My Business – FBT changes

A fringe benefit is a non-cash benefit provided to an employee. Fringe Benefits Tax (FBT) was introduced in order to ensure tax was paid on these non-cash benefits. It is the employer who pays the FBT, but ultimately will take any FBT liability into consideration when providing benefits to an employee and determining the cash component of their salary and wages. 

When an employer provides taxable fringe benefits to an employee, they will pay FBT on the grossed-up value of the beneift. This value reflects the gross salary employees would have to earn at the highest marginal tax rate (including Medicare levy) to buy the benefits after paying tax. FBT is then paid by the employer at the top marginal tax rate plus medicare. As such, there is no benefit to receiving non-cash benefits unless those benefits are exempt from FBT or concessionally taxed under the FBT regime.

The grossed up value of the benefit will be shown on the income statement as a Reportable Fringe Beneift Amount (RFBA) and will be taken into consideration for certain income tests (such as for liability for the medicare levy surcharge, Private Health Insurance Tax Offset, compulsory Study and Training Loan Repayments), but the employee is not liable for tax on these amounts.

Some types of organisations are either exempt from paying FBT or entitled to a rebate on the FBT they pay. These organisations are able to provide employees with non-cash benefits without having to pay FBT, making this component of their earnings tax free. 

The new fringe benefits tax (FBT) year starts on 1 April 2016. There were quite a few changes to FBT announced in the last Federal Budget, nearly a year ago now, but because the FBT year is out of kilter with the income tax year, those changes are only just set to take effect.

There is a cap on the amount of concessionally taxed fringe benefits these employers can provide to their employees, as follows:

No FBT on portable electronic devices

First, the good news.

In this day and age where staff routinely work off-site, whether that be at home, from an airport lounge or from a client's premises, you want to make sure that they have the right electronic tools to do their job.

Previously, it's been possible to provide your employees with one portable electronic device per year without worrying about the FBT consequences.

From 1  April  2016 that tax break gets a lot more generous. From that date, you can supply employees with more than one work-related portable electronic device without having to pay FBT.

This concession applies to small businesses only (defined as those businesses with an aggregate turnover of less than $2m).

The devices can include:

• • laptops
  • tablets
  • calculators
  • GPS navigation receivers
  • mobile phones.

But be careful. Although you can buy the devices anytime, you can only take advantage of the new concession if you give them to your employees after 1 April 2016.

Car expense fringe benefits

If your business pays for car expenses (other than borrowing costs or leasing costs) in respect of a car owned by an employee, the taxable benefit for FBT purposes is reduced to the extent a deduction would have been allowed to the employee if he/she had paid the costs (the 'otherwise deductible' rule).

Previously, there were three methods of calculating the taxable value of this fringe benefit. As of 1 April 2016, that is changing and there will only be two methods. These are:

• • The log book method
  • The cents per kilometre method (a single  rate of 66  cents per kilometre now applies. Note that previously, there were multiple rates depending on the engine size of the vehicle).

Meal entertainment benefits

From 1 April 2016, all meal entertainment benefits will become reportable benefits and thus will count towards an employee's "reportable fringe benefits amount" for an income year. An employee has a reportable fringe benefits amount" if their individual fringe benefits amount for the relevant FBT year (i.e. the FBT year ending on the previous 31 March) exceeds $2000. At present, meal entertainment fringe benefits are "excluded benefits" and therefore are ignored in working out an employee's reportable fringe benefits amount.

Finally, and largely of relevance to not-for profits (i.e. public and not-for-profit hospitals, public ambulance services, public benevolent institutions – except hospitals – and health promotion charities), a grossed-up cap of $5000 per year on the FBT concessions for salary-sacrificed meal entertainment benefits will be introduced.

Employees of these NFPs have long been able to salary sacrifice meal entertainment benefits with no FBT payable by the employer. It is these benefits that will now be subject to the separate grossed-up cap of $5000 per year per employee.

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