Fringe Benefits Tax

When an employer provides non cash benefits to employees it may be liable to pay FBT on the value of that benefit, and this applies to all employers.

The FBT is calculated by first establishing the value of the fringe benefit. After taking off any reimbursement to the employer it is then “grossed up” by adding the amount of the FBT, which is done by multiplying the value of the fringe benefit by 2.0647 (if a GST credit is claimable on the fringe benefit by the employer) or by 1.8692 (if no credit is available). The FBT is then 46.5% of that grossed up amount.

For taxable entities, the FBT can be claimed as a tax deduction but for an endorsed Income Tax Exempt Charity (ITEC) this doesn’t apply because for an ITEC there is generally no income tax liability. So to compensate an ITEC for that, it is able to claim a rebate. The rebate is 48% of the amount of FBT otherwise payable, as long as the grossed up value (calculated as above) does not exceed $30000. If it does then the full amount of FBT is payable on the grossed up fringe benefits over the $30000 threshold.

For a PBI however, there is an exemption from FBT, up to a cap of $14529 (where a GST input tax credit is claimable on the benefits) and $16049 (where there is no input tax credit available – such as loan repayments) worth of benefits. These equate to a grossed up value of $30000. Fringe benefits provided, over these thresholds, are subject to FBT, as above.

The reason that a PBI is exempt from FBT is to recognize the fact that a PBI, generally speaking, will pay lower salaries than might be available for similar skills in the commercial world. Being able to offer further benefits in a tax free form enables that salary gap to be reduced.

Where fringe benefits are provided, they may be required to be reported on the employee’s annual PAYG Summary as a Reportable Fringe Benefit.

See also Salary Sacrificing
See also Employees and Contractors