Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits provided to employees that are not subject to regular income tax.
As an employer, you must self-assess your FBT liability for the FBT year (1 April to 31 March). If you have an FBT liability, you must lodge an FBT return and pay the FBT you owe.
To help you meet your FBT obligations, this article examines the essentials every employer needs to know about FBT every year.
How FBT works
FBT applies to fringe benefits provided to your employees, or to your employees’ families or other associates.
The employer pays FBT.
If you’re a sole trader or a partner in a partnership, you are not an employee. Benefits you provide to yourself are not subject to FBT.
Your clients are not employees. Benefits you provide to clients, such as entertainment, are not subject to FBT.
Should you be registered for FBT?
Generally, suppose you have employees (including directors), and you provide them with cars, car parking, entertainment (food and drink), employee discounts, loans, or reimburse private expenses, then you are likely to be providing a fringe benefit and your business will need to be registered for FBT. There are 13 defined Fringe Benefit categories in the FBT law.
It’s important that you start gathering all the details of fringe benefits using our FBT Questionnaire to calculate any potential FBT liability and lodge your FBT return on time
Should you lodge an FBT return even if no FBT is payable?
Where no FBT is payable, there is legally no need to lodge an FBT return, but should you lodge one anyway?
Yes, our strong recommendation is to lodge an FBT return, even if no FBT is payable.
This restricts the ATO’s audit window to only three years from the date of lodgement. Otherwise, the ATO is entitled to go back an unlimited number of years and audit your business and possibly find areas where it will change your FBT and penalties.
How the ATO identifies potential audits
Some of the common expense codes that the ATO will review include:
- Employee/staff amenities
- Advertising and promotional expenses
- Travelling expenses
- Motor vehicle expenses
- Motor vehicle expenses (workhorse vehicles)
- Employee loans.
As part of an FBT review, the ATO can also access other databases to ensure that employers are compliant. One example of this is accessing state government records to confirm all motor vehicle purchases by an employer and ensuring that these are properly accounted for in both the financial statements and from an FBT point of view.
Key things you must have done by 31 March
While it is strongly recommended that you register for FBT and, if applicable, lodge a Nil FBT return, if you decide not to, there is still key information you need to record as at 31 March. This information will be needed for the completion of your annual financial statements. Here is a summary of what you need to have done:
- On 31 March, when your employees have finished their travel for the day, request each of them to take a photo of their vehicle odometer readings using their phones and email it to you, or to a nominated person in your business to collate them all for you. Having these vehicle odometer readings for all business vehicles is vital to examine ways your FBT can be reduced by using the ‘operating cost’ method instead of the ‘statutory formula’ method.
- Carefully manage the private use of business cars, including the travel between home and work. The ATO is conducting a data matching program aimed at motor vehicles to capture benefits that are not currently being reported through FBT. If significant variances are identified, a full ATO audit may follow.
- Review all meal entertainment expenses provided to employees, associates and clients and prepare a register that outlines the following for every event:
- The total cost (GST inclusive)
- How many employees were present and their names
- How many employees’ associates were present and their names
- How many clients were present (names not needed)
- The nature of the event (dinner, lunch, coffee, drinks, etc.)
Source: ATO website
Contact KMT accountants now for advice or assistance with your FBT Return lodgement!
About our adviser: Chrisanthe Lekatis is renowned for her expertise in management accounting, virtual CFO services, and top-tier business advice. She empowers management with tailored strategies for success, streamlining processes to achieve efficient and cost-effective outcomes. Her commitment to building trust and lasting relationships goes beyond professional excellence; it’s a personal ethos. By actively listening and understanding her clients’ businesses and goals, Chrisanthe thrives on collaborative efforts to navigate challenges and collectively achieve their aspirations. Please do not hesitate to reach out if you need assistance.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.