A fringe benefit is a benefit provided to an employee (or their associate) because that person is an employee. Benefits can also be provided by a third party under an arrangement with the employer. An employee can be a current, future or former employee.
If you are a director and run your business through a company, you may be regarded as an employee of that company. This may mean that fringe benefits provided to yourself result in your company having FBT obligations.
Examples of fringe benefits include:
- Allowing an employee to use a work car or other vehicle for the employee’s own private purposes (including taking the car home overnight)
- Giving an employee a cheap or interest-free loan
- Paying an employee’s private health insurance, children’s school fees or giving them tickets to sporting events or other entertainment
What is a Fringe Benefits Tax (FBT)?
Fringe Benefits Tax (FBT) is separate from income tax. It is a tax paid on certain benefits provided to employees or employees’ associates, because of the employee’s employment. Employees’ associates are typically their family members.
The employer must self-assess their FBT liability for the FBT year (1 April to 31 March) and lodge an FBT return by 21 May each year.
Paying FBT
Employers pay FBT, even if the benefit is provided by an associate or by a third party under an arrangement with the employer.
For example, if a supplier of goods to a business provides goods or services to their employees for free or at a reduced cost under an arrangement with them as the employer, then it is the business owner who is liable for any FBT owing.
In most cases, employers can claim an income tax deduction for the cost of providing the fringe benefit and for any fringe benefits tax they pay as a result. There are ways of reducing the amount of FBT payable, including requiring the employees of a business to make an “employee contribution” payment back to the business to reduce the value of a fringe benefit.
Obligations if a business provides Fringe Benefits
- Calculate how much FBT a business has to pay. Employers must self-assess and calculate how much FBT they must pay each FBT year.
- Keep the necessary FBT records. The FBT law requires employers to keep certain records relating to the fringe benefits they provide.
- Register for FBT. We recommend employers register once they establish that they must pay FBT.
- Report fringe benefits on employee payment summaries. Employers must report certain fringe benefits on employees’ payment summaries. Employers using Single Touch Payroll (STP) will find that their payroll software will prompt them to enter this information once a year prior to finalising year end payroll.
- Lodge an FBT return and pay FBT to the Tax Office. A FBT return covering the FBT year, which runs from 1 April to the following 31 March should be lodged by 21 May each year.
Yes, the ATO says that you don’t need to lodge if you didn’t have an FBT liability for the FBT year and you don’t pay your liability by instalments.
While the FBT year ends on 31 March each year, many businesses don’t do anything with the FBT until about 6 months later when they work on their annual Financial Statements.
Why should employers lodge an FBT return where no FBT is payable?
Well, for the simple reason that it turns on a three-year deadline for the ATO to commence audit activities.
Lodging your FBT Returns each year REDUCES the major risk of an ATO audit to just the past 3 years.
One of the biggest problems with an employer not lodging an FBT where no FBT is payable (due to employee contributions) is that no assessment is issued by the ATO. This gives the ATO an indefinite period where the employer may be assessed for FBT, commonly following an FBT audit.
Some employers might lodge a NIL FBT Return, and then an assessment is deemed to have been issued under S72 of the Fringe Benefits Tax Assessment Act (FBTAA). This then triggers the FBT amendment rules.
Under the FBT amendment rules, the ATO generally has 3 years from the date of the original FBT assessment (including a NIL assessment) to make an amendment – in most cases to increase an employer’s FBT liability. The amendment period is extended to 6 years if there is an avoidance of tax and the employer has not made a “full and true disclosure” when lodging its FBT Return. However, S74 of the FBTAA states that the amendment period is indefinite if the ATO forms the opinion that the avoidance of tax was due to fraud or evasion.
Why lodging a “Notice of non-lodgement” is NOT the solution
A common practice by employers who have no FBT liability due to employee contributions is to notify the ATO by lodging a “Fringe Benefits Tax – Notice of Non-Lodgment” form. But this still does NOT protect you.
Lodging a non-lodgment notice does NOT trigger the amendment time limits referred to above, as no assessment is raised. This means that the ATO can issue an FBT assessment for the FBT year in question, at any time.
This means that employers remain indefinitely exposed to a potential FBT liability in the event of an FBT audit.
So, 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.
Contact our KMT accountants now if you need advice or assistance with FBT Return lodgement!
About our advisers:
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.
Michael Fox is our Managing Director at KMT Partners. He has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 4 decades. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. 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 your accountants at KMT Partners. Information is current at the date of issue and may change.
