Basics of fringe benefits tax

What are fringe benefits?

Employees may opt to make an agreement with their employers that provides them with fringe benefit ‘payments’ in a form other than salary or wages.

There are various types of fringe benefits:

• Employees being able to use work car for private use
• Discounted loans
• Paying an employee’s gym membership
• Providing entertainment (e.g. tickets to concerts)
• Reimbursing expenses (e.g. school fees)
• Giving benefits under a salary sacrifice scheme

What is fringe benefits tax?

Employers pay FBT on certain benefits they provide to their employees or employees’ families. FBT will apply even if the benefits are provided by a third party through an arrangement with the employer.

Employers are required to self-assess their FBT liability for the FBT year – which spans from 1 April to 31 March. It is calculated separately to income tax based on the taxable value of the benefit provided.

Usually, employers are able to claim tax deduction for the cost of providing fringe benefits and for the FBT paid. Employers will generally also be able to claim GST credits for the items they provided as fringe benefits.

Employers are able to reduce their FBT liability by providing benefits that are income tax deductible. They may also consider an agreement in which the employee contributes to the cost of the fringe benefit. Finally, providing a cash bonus can also help reduce FBT liability.