Wow, can you believe it’s March already – how time flies!
Furthermore, it’s that time of year when employers need to think about their Fringe Benefits Tax (FBT) return.
As a business owner, you’ll need to lodge an FBT return if you have provided any employees or associates with fringe benefits during the current FBT year which runs from 1 April 2020 and ends on 31 March 2021.
What are Fringe Benefits?
We refer to them as the ‘perks’ of the job – something extra an individual may get from their employer in addition to their salary or wage. The benefit or perk may even be given to the employee’s spouse, children, or an associate.
Fringe benefits are assigned to a variety of categories each with its specific valuation rules, deductions, and exemptions. Some common fringe benefits provided to employees include:
- Discounted loans – loan fringe benefit
- Car parking at or near work – car parking fringe benefit
- Allowing an employee to use a work car for private purposes – car fringe benefit
- Reimbursing an employee for an expense incurred such as school fees – expense payment fringe benefit
- Providing entertainment such as tickets for a concert – property fringe benefit
- Providing a benefit under an agreed salary sacrifice agreement (SSA) where an employee forfeits a part of his salary in return for the benefit
To complicate matters further, depending on the circumstances under which a benefit was provided, it can move from one category to another.
Getting prepared for the FBT year-end can be a headache
You will need to prepare an FBT return and based on the benefits you offer your staff calculate your FBT liability. If you do this yourself by paper, you have until 21 May 2021 or if you work with a small business accountant, your return can be lodged electronically – in which case you have until 25 June 2021.
Of course, if you’d rather forego the hassle, you could leave it up to the experts at JSM Accounting so that you can get on with running your business.
What items are exempt from FBT?
Knowing what counts towards FBT and what doesn’t is confusing, to say the least.
To be on the safe side, you can always check out the ATO website to be sure what items do or don’t incur FBT or for more specific tax advice relating to your circumstances, then feel free to contact the team at JSM.
Strategies to reduce an employer’s FBT liability
Thankfully, there are several ways you can reduce your FBT liability:
Don’t provide fringe benefits
Not providing employees with fringe benefits is the easiest way to avoid liability for FBT. Why not consider providing an employee with a cash bonus instead of a benefit. This way you won’t have to pay FBT and instead, the employee will have to pay income tax on the sum of money.
Provide benefits that are exempt from FBT
Exempt benefits provided to employees will not incur FBT. Common examples include
- Work-related items including portable electronic devices, tools, protective clothing and briefcases
- Minor benefits including Christmas gifts and flowers for hospitalised employees provided the total is less than $300
Provide benefits that are income tax-deductible
You may avoid FBT liability by providing employees with a benefit that they could otherwise have claimed as an income tax deduction. For example, paying for the cost of an employee to attend an industry-related seminar. Had the employee covered the cost of attending the seminar themself, they would have been entitled to a full income tax deduction of that expense.
Using employee contributions
Another way to lower your FBT liability is to encourage your employees to contribute toward the cost of a fringe benefit.
Usually, this is a cash payment made to you or the person providing the benefit. Under the valuation rules of most of the fringe benefit categories, the taxable amount of such a benefit can be reduced by the amount contributed by the employee.
How JSM Accounting can help
Hopefully, this brief overview of FBT has given you an insight into its complexities and alerted you to the fact that calculating your FBT liability isn’t always straightforward. This is particularly true given the many different categories of FBT fringe benefits each containing specific valuations, deductions, exemptions and reporting rules.
FBT reporting can place a considerable compliance burden on taxpayers. If you feel overwhelmed by the task then why not let us help with the process of preparing and lodging your FBT returns.
Additionally, if you would like to discuss how any of the above issues could affect your Business we can help identify any potential FBT risks and explore ways of minimising your FBT liability to achieve the best outcome. Get in touch with JSM Accounting today. We look forward to hearing from you.