December 8, 2023


Future Depends on What You Do

Almost everything small business owners need to have to know

Compilation image of ATO tax symbol on door with people walking across the street to represent fringe benefits tax

You can reduce your fringe rewards tax legal responsibility by inquiring your personnel to make a contribution. (Source: Getty)

Lots of organizations look to get the most effective out of their personnel by handing out excess benefits on leading of their salary. But even though it might be a great way to incentivise workers, there are a few consequences when it arrives to tax time.

If you give advantages to your workers, you could obtain that your business is liable to fork out fringe added benefits tax (FBT). This is a tax compensated by the employer – not the worker – on the taxable benefit of advantages paid to staff. It also incorporates any added benefits supplied to loved ones or pals of employees.

Study extra from Mark Chapman:

Below are some of the most usually furnished benefits that can give rise to FBT:

  • Supplying a car that can be used for private reasons

  • Supplying no cost or subsidised motor vehicle parking

  • Furnishing “entertainment”, these types of as meals, beverages, sporting or leisure pursuits (these types of as a round of golfing or tickets to a sporting event), theatre tickets and vacations

  • Reimbursing or shelling out for an employee’s private bills, this sort of as utility bills

  • Giving your staff an curiosity-no cost or lower-desire fee mortgage

  • Providing hire-cost-free or small-lease lodging to an employee

How is FBT calculated?

FBT is payable primarily based on the grossed up ‘taxable value’ of the gain presented. This grossing up method is used to reflect the gross salary workforce would have to make to acquire the gains you’re providing.

Fringe rewards are split into two classes: variety one particular and kind two. The real calculation can be sophisticated and is most effective performed by your accountant, but the method can be summarised into the subsequent 6 actions.

  1. Recognize the complete taxable value of fringe positive aspects you deliver for which you can assert a GST credit rating (these are categorised as style a person benefits).

  2. Get the job done out the grossed-up taxable value of these sort a person gains by multiplying the total taxable value by the sort a single gross up amount (presently 2.0802).

  3. Determine the full taxable price of benefits for which you can’t claim a GST credit score, for example, provides you created that were GST-cost-free (these are categorised as style two benefits).

  4. Work out the grossed-up taxable value of these variety two benefits by multiplying the complete taxable by the kind two gross up level (at present 1.8868).

  5. Increase the grossed-up amounts from ways two and four. This is your full fringe gains taxable total.

  6. Then, multiply the full fringe added benefits taxable sum (from step 5) by the FBT price (currently 47 for each cent). This is the overall FBT amount of money you are liable to pay.

It’s a intricate calculation, so here’s an case in point of what it could seem like.

Let’s believe you supply a car to a member of staff members which they can use privately. The taxable worth of the profit is $10,000 during the 2022/23 FBT 12 months.

Here’s what the calculation for FBT would glimpse like:

Taxable price of the reward is $10,000

Multiply this by the 2.0802 grossed-up amount

Your overall grossed-up fringe positive aspects taxable worth equals $20,802

Multiply this by the 47% FBT level.

Your total FBT payable equals $9,777 (rounded).

Can my small business cut down its FBT liability?

It’s feasible to lower your FBT legal responsibility, or even remove it altogether, by inquiring your personnel to make a dollars contribution to the value of the profit delivered to them. Each and every greenback that they pay back to the provision of the advantage lowers the taxable value of the gain by the very same total.

Are any positive aspects FBT free?

Some benefits are totally free from FBT, this kind of as the provision by a smaller company of instruments or digital products (this kind of as laptops) that are largely made use of for operate applications.

So-called ‘minor benefits’ are also FBT free. A insignificant gain is just one with a notional taxable value of fewer than $300 and could involve factors like the once-a-year staff members Xmas bash, supplied the value for each head is considerably less than $300.

Then there are a quantity of generous FBT concessions and exemptions accessible to specific not-for-income organisations like charities, hospitals and religious establishments.

What are reportable fringe positive aspects?

I pointed out before that FBT is payable only by companies. But, if the sum of fringe added benefits offered to an employee exceeds $2,000, it should be claimed in an employees’ 12 months conclude profits statement which is then provided on their tax return.

This isn’t taxable revenue so there are no immediate revenue tax repercussions for the staff, but these reportable fringe positive aspects can be taken into account in doing work out a selection of other advantages and obligations, which include household tax added benefits, the Medicare levy surcharge, non-public wellbeing insurance plan rebate, child assistance payments, superannuation co-contributions, HECS-Assist repayments, and other tax offsets.

How does my enterprise report and pay back FBT?

The FBT 12 months runs from April 1 to March 31 so now is the time to establish if your business enterprise wants to register for and spend FBT.

If you present advantages to your staff and imagine you could possibly have an FBT legal responsibility, the initial action you need to have to consider is to register for FBT with the ATO. Your tax agent can assist you with the approach.

If you have presented fringe added benefits for your employees, you should then lodge an FBT return. The newest date for lodging an FBT return is May perhaps 21, even though if you use a tax agent you may perhaps qualify for an extended deadline.

If you haven’t paid FBT right before, or if the sum of FBT you had to pay back for the former yr was a lot less than $3,000, you only make one payment for the yr when you lodge your FBT return. If not, FBT is payable quarterly by means of your exercise statements for the subsequent FBT year.

Estimate the tax refund you could obtain right after tax deductions with H&R Block’s easy-to-use, precise cash flow Tax Calculator.

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