Are You Providing Fringe Benefits?

Written by Sarah Riccio:

What is a Fringe Benefit

A fringe benefit is a ‘payment’ to an employee provided in a different form to salary or wages. For example, a fringe benefit may be provided when an employer:

•        allows an employee to use a work car for private purposes
•        pays an employee’s gym membership
•        provides entertainment by the way of free tickets to sporting events
•        reimburses an expense incurred by an employee, such as school fees

The following common fringe benefits will help you work out if you are already providing a fringe benefit to your employees. If any of the following apply, you may have a Fringe Benefit Tax (FBT) liability.

Car fringe benefit

A car fringe benefit commonly arises where you make a car the business owns or leases available for the private use of an employee. A car is taken to be made available for private use by an employee when the car:

• is actually used for private purposes by the employee or associate
• is not at the business premises, and the employee is allowed to use it for private purposes
• is garaged at the employees place of residence, regardless of whether they have permission to use it privately.

As a general rule, travel to and from work is private use of a vehicle.

To calculate a car fringe benefit, an employer has the option of using either the statutory formula method (based on the car’s cost price) or the operating cost method (based on the costs of operating the car). A logbook must be kept when using the operating cost method. Each logbook you keep is valid for five years, but you may start a new logbook at any time.

Entertainment

Entertainment expenditure is most often the provision of food, drink or other recreation activities, and any incidental costs in connection with the entertainment activity, including travel and accommodation costs. Functions such as Christmas parties and lunches that are paid for by an employer are some of the most common Entertainment Fringe Benefits.

Exempt Benefits

Transport Exemption – There are circumstances in which private use of a car may be exempt from FBT. An employee’s private use of a utility or other road vehicle designed to carry a load of more than one tonne is exempt if their private use of the vehicle is for travel between home and work and the non-work-related use is minor, infrequent and irregular.

Laptop Computer – is an exempt benefit that can arise where you reimburse the employee for the purchase of a laptop computer, purchase it on behalf of the employee or if the business gives a computer it owns to the employee to keep. This exemption is limited to one laptop per employee in an FBT year.

Property exemptions – Property you provide to an employee may be an exempt benefit. The exemption applies if the property provided to the employee is both provided and consumed on a working day on your premises. For example, there is no FBT on apples given to fruit shop employees for consumption at work.

 Reducing your FBT Liability

1. Replace fringe benefits with cash salary – If you replace an employee’s fringe benefits with cash in the form of salary or wages, the employee pays income tax on the salary or wages, rather than you paying FBT.
2. Provide benefits that are exempt from FBT – If you provide only exempt benefits you will not have an FBT liability.
3. Provide tax deductible benefits – If you pay for or reimburse an expense an employee would otherwise have been able to claim as an income tax deduction you may not have an FBT liability.
4. Use employee contributions – Employee contributions can reduce your FBT liability by obtaining a payment from an employee towards the cost of providing a fringe benefit. These are considered payments of consideration for GST purposes and an entity that is registered for GST must record the amount received on their BAS and remit 1/11^th of the contribution as GST.
5. Minor and infrequent benefits exemption – Fringe benefits with a GST-inclusive taxable value of less than $300 may be exempt from FBT if they are provided on an irregular and infrequent basis.

The FBT tax year covers the period from 1st April until 31st March. The 2017 FBT return is due to be lodged by 21st May 2017 or, if lodged by your tax agent, 28th May 2017. The due date for payment is also 28th May 2017.

Fringe Benefits are currently taxed at 49%.

For employees that have had fringe benefits provided to them, their employer is required to report their reportable fringe benefits amount on their 2017 PAYG Payment Summary if the total taxable value of the benefits provided is above $2,000.

MGI Adelaide will be in contact with our FBT clients in the near future. If you would like to know more or discuss possible FBT obligations, please contact MGI Adelaide.

This communication is general in nature and current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Should you wish to discuss any matter raised in this article, please feel free to contact us.