With the FBT year ending on 31 March, now is a good time to review your FBT requirements, whether as an employer or an employee.
Part 1: Your obligations as an employer
What is Fringe Benefits Tax (FBT)?
A fringe benefit is usually a non-cash benefit provided to an employee or their associate in respect of their employment. As these types of benefits do not form part of the employees’ usual salary and wages, they are not taxed in the hands of the employee and may appear “off the books”.
In this instance, the employer will be responsible for paying tax on these benefits provided to its employees, which is known as Fringe Benefits Tax (FBT).
It is common for employers to be providing fringe benefits to their staff without even realising it. This can have significant tax consequences and we are always working with our clients to ensure their FBT obligations are met and to review their employee remuneration structure to minimise their exposure to FBT.
For medical practices employing staff, the most common fringe benefits we come across are as follows:
2021 FBT Calendar dates
Part 2: Guidelines as an employee
One of the perks of being an Australian health care professional is that you can adopt certain strategies to maximise your salary packaging opportunities where your employer is an FBT exempt entity (i.e. a public hospital).
Salary sacrifice involves your employer paying for certain expenses out of your pre-tax salary. This in turn reduces your taxable salary with the ATO and thereby you are essentially using tax-free income to fund your private expenditure. However it does come at a cost to your employer so your salary packaging strategies are subject to certain restrictions, limitations and employer approvals.
If you work for a FBT exempt employer, you can salary package up to $9,010 in everyday living expenses that would usually attract FBT such as groceries, rates, mortgage payments and rent. In addition to this, $2,650 in meal entertainment or venue hire can be salary sacrificed. Both these thresholds will yield nil FBT liabilities for your employer.
Other benefits can also be packaged including self-education, work-related expenses and a novated car lease.
We recommend salary sacrificing items from your pre-tax income that are not deductible in your personal tax return. Deductible expenses such as subscriptions and self-education expenses can then be offset against your post-tax income. We can assist with setting up a salary sacrifice arrangement and packaging benefits to maximise your income and reduce tax payable.
It is important to note that if you are in receipt of over $2,000 in taxable value of certain types of fringe benefits, then it will be required to be reported on your payment summary as reportable fringe benefits. The reportable amount on your payment summary will be grossed up for FBT purposes, which will in turn be recorded in your individual tax return. Common benefits that are excluded from being reportable include car parking, meal entertainment and the private use of a pooled / shared car.
Although the reportable fringe benefits do not generate additional tax payable, this can impact on determining your private health insurance rebate, eligibility for various tax offsets, liability to pay the Medicare Levy Surcharge, Division 293 tax, child support obligations and repayments against student debt (i.e. HELP).