It will be no surprise to any employer that, in the ever-changing employment landscape, there has been a huge push in recent times away from the traditional structure of employment relationships and that the expectations of employees have changed dramatically. What employees are looking for in a job is often centred less around financial benefits and more around flexibility and having an enjoyable work-space and pleasant company culture.
As a result, employers may find themselves providing a whole raft of non-salary benefits to employees, ranging from more frequent and/or more extravagant social events to keep employees feeling socially connected, to free or discounted fitness facilities and services to support physical and mental wellness, or on-site parking so employees can drive to work from across the other side of the sprawling city. All of these benefits (referred to as “non-cash benefits”) are defined in the tax law as “fringe benefits”.
Fringe Benefits Tax (FBT) is a tax paid by employers on the value of fringe benefits provided to employees and their family or associates.
Having a good understanding of the exemptions and exclusions that apply to fringe benefits can assist employers to identify benefits that they could provide to employees without triggering the additional (and sometimes prohibitive) cost of FBT.
Below, we run through some of the exclusions and exemptions that are most relevant and useful to small and medium sized businesses.
| Car Fringe Benefits | |
| The exemption / exclusion | The definition of a “car” excludes vehicles designed to:
How to calculate if a motor vehicle has a carrying load of one tonne or more: A = Gross vehicle weight (Maximum all up loaded weight) B = Basic Kerb weight of the vehicle (i.e. weight of the car ready to drive with no passengers or tools) C = Carrying load of the car C = A – B The following vehicles (designed to carry a load of less than 1 tonne and less than 9 passengers) are exempt:
Provided there was no private use other than:
How to calculate if a motor vehicle is not used for the principal purpose of carrying passengers: The calculation determines whether or not the majority of the load capacity of the car is attributed to passenger carrying. A = Gross vehicle weight (Maximum all up loaded weight) B = Basic Kerb weight of the vehicle (i.e. weight of the car ready to drive with no passengers or tools) C = Carrying load of the car D = Designed seating capacity of the car (number of seats the car has) E = 68Kg (a number determined by the ATO) F = Passenger carrying capacity First determine the carrying load of the car (same as above): C = A – B Then, calculate the passenger carrying capacity: F = D * E If the passenger carrying capacity (F) is more than 50% of the carrying load of the car (C), the car is deemed to be designed for passenger carrying purposes and is not exempt from FBT. |
| Example | Janette is an employee at ABC Pty Ltd and is looking to purchase a duel cab ute in the business’ name. She wants to check if it will be subject to FBT. She goes to the motor vehicle dealership and gets the following information about the car:
Gross Vehicle Weight: 2,000Kg Basic Kerb site weight: 1,400 Kg Designed seating capacity: 5 passenger The motor vehicle is not exempt from FBT because:
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| Meal Entertainment | |
| The exemption / exclusion |
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| Example | Food and drink consumed at the work premises
ABC Pty Ltd has hosted a morning tea for their staff to celebrate the completion of a project. They provide food and drinks to staff in the boardroom and kitchen area. ABC Pty Ltd pays for the drinks and food. Providing food and drink to employees is normally entertainment and subject to FBT, but since the food and drink were consumed on business premises on a working day, they are exempt from FBT. Food and drink consumed while traveling overnight Janette has been asked to travel overnight to visit a customer to renegotiate a contract. As she has recently purchased a new company car and enjoyed a lavish morning tea, she reluctantly accepts the task. Jane travels to Perth to negotiate the new contract. While in Perth Jane incurs costs of food and drink for her meals while traveling. As these costs are incurred while Jane was traveling overnight for work related purposes, the costs are not considered meal entertainment and are not subject to FBT. |
| Small Business Parking Exemption | |
| The exemption / exclusion | A special exemption applies in relation to parking provided by small businesses to their employees.
Car parking benefits are exempt if all of the following conditions are satisfied:
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| Example | As Janette now has a shiny new company car, she asks her boss if she can drive to work. Bob, the director of ABC Pty Ltd has agreed to provide car parking on the business premises, but wants to know if an FBT liability would arise due to this benefit. Bob is pleased to find out that there is no FBT liability for this benefit because:
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| Costs of Relocating an Employee | |
| The exemption / exclusion | From time to time, Australian businesses may seek to employ someone from overseas and bring them to Australia to work. For example:
In these cases, the employer will often pay relocation costs for the employee, including visa fees, flights, shipping of personal effects, temporary accommodation etc. In such circumstances, the relocation costs paid by the employer are not subject to FBT. |
| Example | Janette has a brother, Marko, who lives in Croatia. Marko’s employer in Croatia is opening a subsidiary company in Australia (XYZ Pty Ltd) and needs someone on the ground in Sydney to get things up and running. After hearing from Janette about all the great benefits you get being employed in Australia, Marko happily volunteers. XYZ Pty Ltd covers Marko’s relocation costs, including application fees for his 457 Visa, fees paid to an immigration consultant, flights, shipping of Marko’s car and some furniture. As Marko is being relocated from overseas to Australia by XYZ Pty Ltd so that he can take up employment with the company, the relocation costs paid are not subject to FBT.
If Marko had already been working for a different employer in Australia and XYZ had incurred further costs in relation to Marko’s visa, these costs would be subject to FBT as he is not being relocated directly from overseas by XYZ Pty Ltd. |
For more information on FBT, check out our March 2018 newsletter article “Head in the sand about FBT? It’s not as scary as it sounds!”
If your business needs assistance in determining if a particular transaction or benefit is subject to FBT, Catalyst Financial can help! Contact us today.
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