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FBT Could Impact What You Can Afford To Give Your Employees – What’s Your Liability Looking Like?

As a part of your employees’ employment contracts, do they receive benefits such as a car space, gym membership or even a car to drive?

These are what’s known as fringe benefits, which is a ‘payment’ to an employee that takes a different form to salary or wages. This incurs a specific kind of tax separate from income tax known as fringe benefits tax, which is based on the taxable value of the fringe benefits provided. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.

Knowing what is and what isn’t deemed as a fringe benefit will assist you in working out what you might provide to your employees as a benefit for working with you.

Examples Of Items That Are Fringe Benefits

  • Allowing an employee to use a work car for private purposes
  • Giving an employee a discounted loan
  • Paying an employee’s gym membership
  • Providing entertainment by way of free tickets to concerts
  • Reimbursing an expense incurred by an employee, such as school fees
  • Giving benefits under a salary sacrifice arrangement with an employee.

Examples Of Items That Are Not Fringe Benefits

The following are not fringe benefits:

  • Salary and wages
  • Shares purchased under approved employee share acquisition schemes
  • Employer contributions to complying super funds
  • Employment termination payments (including, for example, the gift or sale at a discount of a company car to an employee on termination)
  • Payment of amounts deemed to be dividends under Division 7A
  • Benefits provided to volunteers and contractors
  • Exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.

Employees don’t have to worry about paying the tax on these items, but it is an area of concern that employers need to be careful of. Employers must self-assess their FBT liability for the FBT year (which ends 31 March) and lodge an FBT return.

Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. However, there are ways in which you may be able to reduce your liability when it comes to FBT.

These methods include:

  • providing benefits that are income tax-deductible
    • If your employee is given a benefit that they could otherwise have claimed themselves.
  • using employee contributions
    • If your employees contribute to the cost of the FBT themselves through cash payment to the provider of the benefit, the taxable value of the fringe benefit can be reduced by that amount
  • by providing a cash bonus
    • If you provide your employee with a cash bonus instead of a benefit you won’t have to pay FBT, and the employee will pay income tax on the amount.
  • providing benefits that are exempt from FBT.

FBT exemptions can sometimes be changed by the Australian Taxation Office (ATO), which can affect your FBT liability.

One such change was the FBT Retraining & Reskilling Exemption. Under this change, if you are an employer who is providing to their employees who are redundant (or soon to be made redundant) a benefit that encompasses training or education.

The exemption can be applied to retraining and reskilling benefits provided on or after 2 October 2020. This exemption is not to be included in your 2022 FBT return or in your employee’s reportable fringe benefits amount. If you have already lodged your 2021 FBT return though and paid any FBT owing, you can amend your 2021 FTB return to reduce the FBT paid for retraining and reskilling that is exempt.

It’s advisable to consult with a tax agent (such as us) if you need to amend an FBT return (as we are equipped with the tools and skills to negotiate what can be a tricky area filled with complexities and traps). Now’s the best time to speak with us about your FBT liability, what you might need to include in your return and more. Start a conversation with us today.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier