FBT (also known as Fringe Benefits Tax) is a separate tax that employers pay in certain situations. Unlike income tax, the FBT tax year runs from 1 April – 31 March each year. That means you need to get ready to lodge your FBT return very soon.
But what is FBT?
Fringe Benefits Tax (FBT) is paid on the non-cash benefits your employees receive outside of their wages, super guarantee payments and bonuses.
There are many different categories of Fringe Benefits Tax with the most common covering things like:
- The private use of business vehicles
- Providing a car parking space for employees at work
- Reimbursing employees for expenses incurred outside of work e.g. tolls when using business vehicles for private use
- Living away from home allowances
If you are a director, any benefits you receive outside of your salary, compulsory super and bonuses are likely to attract Fringe Benefits Tax. Sole traders and partners in partnerships don’t attract FBT because they aren’t classified as employees.
Importantly, you may need to pay FBT for benefits given to past employees who worked for you between 1 April 2022 – 31 March 2023.
FBT and business vehicles – It’s hard to get an exemption!
The personal use of business vehicles by staff is probably the most common FBT our clients attract.
There is a myth that certain types of vehicles are exempt from FBT, like dual-cab Utes. But this is far from the truth. To be exempt from FBT, business vehicles must only be used by employees:
- To travel to and from work (if carrying bulky tools, materials or equipment)
- To run errands and other incidental trips related to their work duties (e.g. to travel to suppliers to pick up materials)
- Infrequently and irregularly for non-work related and minor use (e.g. removing domestic rubbish)
- Utes also have a carrying capacity versus passenger capacity test.
What’s the easiest way to manage your FBT obligations on work vehicles?
Fringe Benefits Tax is calculated on the “grossed-up” taxable value of the benefit which is tax law jargon for “it’s going to cost you heaps”. To minimise your exposure to FBT obligations, you need to record all travel for each vehicle in your fleet for 12 continuous weeks. That’s 24/7, covering both work-related and private use. Then, as your accountants, we use a formula provided by the ATO to calculate your FBT liability.