What is Fringe Benefits Tax, and How Is it Calculated?

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A fringe benefit refers to the extra benefits employees get besides their salary as part of their overall remuneration package. The benefits can be for the employees and their families as well. As an employer, you’ll be liable to pay tax on the fringe benefits you provide them to your team.

Calculating the exact amount of FBT you owe to the ATO can be quite complex, and it’s advised to hire an accounting service to help you with your calculations. Let’s take a comprehensive look at fringe benefits tax and how it is calculated.

What is Fringe Benefits Tax?

Before discussing fringe benefits tax, it is important to identify some examples that can be classified as fringe benefits. Some of them are:

  • A leased vehicle by the company is provided to an employee for personal use.
  • Discounted or interest-free loans.
  • Gym or wellness centre memberships.
  • Entertainment expenses such as annual dinners or company retreats.
  • Private health insurance.
  • Provision of childcare or covering educational costs.
  • Living-away-from-home-allowance (LAHFA).

Items such as the ones mentioned above come under the fringe benefits banner, and employers are liable to pay FBT on the monetary value of the benefits provided. Please note FBT is separate from income tax.

As mentioned, tax is calculated on the taxable value of the fringe benefit. However, the monetary value of certain benefits is calculated using a statutory formula which may not represent the true cost of the benefit provided to the employee. The FBT year also runs from the 1st of April to the 31st of March, unlike the usual financial year.

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How Are Fringe Benefits Calculated?

After determining the type of fringe benefits you provide to your employees, here are some steps to follow when calculating the exact amount you’d be required to pay: 

  • Step 1: Calculate the value of the benefits provided within the 1st Apr – 31st March period.
  • Step 2: Differentiate between the type 1 and type 2 benefits
  • Step 3: Calculate the taxable value of each type of benefit
  • Step 4: Calculate the grossed-up taxable value of these benefits. 
  • Step 5: Calculate the FBT by multiplying the amount in step 4 by the current rate

It’s important to note that you can easily get confused when determining the type of fringe benefits you provide and placing an accurate value on these benefits. It is better to hire professional accounting services to help you accurately calculate the type 1 and 2 benefits and ensure that you’re not underpaying or overpaying your FBT.

Get Started With Ace Biz

If you’re looking for an experienced tax agent who can liaise with the ATO and help you identify, calculate and lodge your FBT returns, check out the services provided by Ace Biz.

We have established our reputation as one of the best in providing top-notch accounting and advisory services. Our experts will provide accurate FBT calculations and ensure that it is lodged within the due date. Check out our accounting and tax planning, business advisory, bookkeeping, financial reporting services, and more in NSW and learn how we can help grow your business.