How to reduce your fringe benefits tax liability

How to reduce your fringe benefits tax liability

A fringe benefit is a ‘payment’ to an employee, but in a different form to a salary or wage.

For example, allowing an employee to use a work car for private purposes, giving them a low-interest loan, or paying their gym membership.

For the year ending 31 March 2022, fringe benefits will be taxed at 47%.

This fringe benefits tax (FBT) — which is higher than the highest income-tax rate — is paid by the employer.

According to the Australian Taxation Office, there are various ways employers can reduce their FBT liability — sometimes to nil.

These include:

• Replacing fringe benefits with cash salary—instead of you paying FBT, your employee would pay income tax on their salary or wages.
• Providing benefits that are exempt from FBT—you will not have an FBT liability if you provide only exempt benefits (e.g. work-related mobile phone or taxi-travel expenses), or benefits that are not fringe benefits (e.g. employer contributions to complying super funds).
• Providing tax-deductible benefits—you may not have an FBT liability if you pay for or reimburse an expense your employee would otherwise be able to claim as an income tax deduction.
• Using employee contributions—in most cases, you can reduce your FBT liability if your employee makes a payment towards the cost (e.g. paying towards a car fringe benefit by paying a third party for some of the operating costs, such as fuel). These payments are commonly called ‘employee contributions’.

It should be noted that employers can generally claim an income-tax deduction for the cost of providing fringe benefits and for the FBT they pay.

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