Fringe Benefits Tax: A Guide to Exemptions and Concessions
A Guide to Reducing Fringe Benefits Tax
Dealing with Fringe Benefits Tax (FBT) doesn't have to be a headache for your business. In fact, with the right strategies, it can be an opportunity to streamline your tax liabilities and maximise financial efficiency. From exemptions and concessions to savvy benefit planning, there are powerful ways to reduce your FBT burden and put those savings back into your business. Let's explore how a strategic approach to FBT can make a tangible difference to your bottom line.
Leveraging the 'Otherwise Deductible' Rule
One effective way to reduce FBT is to provide benefits that would be tax-deductible for the employee if they paid for them directly. This approach allows you to apply the "otherwise deductible" rule, lowering the taxable value of the benefit. For example, suppose an employee uses their home internet for work and personal use. If an employer reimburses the total cost, but 40% of the usage is work-related, the employer can reduce the taxable value by 40% using the otherwise deductible rule. The employee must provide a declaration or, where applicable, business records substantiating this use.
Utilising Employee Contributions
Employee contributions can further reduce the FBT liability by lowering the taxable value of a fringe benefit. Contributions typically involve the employee reimbursing a portion of the benefit's cost, which reduces the amount subject to FBT. Take a company that covers green fees for its monthly golfing day. If employees reimburse 75% of these fees, the employer only pays the remaining 25% FBT. This strategy reduces FBT and makes employee contributions part of the employer's assessable income.
Opting for Cash Bonuses
Providing a cash bonus instead of a fringe benefit can sidestep FBT entirely. Cash bonuses are subject to the employee's income tax rate, so while employees will pay tax on the bonus, the employer won't have any FBT liability. For instance, if an employee requests a gym membership valued at $800, the employer could instead offer a cash bonus equivalent to $1,221. This amount would provide the same post-tax benefit to the employee while avoiding the additional FBT costs associated with a gym membership.
Providing Exempt or Concessional Benefits
A range of benefits qualify for FBT exemptions or concessions. These include:
- Work-related items, including laptops, phones, and other tools used primarily for work, are exempt from FBT.
- Minor benefits under $300 that are provided infrequently may qualify for a minor benefits exemption.
- Certain types of emergency assistance provided to employees are exempt.
- Programs aimed at helping employees retrain, develop skills, or transition to new roles are exempt, allowing employers to support their teams without incurring FBT.
- Benefits like taxis and public transport for work purposes or car parking on business premises may also be exempt or subject to concessional treatment.
- Special exemptions apply to specific situations, such as employees working in remote areas. Benefits like accommodation, meals, and travel for employees working away from home can qualify for exemptions, making these essential provisions more cost-effective.
Maximising Benefits While Minimising FBT
Employers can minimise FBT obligations by carefully choosing how to structure employee benefits. Whether through strategic use of the otherwise deductible rule, employee contributions, cash bonuses, or exempt items, each tactic helps reduce costs and boost overall tax efficiency. Employers and employees can enjoy meaningful benefits with a reduced tax burden with the right approach. For more guidance on reducing your FBT liabilities, contact the Ascent Accountants team.
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