Fringe benefits tax - a guide for employers

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Chapter 1 - What is fringe benefits tax?

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Some of the information on this Guide applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

1.1 What is a fringe benefit?

A fringe benefit is a 'payment' to an employee, but in a different form to salary or wages.

According to the FBT legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The employee may even be a former or future employee.

An employee is a person who is, was, or will be entitled, to receive salary or wages, or benefits in lieu of salary and wages. Benefits provided in respect of someone who has died are not fringe benefits as a deceased person does not meet the definition of 'employee' in the FBT legislation.

The terms 'benefit' and 'fringe benefit' have broad meanings for FBT purposes. Benefits include rights, privileges or services.

As a guide to whether a benefit is provided in respect of employment, ask yourself whether you would have provided the benefit if the person had not been an employee. When we refer to 'you' in this Guide, we are referring to you as an employer.

To simplify the explanations in this Guide, we generally discuss examples where the fringe benefit is provided directly by an employer to an employee. However, a fringe benefit may be provided by an associate of the employer or under an arrangement between a third party and the employer. It may also be provided to an associate of the employee (for example, a relative).

Example - benefit provided in respect of employment

David's employer reimburses him for his home telephone rental costs.

If David was not an employee, the reimbursement would not have been made. Therefore, reimbursement is a benefit provided in respect of employment and, consequently, it is a fringe benefit.

Example - benefit not provided in respect of employment

Sarah, an adult daughter of a business owner, is employed in the family business. Her parents give her a birthday present. The gift is given because of the family relationship and would have been given even if Sarah had not been employed in the family business.

Although the recipient of the gift is an employee, the gift was not provided in respect of employment and, therefore, is not a fringe benefit.

1.2 Who pays the tax?

FBT is paid by the employer.

You will be an employer for FBT purposes if you make a payment to an employee, company director or office holder that is subject to withholding obligations, or if you provide benefits in lieu of such payments. These withholding obligations may apply to payments made to an Australian resident employee working overseas.

If you are an international organisation and provide benefits to employees in Australia, these benefits may be subject to FBT in Australia (keeping in mind that Australia has comprehensive double tax agreements with the United Kingdom and New Zealand, which currently include FBT).

As an employer, you pay FBT irrespective of whether you are a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.

This is regardless of whether you or another party provides the fringe benefit. FBT is payable whether or not you are liable to pay other taxes such as income tax.

You may claim an income tax deduction for the cost of providing fringe benefits and for the amount of FBT you pay.

1.3 Are you providing fringe benefits?

The following checklist will help you work out if you are already providing a fringe benefit to your employees. If any of the following apply, you may have an FBT liability.

  • Do you hold any cars or other vehicles that are available to employees for their private use, including a car garaged at the employees' place of residence?
  • Do you provide loans at reduced interest rates to employees?
  • Have you released an employee from a debt?
  • Have you paid for, or reimbursed, an employee's non-business expense?
  • Do you provide a house or other accommodation to your employees?
  • Do you provide employees with living-away-from-home allowances?
  • Do you provide entertainment including food, drink or recreation to your employees?
  • Do any of your employees have a salary package arrangement in place?
  • Have you provided your employees with goods at a lower price than they are normally sold to the public?

Fringe benefits have been categorised into 13 different types so that specific valuation rules can be used. These benefits are dealt with separately in their respective chapters in this Guide.

A number of benefits are exempt from FBT. These include certain benefits provided by religious institutions and benefits provided by some international organisations and public benevolent institutions. In addition, there are some specific types of benefits that are exempt from FBT.

There are also a range of concessions available. Some of these concessions reduce the taxable value of a fringe benefit to nil, whereas others provide only a partial reduction. The concessions relevant to each type of benefit are listed in the respective chapters of this guide.

See also:

1.4 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

An employee pays income tax on the salary or wages, rather than you paying FBT if you replace an employee's fringe benefits with the cash equivalent in the form of salary or wages.

Provide benefits that are exempt from FBT

You will not have an FBT liability if you provide only exempt benefits, or benefits that are not fringe benefits.

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 if employees make payments 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, employee contributions can be made by offsetting against amounts owed to an employee
  • an employee contribution paid directly to you (including those received by offsetting against amounts owed to an employee) 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 (and not deductible, because you did not incur the outgoing)
  • an employee contribution 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.

1.5 What is not subject to FBT?

Not all benefits provided in respect of employment are fringe benefits. The FBT legislation excludes certain benefits from being fringe benefits.

Salary or wages

Payments of salary or wages are not fringe benefits. The term 'salary or wages' means a payment from which an amount of tax must be withheld.

Employee share schemes

Benefits provided to employees from the acquisition of shares or rights to acquire shares, are not fringe benefits if the share acquisition scheme conforms to the necessary income tax requirements. This exemption extends to relatives of employees.


