How is fringe benefits tax calculated?

What is Fringe Benefits Tax (FBT)?

Fringe Benefits Tax (FBT) is a tax payable by you on any benefits you have paid to employees in place of salary or wages. Fringe Benefits can be a useful way of attracting and retaining quality staff as they are perceived as a non-cash incentive or as a salary packaging option.

Fringe benefits include any rights, privileges or services provided to current, former or future employees or directors of a business. Common benefits include; utilisation of work vehicles for private purposes; low or no interest loans, school fees, health insurance, gym memberships and entertainment such as food, drink or recreation.

FBT was created when the government realised that employers were being creative when paying benefits instead of salary. The most common fringe benefit is for vehicles where the employer picks up the cost of the car and provides the car for their employees’ use.

How is Fringe Benefits Tax calculated?

There are 3 methods for calculating fringe benefits tax:

1. Actual;
2. 50/50; and
3. The 12-week method.

Let’s take a look at each in a little more detail:

1. Actual Method

Actual entertainment and/or gift costs are usually split between employees and non-employees.

• Expenses for entertainment of employees are deductible and will have FBT applied.
• Expenses for entertainment for non-employees are not liable for FBT and not tax deductible.

Remember to consider the minor benefit exemption when using this method.

2. 50/50 Method

A simpler method of FBT calculation, 50% of the total expenditure on the entertainment is subject to FBT and 50% is tax deductible. However, don’t get caught, make sure you consider the following:

• Food and drink provided to employees on or off work premises, is not exempt from FBT;
• The minor benefit exemption; and
• Travel to from the employer’s premises is not exempt.

3. 12-Week Method

Calculated by adding the total of all expenses incurred in providing entertainment to all persons during the FBT year, multiplied by the register percentage. To work out the register percentage use the following formula:

A x 100
B

Where A = The total value of the fringe benefit provided to employees and their associations during the 12-week register period.

Where B = The total value of the entertainment provided to all persons during the 12-week register period.

RELATED POST: Can I claim Fringe Benefits Tax (FBT)?

Consider calculating all 3 methods and then applying the most favourable one. And before taking action, speak with a qualified Modoras Accountant on 1300 888 803. So you don’t pay a cent more than you have to.

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