Fringe Benefits Tax (FBT)

Fringe Benefits Tax (FBT) is a tax applied within the Australian tax system by the Australian Taxation Office. The tax is applied to employers who provide certain “fringe benefits” to employees.

A fringe benefit is a payment provided in respect of employment, but in a different form to salary or wages. This effectively means a benefit is provided to somebody because they are an employee. The ‘employee’ may even be a former or future employee; and the benefit need not be directly received by the employee (e.g. school fees paid by an employer for an employee’s child).

The rationale behind FBT is that it helps restore equity and fairness to those employees who do not receive such benefits. FBT is paid by the employer at a rate of 46.5% which represents the highest marginal income tax rate (45%) plus the Medicare Levy (1.5%). Many employers will effectively recover the tax from employees by reducing gross salary/wages by an equivalent amount. Thus employees usually ‘salary sacrifice’ to receive the benefits.

Some benefits are specifically exempt from FBT, including:

* Remote area housing;
* Living Away From Home Allowances (partly exempt);
* Employee relocation expenses;
* Superannuation (retirement/private pension contributions);
* Minor benefits (less than $300 in value) incurred infrequently and irregularly;
* Work-related items (see below)

The list of exempt work-related items currently includes:

* protective clothing
* tools of trade
* briefcases
* mobile phones
* laptops and similar portable digital assistants (including software, portable printers, calculators, electronic diaries)

All exempt benefits are also exempt from income tax in the hands of the employee.

Special concessional rules apply to employer-provided motor vehicles. Either of two methods may be used. The statutory formula method is more popular because it does not require rigorous record-keeping. It provides lower FBT rates as vehicle usage increases and as vehicle capital value decreases.

Although FBT is paid by the employer it must also be reported on the employee payment summary for inclusion on personal income tax returns that are lodged annually.

The ATO provides a number of useful guides to FBT in Australia.