1.6 Reducing your FBT liability
There are various ways you can reduce your FBT liability - sometimes to nil. You can reduce an FBT liability in the following ways.
Replace fringe benefits with cash salary
If you replace an employee's fringe benefits with the cash equivalent in the form of salary or wages, the employee pays income tax on the salary or wages, rather than you paying FBT.
Provide benefits that are exempt from FBT
If you provide only exempt benefits, or benefits that are not fringe benefits, you will not have an FBT liability.
Provide tax deductible benefits
You may not have an FBT liability if you pay for or reimburse an expense an employee would otherwise have been able to claim as an income tax deduction.
Use employee contributions
In most cases, you can reduce your FBT liability by obtaining a payment from an employee towards the cost of providing a fringe benefit. The payment is commonly called an employee contribution.
Generally, the payment is a cash payment made to you or the person who provided the benefit. However, an employee can also make an employee contribution towards a car fringe benefit by paying a third party for some of the operating costs (such as fuel) that you don't reimburse. Contribution of services as an employee is not considered an employee contribution for FBT purposes.
Important points to note about employee contributions are:
- the employee contribution must be paid out of the employee's after-tax income
- an employee contribution towards a particular fringe benefit can't be used to reduce the taxable value of any other fringe benefit
- in certain circumstances, journal entries in your accounts can be an employee contribution
- an employee contribution paid directly to you (including those received by journal entry) is included in your assessable income
- an employee contribution paid to a third party who is not an associate (for example, to a mechanic for the servicing of a car) is not assessable to you
- an employee contribution (other than a contribution of services as an employee) may be treated as consideration for a taxable supply for goods and services tax (GST) purposes. Accordingly, you would have to pay GST on the supply. However, there is no GST payable on an employee's contribution where
- the benefit is GST-free or input taxed
- the GST is paid to a third party (for example, to purchase fuel)
- you (or another provider of the benefit) are not registered or required to be registered for GST
- the benefit is not a taxable supply.
When calculating the taxable value of the benefit, the full amount of the contribution (GST-inclusive amount) is used to reduce the taxable value of the benefit.