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Fringe benefits
Definition
Source of entitlement
Key issues
Tax issues (including rates)

Definition

Fringe benefits

A fringe benefit is generally defined as a benefit not being salary, wage or other cash
remuneration, derived from employment.

Such benefits are provided more frequently to high-salary employees not covered directly by
awards or certified agreements and may include superannuation, low interest loans, provision of
cars, subsidised meals, etc.

Fringe benefits tax

Fringe benefits tax (FBT) is a tax payable by employers when they provide fringe benefits to
employees.

The Australian Taxation Office publishes useful information for employers on its website.

Source of entitlement

Fringe Benefits Tax Assessment Act 1986
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Key issues

1. Salary packaging
2. Fringe benefits general

1. Salary packaging

Fringe benefits are usually substituted for cash salary and wages because the fringe benefits are
either free from tax, or attract less tax that the equivalent cash salary and wages.

If salary is sacrificed into superannuation (see Salary sacrifice), the employer superannuation
contribution is not a fringe benefit as long as it is made for the employee (and not, for example,
for the employees spouse) and to a complying superannuation fund.

2. Fringe benefits general

A fringe benefit is a benefit provided to an employee (or an associate of an employee, such as a
spouse) by the employee's employer, an associate of the employer (eg a related company) or by
a third party under an arrangement with the employer.

To be a fringe benefit, the benefit:
must be 'provided' to the employee (or to someone related to the employee) the employer
must do something, or allow something to be done, that results in the employee receiving the
benefit, and
must be 'in respect of employment' a benefit provided for another reason, eg for family
reasons (the employee being related to the employer), would not satisfy this.
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Tax issues

1. Payment of FBT on fringe benefit
2. Some fringe benefits are exempt from FBT
3. Employees do not pay tax on fringe benefits
4. Employer must self-assess liability

Legi sl ati on
Awards &
Agreements
Payroll Recrui tment Terminati on
Human
Resources
Management
Industri al
Relations
OHS Resources
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5. Fringe benefits to be reported on employee's payment summary
6. Basic car rates
7. Rates for motor vehicle other than a car
8. Record-keeping exemption
9. Benchmark interest rate
10. Non-remote housing index factors
11. Reasonable food component Australian employees
12. Overpayments to employees
13. Work-related items
14. Meals on employer's premises
15. Loan fringe benefits
16. Expense payment fringe benefits

1. Payment of FBT on fringe benefit

The most common fringe benefits are cars, loans, payment of expenses and property. The FBT
system is very complicated, with each of the different types of fringe benefit having its own
valuation rules.

An employer pays FBT, at the rate of 47% from 1 April 2014 (proposed to be 49% from 1 April
2015). FBT is calculated on the grossed-up taxable value of fringe benefits provided to
employees during the FBT year (1 April to 31 March).

The grossed-up taxable value means the amount that is reached after the taxable value of the
benefit is increased to take into account the fact that the employer is entitled to a tax deduction
for FBT it pays and also GST credits for GST it pays on benefits acquired to provide to employees.
If the employer is entitled to GST credits on the acquisition, the taxable value of the fringe benefit
is grossed up by 2.0647; otherwise, the taxable value is grossed up by 1.8692.
Example:

An employer provides employees with fringe benefits with a taxable value of $50,000 in
the 2014/15 FBT year. Assuming that the $50,000 is grossed up by 1.8692, the employer
has a fringe benefits taxable amount of $93,460 (ie $50,000 x 1.8692). The employer is
liable to pay $43,926 FBT (ie $93,460 x 47%) and is entitled to a $50,000 deduction for
the cost of the benefits it has provided and also a deduction of $43,926 for the FBT it pays.
The taxable value will be reduced if the employee contributes to the cost of the benefit or if the
employee would have been entitled to a tax deduction if they had paid for the benefit rather than
having it provided by the employer

Tax-exempt employers (eg non-profit hospitals) that cannot claim a deduction are instead entitled
to a tax rebate against their FBT liability.
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2. Some fringe benefits are exempt from FBT