The following are not fringe benefits:

  • contributions you make to a complying super fund for an employee. To have reasonable grounds for believing a fund is a complying super fund, you must obtain an appropriate written statement from the fund trustee
  • contributions you make to a foreign super fund for super benefits for an employee where the employee is a temporary resident when the contribution is made
  • payments you make to a retirement savings account held by an employee.

However, super contributions you make for an associate of an employee are subject to FBT.

Employment termination payments

Employment termination payments are not fringe benefits. Broadly, employment termination payments are payments made as a result of terminating the employment of an employee (for example, a lump sum paid on retirement). Property you transfer to an employee in relation to terminating their employment is an employment termination payment (for example, a company car you give or sell to an employee on termination).

Payments of a capital nature

Payments of a capital nature for a legally enforceable contract in restraint of trade, or for personal injury to a person, are not fringe benefits.


Payments of amounts that are dividends are not fringe benefits.

Payments made to shareholders or their associates of a private company are fringe benefits if they are made in respect of employment.

1.6 What are the GST consequences of providing benefits?

GST (input tax) credits

You are entitled to GST credits for acquisitions made to provide fringe benefits if you are registered or required to be registered for GST. However, there are some exceptions to this general rule, such as where the acquisition relates to a GST-free or input taxed supply.

If you are entitled to a GST credit in providing a fringe benefit, you use the higher gross-up rate (called type 1) to calculate the FBT payable. For more on calculating FBT payable, refer to Chapter 2 .

GST on employee contributions

If the fringe benefit or exempt benefit you provide is a taxable supply for GST purposes, and your employee makes an employee contribution towards that benefit, you have to pay GST on the consideration received.

The contribution or payment (excluding recipient's rent - refer to Chapter 10 ) is the price of that supply. Therefore, the GST you have to pay is 1/11 th of that amount.

Where an employee makes a contribution by paying a third party - for example, they purchase fuel or oil in respect of a car fringe benefit - you don't have to pay any GST. In such cases, GST has already been paid when the third party made the sale to the employee or associate.

Contributions related to GST-free or input taxed supplies are not taxable supplies and, therefore, no GST is payable on any contribution towards these supplies.

If you are not registered or required to be registered for GST, you will not pay GST on an employee contribution.


During the FBT year ending 31 March 2020, a hardware retailer provides their employee, Derek, with a car benefit. The FBT value of the benefit is $7,000. Derek pays $5,500 to his employer on 15 April 2019, and $1,000 in petrol costs and $500 car insurance during the year ending 31 March 2017. Because the total employee contribution of $7,000 equals the FBT value of $7,000, the FBT taxable value of the benefit is zero.

As Derek has contributed $5,500 directly to his employer, the employer is liable for GST of 1/11 th of $5,500 - that is, $500. Derek's payments of $1,500 to third parties are not a contribution for the supply of the benefit for GST purposes and his employer does not have to remit 1/11 th of this contribution.

When calculating the taxable value of a benefit, the value of the fringe benefit is the GST-inclusive value where applicable.

Where the otherwise deductible rule applies, you reduce the taxable value of a fringe benefit by the hypothetical income tax deduction the employee would have been entitled to if they had incurred the expense. In these situations, you take into account the GST-inclusive value where applicable.

1.7 What are the income tax consequences of providing benefits?

The cost you incur when providing a fringe benefit or exempt benefit is usually an allowable income tax deduction. Certain expenses that are prevented by the income tax legislation from being deductible, for example, entertainment expenses, become allowable deductions when subject to FBT. For more information about entertainment and tax deductibility, refer to section 14.15 .

You must include any employee contributions paid directly to you in your assessable income, including those contributions received by way of an offset against an amount payable to the employee. Employee contributions paid to a third party who is not an associate (for example, for fuel) are not assessable to you.

The amount of FBT you have paid is generally an allowable income tax deduction. If an employee reimburses you for the FBT paid, the reimbursement is included in your assessable income. However, it is not an allowable deduction for the employee.

A fringe benefit is exempt income for income tax purposes in the hands of the recipient.

Where a GST credit is available in respect of a fringe benefit, the income tax deduction is the GST-exclusive value of the fringe benefit. If no GST credit is available, the income tax deduction is the full amount paid or incurred on the relevant acquisition, including GST where applicable.

Where the benefit provided is a GST taxable supply, and you receive an employee contribution, you include the GST-exclusive value of the contribution in your assessable income.

1.8 Salary sacrifice

What is a salary sacrifice arrangement?

A salary sacrifice arrangement is an arrangement between you and your employee, where your employee agrees to forgo part of their future entitlement to salary or wages in return for you providing them with benefits of a similar value. A salary sacrifice arrangement is commonly referred to as salary packaging or total remuneration packaging.

Under an effective arrangement:

  • the employee pays income tax on the reduced salary or wages
  • you, as the employer, may be liable to pay FBT on the fringe benefits provided
  • salary-sacrificed super contributions are classified as employer super contributions (not employee super contributions) and are taxed in the super fund under tax laws dealing specifically with super contributions.

