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What is fringe benefits tax?

What is fringe benefits tax?

Fringe benefits may help reduce your taxable income while allowing you to enjoy some job perks.

A fringe benefit is something extra you get from your employer that supplements your wage or salary.

It's generally not actual salary, wages or cash and the benefit can be something for you, your spouse or your children.

You don't pay tax on it, but your employer does.

Why do companies offer fringe benefits?

Such perks can entice, help retain or motivate employees. Companies are becoming increasingly competitive about what they offer.

Providing free food, coffee bars, discount gym memberships or entertainment can make employees feel valued and can create a better workplace environment for staff.

It’s not just larger companies that offer these perks. SMEs and start-ups are just as likely to offer them, too. By offering fringe benefits, companies may reap some tax benefits themselves.

Often the benefit is included through salary sacrifice or as part of your salary packaging. This might push you down into a lower tax bracket – a great plus if you’re a higher income earner.

What’s considered a fringe benefit?

A broad range of perks are classed as fringe benefits. The most common ones are:

  • Use of a company car
  • Discounted loans
  • Gym / health memberships
  • Entertainment expenses – food, drink, cheap cinema tickets, accommodation
  • Private health insurance
  • Living-away-from-home allowance (LAFHA)
  • Real Property - land and buildings
  • Right to Property - shares, bonds
  • Childcare costs and school fees

Items you need to do your job e.g. mobile phones and clothing, aren’t fringe benefits but may be claimable.

Concessional payments you make to boost your super aren't considered fringe benefits, either.

Packaging of benefits

Fringe Benefits Tax (FBT) is based on the presumption that you're being taxed at the top marginal tax rate.

If, however, you’re not being taxed at this rate, it may not be tax efficient to salary sacrifice or package benefits other than exempt benefits e.g. airline lounge membership.

How do you keep track of fringe benefits?

Unlike the financial tax year (1 July – 30 June), the FBT year is 1 April – 31 March.

Your employer records the grossed-up taxable value of each of your fringe benefits in your payment summary. If your fringe benefits total $2,000 or more during the FBT year, they’ll appear under reportable fringe benefits amount in your payment summary.

While they’re not deemed taxable income, fringe benefits are used to determine whether you’re entitled to, or liable for, a number of benefits and obligations. These include the Medicare levy surcharge (MLS), superannuation co-contributions, Higher Education Loan Program (HELP), tax offsets and Financial Supplement repayments.

It’s important to remember that you can’t claim tax for a work expense if you’re reimbursed this expense as a fringe benefit.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Commonwealth Bank is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.