Many fringe benefits are exempt from FBT. Some common exempt benefits are:
employment interviews
relocation expenses
newspapers and periodicals provided for business purposes
workers compensation
work site medical facilities
travel for medical treatment
occupational health counselling
minor benefits valued at less than $300 that are provided infrequently
equity benefits, such as share purchase/allocation plans
meals provided by the employer and consumed on work premises
meal components of other entertainment-related benefits
payments under an industrial instrument to an approved worker entitlement fund where the
purpose is to cover the employer's obligation to make leave or termination payments for the
employee
subscriptions to trade and professional journals, airline lounge memberships and corporate
credit card membership fees
work-related items (see below) such as protective clothing, briefcases, calculators, tools of
trade, notebook computers, electronic diaries, personal organisers, and portable printers, and
taxi travel to and from work.

An employer is exempt from FBT on $1000 of in-house fringe benefits provided to an employee in
a year. From 22 October 2012, the $1000 exemption generally does not apply where the in-house
benefit is provided under a salary packaging arrangement between the employer and the
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employee. A salary packaging arrangement is defined as an arrangement where the employee
receives a benefit in return for a reduction in salary and it is reasonable to conclude that the
employees salary would be greater if the benefit had not been provided.
The in-house benefits covered by this exemption are:
property and services provided to employees that are of a kind that the employer normally sells
or provides in the ordinary course of business
the payment of expenses incurred by an employee in acquiring property of a kind that the
employer provides in the ordinary course of business
airline transport provided to airline and travel industry employees.
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3. Employees do not pay tax on fringe benefits

An employee does not have to pay tax on a fringe benefit. The way FBT and income tax fit
together is that cash remuneration, including most allowances, is taxed in the employee's hands,
and that non-cash benefits (and living-away-from-home allowances) are subject to FBT payable
by the employer.
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4. Employer must self-assess liability

FBT is a self-assessment system, with large penalties for underpayment. Employers must lodge
an annual FBT return by 21 May after the end of the FBT year showing the taxable value of fringe
benefits provided during that year.

Certain employers may pay FBT by instalments. An employer whose previous years FBT liability
was at least $3000 must pay FBT in quarterly instalments, rather than annually by 21 May.

Employers must pay four quarterly FBT instalments which are notified on the employer's quarterly
Business Activity Statement. These are generally due by 28 July for the June quarter, 28 October
for the September quarter, 28 February for the December quarter and 28 April for the March
quarter. Any balance amount must be paid when the FBT return is lodged by 21 May.
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5. Fringe benefits reported on employee's payment summary

If an employee receives fringe benefits in an FBT year with a taxable value of at least $2000, this
must be reported on the employee's payment summary given to the employee by 14 July
following the end of the income year.

The amount that is reported the 'reportable fringe benefits amount' is the taxable value of
the fringe benefits 'grossed up' by 1.8692. Some fringe benefits are exempted from being
reported, eg car parking, meal entertainment and remote area fringe benefits.
Example:

An employee is provided with fringe benefits with a taxable value of $2500. The amount
that is reported on the employee's payment summary is $4673 (ie $2500 x 1.8692).
A reportable fringe benefits amount on an employee's payment summary does not make the
employee liable to income tax on the amount but is taken into account when calculating the
employee's liability to Medicare levy surcharge and HECS-HELP repayments. It is also included in
the employee's total income for the purposes of calculating entitlement to family tax benefit, the
government co-contribution for personal superannuation contributions and certain tax and
superannuation rebates.

Pooled or shared private use by employees of their employers cars does not have to be reported
on a payment summary. A pooled or shared car is a car that is provided by an employer for the
private use of two or more employees.
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6. Basic car rates

Each year the cents per kilometre rates are released by the ATO. These rates are used:
to calculate the taxable values of a number of fringe benefits that relate to motor
vehicles, eg remote area holiday travel; and
to calculate the tax deduction for car expenses where the taxpayers income-
producing use of a car in the year does not exceed 5000 kilometres.
The rates for the 2013/14 FBT year ranged from 65 cents per kilometre to 77 cents per kilometre
depending on the engine capacity of the vehicle. Current rates are noted on the ATO website.

