In this blog post, we’ll discuss how you can reduce your FBT liability using alternatives to fully fringe benefits or offering concessional benefits.
Providing benefits eligible for employee deduction
You don’t incur a fringe benefits tax (FBT) liability if you provide benefits to your employee with a benefit that they can claim as an income tax deduction if they had paid for it. This is known as the ‘otherwise deductible’ rule. To understand tax matters and stay compliant with the ATO, it is advisable to get help from a trusted accounting firm.
If only a proportion of the expense would have been deductible for the employee, you minimise the value of the fringe benefit by the fringe benefit by the proportion that would have been deductible. You can either:
- Get a declaration from the employee indicating how much of the cost is deductible.
- Alternatively, if the Commissioner has approved it through a legislative instrument, you can use the FBT alternative record-keeping method instead of the employee declaration.
Keep the declaration with your business records—you do not need to submit it to the ATO. To keep every record organised, you can seek help from a bookkeeper for small business.
Using employee contribution
Using employee contributions for the cost of a fringe benefit, you can reduce your FBT liability. The contribution is typically a cash payment to you or the person who gave the benefit. For most categories of fringe benefits, the taxable value of a fringe benefit can be reduced by the employee contribution amount. However, if the benefit is a tax-exempt body entertainment fringe benefit, you are not allowed to reduce the value of the benefit by any employee contributions paid directly to you.
You should take into account the income tax consequences of offering benefits. Just as the cost of offering a fringe benefit (including any part of the cost contributed by the employee) is usually deductible for you as the employer, you include any employee contributions paid to you in your assessable income.
Providing a cash bonus
If you provide your employee with a cash bonus instead of a benefit, then you don’t need to pay FBT. The employee will pay income tax on the amount.
Providing exempt or concessional benefits
Concessions and exemptions apply to various fringe benefits, including specific concessions and exemptions that apply to some not-for-profit organisations. Exemptions may apply to:
- Work-related items
Portable electronic devices used for work are FBT-exempt. Generally, only one similar device per FBT year can be allowed unless it’s a replacement. Small businesses with a turnover under $50 million can offer multiple devices, even if they have similar functions. Examples include: phones, laptops, portable printers, calculators, GPS devices, and tablets. Other work-related items are also exempt if used for work: protective clothing, software, briefcases, and tools of trade.
- Minor benefits exemption: A minor benefit is FBT-exempt if it:
- has a notional taxable value of less than $300, and
- It is so small that it is unreasonable to treat it as a fringe benefit.
- Emergency assistance: The exemption applies to:
- first aid or other emergency health care
- emergency
- food supplies
- meals
- accommodation
- transport
- household goods
- clothing
- temporary repairs
- Short-term benefits are exempt from FBT, which include temporary repairs to damage caused to a home during an emergency.
- Retraining and reskilling exemption
Education or training for redundant employees may be FBT-exempt if:
- It is for employees being redeployed or seeking new employment.
- The employer meets all Fair Work Act 2009 redundancy obligations.
- The training is not related to their current role and aims to help them gain new employment.
- Taxi, ride-sourcing & public transport
Single trips to from the employee’s workplace by taxi or ride-sourcing are FBT exempt. Travel for injury or sickness between home, work, or necessary places is exempt. Discounted public transport for employees is exempt. Exemption doesn’t apply to travel under salary packaging.
- Car parking
You don’t need to pay FBT for providing an employee with car parking if you are a small business, you are an exempt employer, and the employee has a disability.
You can also search for ‘tax accountant near me’ to conduct an in-person meeting to learn about ways to reduce your FBT liability.
Conclusion
The blog shares ways to reduce your FBT liability. For more information, you can reach out to Reliable Melbourne Accountants.