tax that would have applied if the employee had received extra salary instead.

Calculation types:

There are two different types of gross-up rates used to calculate fringe benefits tax amounts.

1. The first applies to benefits where the employer is entitled to a goods and services tax (GST) credit for GST paid. The second applies when there is no GST credit entitlement.
2. The tax payable is the taxable amount multiplied by the fringe benefits tax rate, which is currently 47 per cent.

FBT Administration and Compliance

If your business provides fringe benefits, you are responsible for assessing and reporting any FBT liability each year.

The FBT year runs from 1 April to 31 March. If you have an FBT liability, you must lodge an FBT return with the Australian Taxation Office (ATO), generally by 21 May (or later if lodged electronically through a registered tax agent).

If the total taxable value of fringe benefits provided to an employee exceeds $2,000 in an FBT year, you must report the Reportable Fringe Benefits Amount (RFBA) through Single Touch Payroll (STP) by 14 July, so it appears on the employee’s income statement.

Employers must also ensure that any FBT payable is paid by the due date to avoid interest and penalties.

Record-keeping requirements

Accurate record-keeping is essential for FBT compliance. Employers should maintain documentation that supports:

• The type of benefit provided
• How the taxable value was calculated
• Any employee contributions made
• Evidence supporting exemptions or concessions claimed

FBT records must generally be kept for at least five years.

Because FBT rules can vary depending on the benefit type, keeping clear records throughout the year can make the process significantly easier at lodgement time.

If you are unsure whether FBT applies or how to calculate your liability, seeking advice early can help prevent unexpected tax bills or compliance issues.

We're here to help

If you’re unsure whether FBT applies to your business, or you’d like help reviewing your current arrangements, the team at Bonerath & Co. can assist. Getting clear advice now can help you avoid unexpected tax bills and ensure your obligations are handled correctly. Get in touch with Bonerath & Co. to discuss your situation and make sure your FBT position is on track.

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