Fringe benefits tax: When does it apply?

Definition

Fringe benefits tax (FBT) is a tax charged by the Australian government on certain non-cash benefits provided by employers to their employees or associates in connection with their employment.

What is fringe benefits tax?

Fringe benefits are benefits provided to employees or their associates in addition to their salary or wages. These benefits can take various forms, including the provision of company cars, health insurance, housing, low-interest loans, and expense payments. They are often non-monetary or represent benefits other than cash and are separated from income tax and are calculated on the taxable value of the fringe benefits provided.

Employers are responsible for identifying and reporting fringe benefits provided to their employees during the FBT year, which runs from 1 April to 31 March. They must keep accurate records of the fringe benefits provided and calculate the taxable value of these benefits for FBT purposes. The taxable value of fringe benefits is generally based on the actual cost to the employer or the value of the benefit as determined by specific valuation rules.

The current FBT rate is set at the top individual income tax rate, which is typically higher than the standard corporate tax rate. Employers are required to pay FBT on the taxable value of fringe benefits provided, usually on an annual basis.

Example of fringe benefits tax

ABC Corporation provides its employee, Sarah, with a company car for both business and personal use. The car’s annual taxable value, as per the fringe benefits tax rules, is determined to be $15,000.

At the end of the FBT year, ABC Corporation calculates its FBT liability on the taxable value of the fringe benefit provided to Sarah. Using the current FBT rate, the company determines that it owes $4,500 in fringe benefits tax.

ABC Corporation then reports and pays the FBT amount by the designated deadline, ensuring compliance with its FBT obligations.