How fringe benefits tax works
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 fringe benefits tax?
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.
Are you providing yourself with fringe benefits?
End of attention
If you are a director and are conducting your business through a company or trust structure, then you may be an employee of the company or trustee. This may mean that you are inadvertently providing yourself with fringe benefits.