Fringe benefit tax is one of those taxes that businesses love to hate – it is expensive, compliance cost-intensive and, in some cases, confusing or unfair.
The good news is that this tax and its compliance costs are aimed to be addressed by the new Government in a tax bill later this year as well as further substantive changes in 2025.
In the meantime, employers that provide fringe benefits have until 31 May to file their March quarter FBT return (or their annual return if applicable).
This is the most important quarter of the year in the FBT world, as this is the quarter in which you can reduce your FBT liability by applying the alternate rate calculation.
This calculation allows you to align the FBT rate payable for benefits provided to your employees with the remuneration band that the employee’s total taxable pay for the year falls into, with the FBT rates ranging from 11.73% to 63.93%.
If employers do not apply some form of the alternate rate calculation, all benefits must have FBT paid at the top rate of 63.93%, so there is a big financial incentive to go to the extra effort to do the calculation.
While you can do the calculation yourself, if you have more than a handful of employees this is not recommended as the calculation is very complex.
Investing in specific FBT software, or outsourcing the March quarter calculation to your accountant or tax adviser, will be money well spent.
The other thing to keep in mind when preparing the March FBT return is making sure you pay no more FBT than is necessary.
Our key advice is to review the benefits you are paying FBT on and ensure that a) you are calculating these correctly (for motor vehicles in particular we see a lot of calculation errors) and b) you are applying all of the available exemptions correctly.
Back to the signalled FBT review and changes, some of the common issues and gripes we encounter with FBT which we hope will be addressed include:
The rate of FBT. With the top rate at 63.93%, this effectively forces employers into a compliance heavy process each year just to reduce the FBT payable to a more reasonable level.
Some things that employers treat as subject to FBT are actually subject to PAYE under the legislation, and the rules to work out which applies are complicated and not necessarily intuitive.
FBT applies to vehicles which are available for private use, regardless of the level of actual private use, and the work related vehicle exemption is arguably overly restrictive and encourages the purchase of utes when they may not be fit for purpose.
The calculation of FBT on the vehicle’s purchase price was based on the principle that a company car would remove the need for the employee to buy and use their own car, and that most people at the time did not rely on public transport as an alternative to using personal (or work) vehicles to get to work.
Times have changed and the vehicle calculations are due a refresh.
The FBT rules capture a wide range of things provided to employees which are not substitutes for remuneration and are unlikely to be viewed as benefits by employees, such as sending flowers to an employee who has suffered a bereavement. While there is a de minimis exemption that can apply for smaller value benefits, monitoring this increases compliance costs and the thresholds have not increased for a number of years so only apply in very limited situations.
If you need any help with your FBT return, please reach out to your accountant or tax adviser for assistance.
