Does Fringe Benefit Tax apply to your business?
Fringe Benefit Tax (FBT) is something the ATO has been cracking down on in recent years, so it’s important to know what transactions are affected by FBT.
If you offer employees benefits that involve cars, loans, travel or entertainment, it’s essential you know if FBT applies.
Simply put Fringe Benefit Tax is any non-cash benefit supplied to employees and is taxed at 47% unless it is considered exempt.
Below is a brief overview of the common types of benefits given by employers.
It is common for construction or retail businesses to lease motor vehicles to employees, but happen to use the vehicles outside of work hours for private use.
To be considered for exemptions from FBT, a car must be a commercial or utility (ute) and must have a towing capacity of at least one tonne otherwise it is considered a ‘passenger car’.
To be considered exempt, the private use must be limited to travel between home and work and other minor non-work use.
Note that other utility vehicles with less than one tonne towing capacity may be considered for exemption if they are not considered a ‘passenger car’, for example dual cab utes or modified vehicles.
The same exemptions apply to taxis as long as the private use limitations are complied with. There is specific guidance around distances available, click here and here for further resources regarding this matter.
If a loan is provided to someone who is solely an employee then it is subject to FBT.
Exemptions include when loans are given to pay for employment related expenses within a six month period of the loan being taken out. The loan must then be repaid or expended.
If the employee has debt waived by the business then it is subject to FBT unless the debt owed is written off as a genuine bad debt and not for employment related reasons.
Travel expenses one of the most common Fringe Benefits given by employers and unfortunately there are not many exemptions for travel expenses reimbursed or paid for by employers.
Some specific exemptions apply for taxi fares which are considered exempt if it is in relation to taking an employee to and from work if they are sick or if it is a minor benefit less than $300 including GST.
If a travel company gives free or discounted travel it is subject to FBT but includes a $1000 exemption to each recipient.
FBT on entertainment expenses can be complicated so it’s important to know what is considered an exemption.
The most common entertainment expense on offer is food. Food/meals are considered exempt if it is provided out of an in-house facility, if it’s considered morning/afternoon tea or ‘light lunch’. Meals are also exempt if they incidental to a conference or meeting of 4 hours or more.
Any meals that are supplied to clients are exempt but are not deductible for income tax purposes.
Any minor entertainment costs less than $300 including GST are also exempt.
For further information about how to calculate FBT refer to the ATO website or contact the team at Shakespeare on 9321 2111 if you’d like to discuss how these FBT considerations may apply to your business.
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