Fringe benefits tax
Fringe benefits tax (FBT) is a tax payable by employers who provide fringe benefits to their employees or to associates of their employees. This is the case whether or not the employer is the actual supplier of the benefit (for example, where the benefit is provided by an associate or under an arrangement with a third party).
If your organisation provides a fringe benefit to its employees or to associates of its employees (typically family members), it may have an FBT liability. This is separate from income tax and is calculated on the taxable value of the fringe benefits provided.
A fringe benefit is a 'payment' to an employee, but in a different form to salary and wages. Benefits include rights, privileges or services. For example, a fringe benefit may be provided when an employer:
- allows an employee to use a work car for private purposes
- gives an employee a cheap loan
- pays an employee's private health insurance costs.
Some employers, including NFP organisations, will need to distinguish between employees, volunteers and independent contractors. For the purposes 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. For example, an employee may be a company director. However, a volunteer is not paid for work. Reimbursing a volunteer for out-of-pocket expenses does not cause them to become an employee.
Generally, benefits provided to volunteers do not attract FBT. If an organisation provides non-cash benefits to workers in lieu of salary and wages, FBT can apply.
Common fringe benefits
One of the most common fringe benefits is a car, which generally becomes a fringe benefit when it is owned or leased by an employer and made available for the private use of an employee. If the employer's car is garaged at an employee's house, it is treated as having been made available for private use.
Other common fringe benefits include:
- expense payments
Common exempt benefits
A number of benefits are exempt from FBT. These include:
- some taxi travel
- in-house health care facilities
- most minor benefits where the value of the benefit is less than $300 and it would be unreasonable to treat it as a fringe benefit.
An FBT exemption applies for the following work-related items:
- a portable electronic device
- an item of computer software
- an item of protective clothing
- a briefcase
- a tool of trade.
The exemption is limited to:
- items primarily for work-related use
- one item per FBT year for items that have a substantially identical function, unless the item is a replacement item.
Registering for FBT
We recommend you register your organisation once you have established that it has to pay FBT.
As an employer, you may, from time to time, provide your employees with food and drink and possibly leisure activities. This may happen in a variety of circumstances and in relation to a number of different employees and/or their associates. For example:
- Christmas parties
- business lunches
- birthday celebrations
- golf days
- planning conferences
- gym memberships
- breakfast meetings
- farewell functions
- reward and recognition functions
- memberships to sporting clubs
- anniversary dinners
- fundraising functions.
If you sometimes provide these events for your staff, you will need to know whether the events will be classified as entertainment and require you to pay FBT.
Tax-exempt body entertainment fringe benefits
A tax-exempt body entertainment fringe benefit may arise from entertainment expenses incurred by an employer who is wholly or partially exempt from income tax, or who does not derive assessable income from the activities to which the entertainment relates.
Your organisation is a tax-exempt body if your organisation's income is either:
- wholly exempt from income tax (for example, a club that earns income from members only)
- partially exempt from income tax (for example, a club that earns income from both members and non-members).
There are only very limited circumstances under which an exemption will apply to the provision of food or drink.
For common entertainment scenarios (such as meals provided to staff working shifts in hospitality) and whether an exemption applies, see Fringe benefits tax (FBT) and entertainment for non-profit organisations.
Depending on the standard of entertainment provided, the benefit may qualify for the minor benefits exemption. As well as the general criteria for deciding whether a minor benefit should be treated as an exempt benefit, for tax-exempt bodies the exemption is available only where either:
- the provision of the entertainment is incidental to the provision of entertainment to outsiders and does not consist of a meal, other than light refreshments
- a function is held on your business premises solely as a means of recognising the special achievements of your employee in a matter relating to their employment.
In these circumstances only benefits provided to your employee, and their associates, are exempt from FBT.
Example 1: Provision of light refreshment incidental to the provision of entertainment to outsiders
A tax-exempt body hosts a morning tea at a local cafe for its sponsors. Finger food, tea, coffee and soft drinks are provided. Some employees attend to thank the sponsors on behalf of the tax-exempt body for their assistance throughout a particularly difficult year. It is unusual for the tax-exempt body to host this type of function. The cost per head is $15. Providing morning tea to employees in these circumstances would meet the requirements of the minor benefits exemption.
Example 2: Function recognising special achievements of employee
A project manager, who is an employee of a tax-exempt body, is awarded 'Project Manager of the Year' by an external organisation. A dinner is held on the tax-exempt body's premises for the presentation of the award. The cost of the dinner is $60 per person. Senior management of the tax-exempt body, the employee receiving the award and their family (spouse and child), and representatives from the external organisation presenting the award attend the dinner.
The minor benefits exemption applies in this circumstance to the employee receiving the award and their family.
End of example
The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply.
Reportable fringe benefits
If the value of certain fringe benefits provided to your employees (including their associates) exceeds $2,000 in an FBT year, you are required to record the grossed-up taxable value of those benefits on your employee's payment summary for the corresponding income year. This requirement applies even if your organisation is not liable to pay FBT.