Fringe benefits tax – what small business owners need to knowRebecca Bendikov
As a small business owner, you need a good understanding of which taxes apply to you right from the start. One tax that can be incredibly confusing for business owners with employees is fringe benefits tax (FBT). Let’s have a look at what FBT is, how you can prepare for it and what upcoming changes to the tax may affect your business.
A fringe benefit is a benefit that an employee or their associate (spouse or child) receives because of their employment. This can be a current, former or future employee. A benefit can be any right, privilege, service or facility that the employee receives.
A benefit can include:
– The use of something, such as a car, house or equipment
– Ownership of something such as items of clothing
– Enjoyment of a privilege or facility, such as staying at a holiday home
– Salary packaging
– Meals/ entertainment
Fringe Benefits do not include:
– Salaries and wage payments
– Approved employee share acquisition schemes
– Employer contributions to complying superannuation funds
– Eligible termination payments (e.g. Company car given or sold to employee on termination)
– Laptop computers and mobile phones used primarily for work purposes
For a more comprehensive list of fringe benefits please visit the ATO website.
What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) is a tax on employers that provide non-cash benefits to their employees. FBT is separate from income tax and is based on the taxable value of the various fringe benefits being provided.
When do you Pay Fringe Benefits Tax?
As an employer you have to assess your liability for FBT annually. A return covering the FBT year (1 April to 31 March) should be lodged by 21 May, or the first business day after this date. Tax paid in the FBT year must then be reported on the employee’s payment summary (group certificate) for the financial year (1 July – 30 June).
How to Avoid Last Minute FBT Stress
It is important for employers to have all of their FBT paperwork in order so that when the end of March comes around they can complete their returns and lodge on time. It’s a good idea to enter your data into a simple small business accounting program so that you have up to date, secure records and keep in touch with your accountant who can help you if you come across any issues or concerns.
In Wages Manager and Cashflow Manager Gold you are able to record fringe benefits payments. This is important as fringe benefits payments are required to appear on your employee’s PAYG Payment Summary. Wages Manager assists you in setting up the fringe benefits including salary sacrifice and can even calculate the superannuation on your salary sacrifice. You can also add the fringe benefit amounts to your electronic banking and produce an accurate fringe benefit balances report, which makes life much easier for you.
Changes to Fringe Benefits Tax in 2014
Following the announcements made within the Federal Budget in 2013, there are a few changes which may affect the salary packaging arrangements you have for employees.
Medicare Levy Increase
The Medicare levy will increase from the current rate of 46.5% to 47 percent on 1 July 2014. As the fringe benefits tax rate is determined by the highest marginal tax rate plus the Medicare levy, this proposed change will increase the FBT rate and subsequently change the gross-up rates which are used for FBT calculations. This means that the FBT rate will increase from 46.5% to 47% from 1 April 2014.
Gross- Up Rate Changes
In line with the increase in the FBT rate to 47% from 1 April 2014, the Type 1 (employer entitled to an input tax credit) and Type 2 (employer not entitled to an input tax credit) gross-up rates will also be amended:
|Gross-Up Rate Changes|
|FBT Year||Type 1 Rate||Type 2 Rate|
This means all salary packaging arrangements will need to be re-evaluated with employees before 1 April 2014 and weekly / fortnightly / monthly payroll deductions will need to be adjusted to account for the change in the salary packaging gross up rates.
For more information visit the Fringe Benefits Tax Guide on the ATO website.