What is fringe benefits tax?
Fringe benefits tax (FBT) is a tax paid on certain benefits employers provide to their employees or their employees' associates (typically family members). FBT is separate from income tax and is based on the taxable value of the various fringe benefits provided.
The FBT year runs from 1 April to 31 March.
What is a fringe benefit?
A fringe benefit is a benefit provided to an employee (or their associate) because that person is an employee. Benefits can be provided by an employer, an associate of the employer, or by a third party under an arrangement with the employer. An employee can be a current, future or former employee.
Benefits include rights, privileges or services. For example, you provide a fringe benefit when you:
- allow an employee to use a work car for private purposes
- give an employee a cheap loan, or
- provide social functions or leisure activities for your employees.
Why a tax on fringe benefits?
FBT was introduced to improve the fairness of the taxation system. It was designed to overcome deficiencies in the income tax law which allowed fringe benefits to be, in effect, a form of tax-free income. FBT ensures that tax is paid on those fringe benefits provided in place of, or in addition to, salary or wages of employees.
Who pays the FBT?
As an employer, you have to pay FBT, even if the benefit is provided by an associate or by a third party under an arrangement with you. For example, you may deal with a supplier who, in turn, provides free goods to your employees.
It makes no difference whether you are a sole trader, partnership, trust, corporation, unincorporated association or government body, or whether you have to pay other taxes such as income tax.
Do you have employees, volunteers or contractors?
It is important to determine whether the people who do work for you are employees, volunteers or contractors. This status will affect the tax treatment between the person and your organisation.
For the purpose of FBT, an employee is a person who receives, or is entitled to receive, salary or wages, or a benefit that has been provided in respect of their employment. A volunteer is not paid for work. Reimbursing a volunteer for out-of-pocket expenses does not cause them to become an employee.
As a general rule:
- volunteers do not have to pay tax on payments or benefits they receive in their capacity as volunteers, and
- non-profit organisations are not liable for fringe benefits tax (FBT) on payments they make, or benefits they provide to volunteers or independent contractors.