Fringe Benefits Tax
Fringe Benefits Tax (FBT) is a tax on employers offering personal benefits to employees. This payment is separate from the salary or wages paid by an employer. The amount owing for fringe benefits tax is based upon the taxable value of the benefit provided. The benefits can be bundled together as part of salary packaging to improve the overall tax outcome. These could range from telephone, internet, tablet, smartphone or laptop. To larger amount including parking, novated lease or entertainment. The cost and GST on the benefits can be claimed when the employer lodges their Business Activity Statement (BAS). If you are other strategies you may also want to consider the pros and cons of debt recycling.
So how can businesses attract quality staff through the use of fringe benefits offered by their employees? I will analyse novate leases as one example of a fringe benefit.
What is a Novated Lease and how can I benefit from it?
Novated Lease – FBT
FBT (Fringe Benefits Tax) is a charge incurred by your employer as a result of providing you with a personal benefit such as a Novated lease. The employer aims to be no better or worse off from the arrangement. So any FBT amount arising as a result of the novated lease is charged to the employee’s salary package post-tax (which effectively balances each other out to end up with a zero outcome). The employer would calculate the employee contribution under either the “statutory formula” method (the most commonly used) or the “operating cost” method. To calculate your benefit, you would need to run 2 scenarios: one with and one without the novated lease and its impact on your taxable income.
Bear in mind the additional perks on a novated lease may include:
- No GST on purchase (claimed by employer)
- Leasing companies usually get fleet discounts
- The employer may also get a corporate discount
FBT Summary
There are other situations in which the FBT obligations must be considered such as throwing an annual Christmas party or providing low-interest loans to employees. Depending on whether you hold the party on the business premises or the cost per head can determine the treatment and exemptions for FBT purposes. For a detailed analysis about the treatment of FBT for a staff Christmas party, refer to the ATO website. If you would like to learn how you can save on taxes, have a read of the following article to maximise your tax refund. The information in this article is general in nature and not financial advice. Please consult a professional to get advice tailored to your personal circumstances.