Deemed depreciation rate
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The deemed depreciation rate on cars is 25%.

This rate is used to calculate the value of a car fringe benefit using the operating cost basis.
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7. Rates for motor vehicle other than a car

The rates to be applied on a cents per kilometre basis for calculating the tax from the private use
of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2014,
are as follows:

Engine capacity Rate per kilometre
0-2500cc 50 cents
Over 2500cc 60 cents
Motor cycles 15 cents

A motor vehicle other than a car is defined as a motor vehicle (including a four wheel drive
vehicle), which is: a motor car, station wagon, panel van, utility truck or similar vehicle, designed
to carry a load of less than 1 tonne; or any other road vehicle designed to carry a load of less
than 1 tonne or fewer than 9 passengers; but does not include a motor cycle or similar vehicle.

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8. Record-keeping exemption

The record keeping exemption threshold for the 2014/2015 year is $7965 (up from $7779 in the
previous year). An employer that provides fringe benefits in a year with a value below this
amount may be exempt from keeping FBT records. The ATO website provides current
information.
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9. Benchmark interest rate

The benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April
2014 is 5.95% per annum (replacing the previous rate of 6.45%). ATO provides history of rates
and current rates. The rate is used to calculate the taxable value of:
a loan provided by an employer (see Loan fringe benefit); and
a car fringe benefit where an employer chooses to value the benefit using the operating cost
method.
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10. Non-remote housing index factors

The indexation factors for valuing non-remote housing for the fringe benefit year commencing
1 April 2014 are:

New South Wales 1.037
Victoria 1.020
Queensland 1.022
South Australia 1.024
Western Australia 1.067
Tasmania 1.010
Australian Capital Territory 1.076
Northern Territory 1.017

The ATO provides a history of rates and current rates. These factors are based on movements in
the rent sub-group of the Consumer Price Index.
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11. Reasonable food component Australian employees

The reasonable food component of a living-away-from-home allowance for expatriate employees
for the FBT year commencing 1 April 2014 are as follows:

Per week
One adult $236
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Two adults $354
Three adults $472
One adult and one child $295
Two adults and one child $413
Two adults and two children $472
Two adults and three children $531
Three adults and one child $531
Three adults and two children $590
Four adults $590

Adults are defined as persons aged 12 years or over before the beginning of the FBT year

The ATO provides current information.

For expatriate employees, see Taxation Determination 2013/4.
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12. Overpayments to employees

Allowing the employee time to repay

Allowing an employee time to repay overpaid wages means the overpayment becomes a loan and
is therefore liable to FBT (TD 2008/10).

If overpayment debt is waived

Waiving an employees obligation to repay an amount to which he/she is not legally entitled
means it becomes a debt waiver benefit and is also liable to FBT (TD 2008/11).

The Ruling only applies to those cases where the recipient of the overpayment must repay the
amount. So, for example, the employee may be able to establish that he/she should retain the
money and in this situation a debt waiver benefit does not arise.

Bad debt: The employer may be able to establish that the waiver has occurred because it
considers the amount to be a bad debt this would have to be supported by the employers debt
collections policy or by showing that reasonable efforts had been made to recover the amount. In
this circumstance, FBT would not apply.

Uneconomic to recover debt: The employer may also be able to establish that the debt was
waived because it was considered uneconomic to recover it, for example, because the employers
policy was not to pursue debts below a certain threshold. If the employer can establish that the
waiver occurred under such a policy and not because of the employment relationship then again it
would not be considered to be a debt waiver benefit.

Bonus offset: If the employer agrees to off-set the debt amount against an employee bonus
payment, then this is not considered to be a debt waiver and therefore FBT will not apply. The
bonus will instead be included in the assessable income of the employee.

