Many employers offer rewards and incentives to show their appreciation. The Australian Tax Office (ATO) sees these as part of your wage or salary and refers to them as Fringe Benefits.
Fringe benefits are a great way for employers to attract, retain, and motivate employees. After all, perks like free food, coffee, and discounted gym memberships tend to make for happier employees. However, things can get a little confusing once tax comes into the equation.
Not all perks attract Fringe Benefits Tax (FBT), but some do. Furthermore, some fringe benefits will come as a part of your wage or salary, while others will add up on top of your usual wage or salary. Depending on your salary packaging arrangement, some fringe benefits might even push you into a lower tax bracket.
How are fringe benefits taxed?
Your employer will need to pay tax on the fringe benefits they supply to you, and they must report this to the ATO. Fringe Benefits Tax is separate from income tax. Although it is not your obligation to make the payments, your employer must show the amount on your payment summary. As an employee, you will not be able to claim your fringe benefit as a tax deduction.
You will have a reportable fringe benefit amount if the total value equal to your wage or salary exceeds $2,000 in the FBT year, which runs from 1 April to 31 March. The total amount is called your Reportable Fringe Benefits Total. When you lodge your tax return, you’ll need to declare your Reportable Fringe Benefits Total. You won’t be assessed on that amount, but you must still declare it to the ATO and add it to your taxable income.
Is my employer exempt from FBT?
Employers generally need to register to confirm that they pay staff fringe benefits. However, if they pay you under the threshold of $2,000, then they do not need to register. Furthermore, if you work for any of the following institutions, it’s likely that they are an FBT-exempt employer:
- Public benevolent institutions
- Health promotion charities
- Public and non-profit hospitals
- Public ambulance services
If you work for an FBT-exempt employer, you must still advise Centrelink or the Department of Human Services of your adjusted taxable income and record it as an Exempt Reportable Fringe Benefit.
This may affect your:
- Centrelink payments
- Medicare levy surcharge
- Private Health Insurance Rebate
- Child Support payments
- Superannuation co-contribution
- Tax offsets
- Education debts
The amount recorded on your payment summary will be the gross taxable value of your reportable benefits between 1 April to 31 March. Your employer has until 14 July following the end of the financial year to provide the amount on your payment summary.
Reportable fringe benefits
Fringe benefits paid to you as a part of your wage or salary are called salary packaging. This is done to reduce your total taxable salary, meaning you pay less income tax. Benefits are calculated individually, and your employer will work out what they have provided to you.
The most common types of benefits your employer might supply to you are:
- A leased vehicle for your personal use
- Personal use of a company car
- Discounted loans
- Gym or health club memberships
- Entertainment expenses such as discounted food, attractions, and accommodation
- Private health insurance
- Living away from home allowance
- Right to shares and bones
- Childcare costs and school fees
Some fringe benefits do not have to be reported on your payment summaries. Known as excluded benefits, these may include:
- Car parking fringe benefits
- Remote area housing assistance
- Homeownership schemes
- Repurchase schemes
- Occasional travel to a major population (if you live remotely)
- Security and personal safety because of your job
- Meals and entertainment
- Entertainment leasing benefits where they are not provided as a part of your salary
- Emergency or other essential healthcare
- A pooled car work arrangement
Exempt benefits are not reported on your PAYG payment summary. Items you use to do your job – such as a mobile phone, uniform, or computer – aren’t generally taxed as fringe benefits if they’re provided by your employer. If you have to pay for them out of your own pocket and are not reimbursed, then you can claim those items as a normal tax deduction when you lodge your annual income tax return.
Want to learn more about maximising your tax deductions while remaining safely within the bounds of Australian tax law? Check out our complete guide to tax deductions after you finish this article.
PAYG and Fringe Benefits Tax
Your employer should include your Reportable Fringe Benefits Amount (RFBA) in your PAYG, and you should see it on your tax return. You do not need to include it in your total income or loss amount or pay income tax or the Medicare levy on this amount. There are ways to reduce your reportable fringe benefits amount through arrangements with your employer to replace your benefit with a cash salary or make contributions from your after-tax income toward the cost of the benefits.
FBT is complex. If you have any lingering doubts or questions, chat with a friendly ITP Tax Accountant to work out the most beneficial way your employer can offer you fringe benefits. As Australia’s leading accounting professionals, ITP has been helping Aussie individuals and businesses with their taxes for more than 50 years. Phone a friendly tax agent today to discuss your FBT and learn how to gain maximum benefits while reducing your overall tax bill. Phone 1800 367 487 to get started.