The Benefits of Fringe Benefits Tax

The benefits of fringe benefits tax go beyond the income tax deductions

Fringe benefits are a form of compensation for your employees that are not included in their normal wages or pay.

There are a wide range of non-monetary fringe benefits types, including discounted health insurance, memberships and subscriptions, and use of a company car.

The advantage of fringe benefits tax (FBT) that typically comes to mind is that this compensation can be tax deductible, meaning your employees and even their families can benefit from the compensation with a tax-deductible cost to your business.

But how does it work and what are the benefits of FBT for both employers and employees?

How FBT works

As an employer, you must pay fringe benefits tax on any fringe benefits offered to employees. You are liable for the tax that applies to any benefits that your employee or their family receive.

FBT returns are self-assessed and are required to be lodged by 21 May each year, inclusive of the FBT financial year, 1 April to 31 March.

Be careful though, if done incorrectly and without a considered approach, you could be left with an outstanding amount owing to the Australian Taxation Office!

But don’t stress. Our team are here to help you navigate FBT with smart insights, simplified.

There are a number of ways you can strategically reduce fringe benefits tax, and make informed decisions on your business expenditures.

The benefits:

As previously mentioned, the main benefit of offering fringe benefits to your employees is the ability to claim an income tax deduction for the cost of the fringe benefit to your business, as well as the fringe benefits tax paid. This is typically why we see businesses opt to provide fringe benefits.

However, there are many other benefits to be considered.

• Offering fringe benefits can help to attract new employees and set your business apart when it comes to a competitive market when looking to hire. The right fringe benefit could be the difference between a potential employee choosing you over a competitor.
• Fringe benefits are also a great way to recognise and reward your team and work towards improving retention rates across your business. After all, a team that feels valued and well cared for is more likely to stick around and incentivised to perform at a higher standard.
• Some fringe benefits can also actively contribute to the productivity of your employees. For example, a benefit related to health like a gym membership can improve the health and quality of life of your employees, contributing to their performance at work. This type of fringe benefit also shows that you care about the wellbeing of your employees, which is a positive attribute for a business.
• In terms of the employee’s direct benefit, fringe benefits can be offered through salary sacrifice and packaging arrangements. This could potentially push a higher-income earner down into a lower tax bracket, ultimately lowering the overall amount of tax they are required to pay.

Common fringe benefits

There are a whole range of perks that are classified as a fringe benefit. All employees can receive some kind of fringe benefit, however it is typically provided to employees of higher rank or time with the company.

Commonly you may find businesses offering:

• Coverage of childcare costs and school fees
• Personal use of a company car
• Living-away-from-home allowance (LAFHA)
• Gym/health memberships
• Entertainment expenses (entertainment tickets, food discounts and accommodation)
• Discounted private health insurance
• Right to Property (including shares and bonds)