What is Fringe Benefits Tax (FBT)?

A fringe benefit is a type of payment to employees that is different to normal salary or wages. FBT is paid by employers on certain benefits they give to their employees or their employees’ families or other associates. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.

As per the ATO, examples of fringe benefits include:

  • Allowing an employee to use a work car for personal use
  • Giving an employee a discounted loan
  • Paying for an employee’s gym membership
  • Providing entertainment by way of free tickets to concerts
  • Reimbursing an expense incurred by an employee, such as school fees
  • Giving benefits under a salary sacrifice arrangement with an employee

FBT is separate from income tax and is calculated on the taxable value of the fringe benefit. Employers can generally claim an income tax reduction for the cost of providing fringe benefits and for the fringe benefits tax they pay. Employers can also generally claim GST credits for items provided as fringe benefits.

Why should you lodge an FBT return even if there is no liability?

Firstly, the simplest reason is that by lodging, you draw a line in the sand as ATO can only audit 3 years prior to the last lodgement of an FBT return.

If you fail to lodge your FBT return, you run the risk of attracting unwanted attention from the ATO. They may decide to launch an investigation and look into all your business activity.

As an employer, you must keep records (logbooks, signed statements and records) that support your FBT liabilities. This is the case even if the employee has left. This means that you can’t claw any of these costs back from prior employees.

Secondly, even if you have done a review, people will make mistakes. Car fringe benefits is a liability that is often recorded wrong. The private use is worked out using the operating cost (logbook) method. If you’re looking to do this yourself, the depreciation claimed on the business’ financial statements is not the same for FBT purposes. This mistake gives rise to an FBT liability.

When the ATO conduct their audit, they’ll most likely check the entire period that the car was owned by your business. Lodging an FBT return would reduce the auditing time to three years.

Thirdly, not maintaining a register of which employees are the recipient of meal entertainment benefits may give rise to an FBT liability. Consider the example below:

  • Two employees, Bob, and Morris. Bob’s job is to go out and impress current and potential clients at various social events where food and drink are consumed. Morris’s role on the other hand is to remain in the office and complete the projects that Bob wins. At the year-end social function, the food and drink that is consumed by Bob will not qualify as exempt meal entertainment, however, the food and drink consumed by Morris will be exempt. Without the records to confirm who received meal entertainment benefits, and the absence of a completed FBT return, the ATO has unlimited scope to audit your records for liabilities.

When are FBT returns due?

Employers must lodge an FBT return if they have a liability (also known as a fringe benefit taxable amount) during an FBT year (1 April to 31 March). If you are preparing your FBT return yourself, you can lodge up to 25 June without incurring a failure to lodge a penalty. The payment due date is 21 May.

With a tax agent, the due date to lodge and pay is 21 May. If you’re registered for FBT but don’t need to lodge a return for the year, you can complete a Fringe benefits tax – notice of non-lodgment form.

Carbon can help.

Fringe benefits can be confusing and if you’re not careful you may miss the tax implications it can cause your business. ATO has resumed their audit activities, so if you would like to limit the ATO’s ability to retrospectively launch an audit on your business, please contact our accountants today.