Is There A Method For Calculating Fringe Benefits Tax?

Ever feel confused about how to calculate fringe benefits tax (FBT) for your employees in Australia? You’re not alone. FBT can be a complex topic, but understanding it is crucial for businesses offering perks that go beyond regular salary. Fear not! This guide will unravel the mysteries of FBT, explaining what it is, why you might need to calculate it, and most importantly, how to actually calculate fringe benefits tax for your specific situation. By the end, you’ll be equipped with the knowledge to ensure compliance and potentially minimize your FBT liability.

What exactly are fringe benefits and why are they taxed?

Fringe benefits are perks you provide to your employees on top of their regular salary or wages. These can be anything from a company car to private health insurance, free meals, or even gym memberships. While they boost employee morale and satisfaction, the ATO considers them a form of taxable income. That’s where FBT comes in – it’s a tax you, as the employer, pay on the value of the fringe benefits you provide.

How do you know if you need to calculate fringe benefits tax?

Not all perks qualify as fringe benefits for tax purposes. Here’s a quick guide:

• Fringe benefits that attract FBT: Company cars, salary packaging arrangements, low-interest loans, entertainment or travel benefits, free or subsidised meals or accommodation.
• Exempt benefits: Reasonable work-related expenses you reimburse employees (like phone calls or travel), minor benefits with a value under $300 per employee each year (like birthday gifts or flu shots).

If you’re unsure whether a particular perk qualifies as a fringe benefit, it’s always best to consult a registered tax agent or refer to the ATO’s website for detailed information.

When do you need to calculate and pay the fringe benefits tax?

FBT applies to the previous financial year (FY). So, for the 2024 financial year, you’ll need to calculate and pay fringe benefits tax by 21 May 2025. The ATO offers various lodgement options, so be sure to check their website for the most up-to-date information.

Which method should you use to calculate fringe benefits tax?

There are two main methods for calculating FBT:

• Statutory formula method: This is a simplified method based on a flat percentage of the benefit’s grossed-up value. It’s generally easier and quicker, but it might not be the most accurate option, particularly for car fringe benefits.
• Operating cost method: This method involves calculating the actual running costs of the fringe benefit (like fuel, insurance, and depreciation for a car) and multiplying that by the percentage of private use. It’s more precise but requires detailed record-keeping.

The best method for you depends on the specific fringe benefit you’re providing. Here’s a general rule of thumb:

• Use the statutory formula method for: Simple benefits like meals or entertainment, or if you don’t have detailed records for car use.
• Use the operating cost method for: Car fringe benefits, especially if the car is used extensively for private purposes.

Remember, this is just a basic guide. Consulting with a registered tax agent can help you determine the most suitable method for your situation.

How can you actually calculate your fringe benefits tax liability?

Let’s take a look at how to calculate FBT using the statutory formula method for a simple example:

• Scenario: You provide your employee with a mobile phone for work and personal use. The phone plan costs you $80 per month (including GST).

Here’s the step-by-step process:

1. Work out the taxable value: Since you can claim a GST credit for the phone plan, it’s considered a Type 1 fringe benefit. To find the taxable value, divide the total cost (including GST) by 11/12ths (to remove the GST component): $80 (including GST) / (11/12) = $72.73 (approximately).
2. Gross up the taxable value: The current FBT rate is 47%. To gross up the taxable value, multiply it by the gross-up rate: $72.73 x 1.47 = $107.22 (approximately).
3. Calculate FBT: Finally, multiply the grossed-up taxable value by the FBT rate: $107.22 x 0.47 = $50.45 (approximately).

This is the approximate FBT amount you would owe for this particular phone benefit in this scenario. Remember, this is a simplified example, and the actual calculations might vary depending on the specific fringe benefit and chosen method.

Important Note: The figures and rates mentioned above are for illustrative purposes only and are subject to change. Always refer to the ATO website for the latest FBT rates and relevant details.

What can you do to minimise your fringe benefits tax liability?

While FBT is an unavoidable tax for certain fringe benefits, there are strategies you can employ to keep your FBT liability to a minimum:

• Salary sacrifice arrangements: Consider offering salary sacrifice arrangements for eligible benefits like salary packaging for cars or meals. This allows employees to “sacrifice” a portion of their pre-tax salary for the fringe benefit, reducing their taxable income and potentially lowering their FBT burden.
• Review fringe benefit types: Regularly assess the types of fringe benefits you offer. Are there any that could be replaced with non-taxable alternatives, or perhaps benefits with a lower FBT value?
• Maintain accurate records: Keeping detailed records for fringe benefits, particularly car usage for FBT purposes, is crucial. This ensures you’re using the most accurate calculation method and helps avoid potential issues during tax audits.

Remember, tax legislation can be complex, and seeking professional advice from a registered tax agent can be invaluable. They can help you navigate the intricacies of FBT calculations, ensure compliance, and identify potential tax-saving strategies specific to your business.

Conclusion

Fringe Benefits Tax doesn’t have to be a source of stress for Australian businesses. By understanding the types of fringe benefits that attract FBT, the calculation methods available, and strategies for minimisation, you can ensure compliance and potentially reduce your tax liability.

Falcon Advisory is a team of experienced tax specialists passionate about helping businesses like yours navigate the complexities of Australian taxation. We offer comprehensive FBT services, including calculations, advice on minimisation strategies, and assistance with ATO lodgement.

Contact us today for a free consultation and discover how we can help you manage your FBT obligations effectively.