Exemption

In some circumstances the overpayment could be considered an exempt benefit and therefore
excluded from being a loan fringe benefit or a debt waiver benefit, for example if it meets the
conditions of being a minor benefit (less than $300).

Do employees have to pay tax on overpaid wages?

However, overpaid salary, wages or workers compensation amounts are not considered to be
ordinary pay for an employee and therefore assessable income (TD 2008/9).

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13. Work-related items

From 13 May 2008, the FBT exemption that previously applied to certain work-related items has
been tightened. The work-related items covered by the exemption are:
briefcases
calculators
certain portable printers
computer software
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electronic diaries
laptops or similar portable computers
mobile phones
personal digital assistants or similar items
protective clothing
tools of trade.
Before 13 May 2008, these items were, except in two cases, always FBT-exempt when provided
to employees. The two cases where a condition had to be satisfied were:
a mobile phone, computer software or protective clothing was only exempt from FBT if it was
primarily for use in the employees employment; and
only the first notebook computer, laptop computer or similar portable computer provided to an
employee in the year was exempt.
Where a portable electronic device, computer software, protective clothing, a briefcase or a tool
of trade is acquired after 13 May 2008, the item is only exempt if it is primarily for use in the
employees employment. The exemption is restricted to one item per year for items that have a
substantially identical function, although a second item is allowed if it replaces an item acquired
earlier in the FBT year.
Employees are not allowed depreciation deductions for exempt work-related items if
they were purchased after 13 May 2008.
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14. Meals on an employers premises

Business property provided to an employee for consumption on the employers premises, eg use
of a telephone or refreshments, is FBT exempt.

According to the Treasurer, this exemption is being exploited by some employers who pay for
employees meals, provided by a third party such as a catering service, delivered to and
consumed on the employers premises.

Meal card arrangements allow employees to salary sacrifice for the provision of the meals out of
pre-tax income. The integration of meal facilities into business premises, such as food court
outlets in large office blocks, has encouraged the spread of these arrangements.

Meals provided as part of a salary sacrifice arrangement ceased to be FBT-exempt from 7.30 pm
on 13 May 2008 ensuring equity with employees who have to purchase meals out of their
post-tax income.

Existing balances on meal cards remain eligible for the FBT exemption if used by 31 March 2009,
but any supplements to existing balances will be subject to FBT.

Subsidised canteens provided to all staff that are not part of a salary sacrifice arrangement
continue to be FBT-exempt.
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15. Loan fringe benefits

An employer provides a loan fringe benefit if it makes a loan to an employee, to an associate of
an employee, or to some other person at the request of the employee or the associate. The loan
may be made by the employer, by an associate of the employer or by a third party under an
arrangement with the employer.

A loan includes an advance of money, the provision of credit, the payment of an amount for
someone where that person is obliged to repay the amount and allowing a debt owed by an
employee to run past the due date for payment (sec 16 and 17, Fringe Benefits Tax Assessment
Act 1986).

The key fringe benefits tax issues relating to a loan fringe benefit are:

1. Taxable value of loan fringe benefit
2. Loan fringe benefit provided jointly to employee and spouse

1. Taxable value of loan fringe benefit

The taxable value of a loan fringe benefit is the difference between the interest calculated at the
statutory interest rate for the year (5.95% for the 2014/15 FBT year and 6.45% for the 2013/14
FBT year) and the actual interest charged by the employer on the loan.
Under the otherwise deductible rule, the taxable value of a loan fringe benefit may be reduced
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where the employee uses all or part of the loan for income-producing purposes. If, therefore, the
employee uses the loan to build a swimming pool in his backyard, the taxable value would not be
reduced because this is a private purpose. But if the employee uses the loan to purchase an
investment property, the taxable value may be reduced.