What are the requirements for an effective salary sacrifice arrangement?

The agreement cannot cover past service

An effective salary sacrifice arrangement is an arrangement between you and your employee specifying the amount of salary or wages income to be sacrificed. The arrangement should be entered into before the work is performed. If the arrangement is put into place after the work has been performed, the salary sacrifice arrangement may be ineffective.

It is advisable that you and your employees have a written agreement including all the terms of any salary sacrifice arrangement.

Employees can renegotiate a salary sacrifice arrangement at any time, subject to the terms of any contract of employment or industrial agreement.

If a fringe benefit has not been provided and is cashed out at the end of a salary sacrifice arrangement accounting period, the amount cashed out is salary and is subject to the normal rules for salary and wages, including PAYG withholding and super guarantee obligations. The amount will be assessable to the employee.

What types of benefits can be included in a salary sacrifice arrangement?

All non-cash benefits can be sacrificed. The important thing is that these benefits form part of the employee's remuneration, replacing what could otherwise have been paid as salary. The types of benefits employers generally provide in salary sacrifice arrangements include super, fringe benefits and exempt benefits.


Super contributions you make under a salary sacrifice arrangement to an employee's complying super fund are not fringe benefits.

Where super contributions are paid for the benefit of an associate of an employee, such as a spouse, they are considered to be a fringe benefit. Similarly, where contributions are paid to a non-complying super fund, they will be considered to be a fringe benefit.

Fringe benefits

Fringe benefits provided in salary sacrifice arrangements are often car fringe benefits and expense payment fringe benefits, such as payment of an employee's loan repayments, school fees, child care costs and home telephone costs.

Exempt benefits

The FBT legislation states that certain benefits are exempt from FBT. For example, expense payments, property or residual benefits arising from the provision of certain work-related items are commonly provided in salary sacrifice arrangements. For more information on the exemption of certain work-related items, refer to section 20.8 .

Donations made

Donations made to a deductible gift recipient under salary sacrifice arrangements don't result in employers incurring an FBT liability.

What are the implications of an effective salary sacrifice arrangement for employers?


You may have FBT obligations when you enter into a salary sacrifice arrangement giving employees non-cash benefits.

Assessable income

The reduced salary amount specified in a salary sacrifice arrangement is the employee's assessable income.


You may be able to claim an input tax credit for GST paid in providing the benefit if you are registered for GST. For expenses incurred to provide fringe benefits that are subject to GST and where you hold a valid GST invoice, you are entitled to claim the GST credit when submitting your activity statement.

Employee contributions

The taxable value of a benefit may be reduced through the payment of employee contributions. The amount sacrificed does not count as an employee contribution when determining the taxable value of any fringe benefits the employee receives. Employee contributions must be paid out of the employee's after-tax income.

PAYG withholding and payment summaries

Tax withheld should be based on gross salary and wages paid and should not include salary-sacrificed amounts. The employee's payment summary or income statement should show the gross amounts of all salary and wages (excluding salary-sacrificed amounts) and the relevant total amount of tax withheld for the year.

Where an employee's individual fringe benefits amount is more than $2,000 (that is, the equivalent grossed-up taxable value of $3,738), you must report the grossed-up value on their payment summary or income statement.

What are the implications of an effective salary sacrifice arrangement for employees?

Assessable income

The employee pays income tax on the cash component of their salary package, not including the salary-sacrificed fringe benefits.


You are liable for any FBT payable on the benefits received. The FBT payable is determined at the highest marginal income tax rate, including the Medicare levy. However, you may ask the employee to contribute towards the FBT payable.

See also:

Reportable fringe benefits

If the total taxable value of certain fringe benefits received by an employee in an FBT year (1 April to 31 March) exceeds $2,000, you must report the grossed-up taxable value of those benefits on their payment summary or income statement for corresponding income year (1 July to 30 June).

As employees don't pay income tax on fringe benefits, the grossed-up taxable value of a benefit reflects the gross salary that would have to be earned to purchase the benefit from after-tax dollars. This is calculated at the highest marginal tax rate, including the Medicare levy.

See also:

The value of fringe benefits reported on a payment summary or income statement is known as the reportable fringe benefits amount.

The reportable fringe benefits total is not included in the employee's taxable income and does not affect the amount of basic Medicare levy payable. It is, however, included in a number of income tests relating to government benefits and obligations.

See also:

  • Reportable fringe benefits
  • Miscellaneous Taxation Ruling MT 2050 Fringe benefits tax: payment of a recipients contribution by journal entry
  • Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefit
  • Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements

Latest update

January 2020

SectionChanges and updates
ThroughoutUpdated to provide consistency between chapters and style in accordance with corporate requirements

Details of previous updates are available through the versions linked to in the table below.


You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

ATO references:
NO Fringe benefits tax - a guide for employers

Fringe benefits tax - a guide for employers
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