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:
- 50/50; and
- 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
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.
IMPORTANT INFORMATION: This blog has been prepared by Modoras Accounting (SYD) Pty Ltd ABN 18 622 475 521. The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Accounting (SYD) Pty. Ltd. recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Accounting (SYD) Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Accounting (SYD) Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Accounting (SYD) Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication. Liability limited by a scheme approved under Professional Standards Legislation.