The employee must provide evidence to the employer that the employee would have been
entitled to a tax deduction on the interest if the employee had taken out the loan personally. The
employee must generally complete a loan benefit declaration showing the uses made of the loan
and the extent to which the employee would have been entitled to a deduction for the interest.
Example:

From 1 April 2014 to 31 March 2015, an employee receives an interest-free loan of
$10,000 from her employer. The statutory interest rate is 5.95%. The employee uses the
loan for two purposes: $2000 to purchase furniture for her home and $8000 for buying
shares. The taxable value, before any reduction, is:
$10,000 x 5.95% = $595. As 80% of the loan is used for income-producing purposes, the
taxable value is reduced by: 80% x $595 = $476. The taxable value of the loan fringe
benefit is therefore $595 - $476 = $119.
FBT at the rate of 47% is payable on the grossed-up taxable value, ie on $119 x 1.8692 =
$222.
2. Loan fringe benefit provided jointly to employee and spouse

The otherwise deductible rule applies differently where an employer provides a loan jointly to an
employee and the employees spouse and the loan amount is used for income-producing
purposes, eg to purchase shares to earn dividend income.

In 1993 the Federal Court decided in National Australia Bank Ltd v Federal Commissioner of
Taxation 93 ATC 4919 that if a fringe benefit was provided jointly to an employee and their
spouse it was to be treated as if it was provided solely to the employee, and the employers FBT
liability could be reduced.

This decision resulted in an anomaly in the FBT law that, according to the Tax Office, led to
taxpayers entering into inappropriate arrangements such as salary sacrificing of expenses related
to a jointly held investment property. Under such an arrangement, the spouse with the higher
income was able to effectively claim 100% of all the expenses related to a jointly held investment
property.

The law has been changed to overturn the effect of the National Australia Bank decision and to
ensure that the FBT liability will only be reduced to reflect the employees, and not the spouses,
share of the expenses. This applies to arrangements entered into after 13 May 2008.

Arrangements already in place at 13 May 2008 were allowed to continue until 31 March 2009.
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16. Expense payment fringe benefits

An expense payment fringe benefit is provided by an employer when the employer:
makes a payment in discharge of an employee's obligation to pay an amount to a third
person, or
1.
reimburses an employee for expenses incurred by the employee. 2.
The taxable value is the amount of the payment or of the reimbursement. The employer can,
however, avoid FBT liability by making a no-private-use declaration to the Tax Office that covers
all the employer's expense payment fringe benefits for the FBT year.

Some expense payment benefits are exempt from FBT, including:
various types of expenditure where an employee is required to live away from a usual place of
residence to perform the duties of employment;
reimbursement of an employee for car expenses, where the reimbursement is calculated on a
cents per kilometre basis;
the provision of fuel associated with a car fringe benefit;
short-term car parking fees;
newspapers and periodicals used for business purposes;
compassionate travel and medical treatment;
minor benefits that are worth less than $300 and are infrequent; and
certain work-related items such as notebook computers, briefcases and tools of trade.
Even if not exempt, an expense payment fringe benefit may have a reduced taxable value if the
employee contributes to the cost of the benefit or if the employee would have been entitled to a
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tax deduction for the cost of the benefit if the employee had provided it rather than it being
provided by the employer. The taxable value of expense payment fringe benefits provided in
remote areas may be reduced by 50%.

GST

If an employer reimburses employees for expenses directly related to the performance of their
duties as employees (ie the reimbursement is a fringe benefit, or an exempt fringe benefit), the
employer may be able to claim GST credits as if the employer had incurred the expense itself.
The GST credit would be one eleventh of the amount of the reimbursement.
Example:

An employee spends $220 on petrol that she uses entirely in work-related travel. If the
employer fully reimburses the employee, the employer can claim a GST credit of $20.
If an employee makes a contribution to the cost of a fringe benefit, the employer must pay the
Tax Office one-eleventh of the contribution as GST paid on the supply by the employer of the
benefit.
Example:

An employer reimburses an employee's telephone expenses. The expense payment fringe
benefit has a taxable value of $1000. The employee contributes $440 to the cost, the
employer must send $40 (ie 1/11th of $440) to the Tax Office as GST paid on the supply of
the benefit.
Sample documentation

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to make human resources (HR) management easy for your business see our HR Advance website.
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