Fringe Benefits Tax
Fringe Benefits Tax (FBT) is a key employer obligation in Australia. It applies to non-cash benefits provided to employees in addition to their salary or wages. Understanding how FBT works is essential for staying compliant with the Australian Taxation Office (ATO) and effectively managing employee remuneration.
This guide outlines what FBT is, who it applies to, how it’s calculated, and the types of fringe benefits employers must report.
What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) is a tax paid by employers on certain non-cash benefits provided to employees or their associates. These benefits are offered in addition to—or in place of—regular salary or wages.
Common fringe benefits include:
- Personal use of a company car
- Low-interest or interest-free loans
- Free or discounted goods and services
- Payment of private expenses
- Entertainment or travel perks
FBT is separate from income tax, and it is the employer who is responsible for calculating and paying it—not the employee. The FBT year runs from 1 April to 31 March, and businesses must lodge an FBT return if any taxable benefits are provided during that period.
How Does Fringe Benefit Tax Work?
Fringe Benefits Tax is calculated based on the taxable value of the benefits provided. Employers must determine:
- The type of benefit
- The taxable value (based on specific ATO valuation rules)
- Whether they are eligible for any GST credits or FBT concessions
- The appropriate gross-up rate
- The current FBT rate (currently 47%)
These steps help calculate the total FBT payable. Accurate record-keeping is essential to ensure compliance, reduce risk during audits, and determine any eligible FBT exemptions or reductions.
Types of Fringe Benefits
The ATO recognises several types of fringe benefits. Each type has specific valuation rules and reporting requirements:
- Car Fringe Benefits – Private use of company vehicles
- Loan Fringe Benefits – Low- or no-interest loans
- Debt Waiver Benefits – Forgiveness of an employee’s debt
- Housing and Housing Loan Benefits
- Living-Away-From-Home Allowance (LAFHA)
- Expense Payment Benefits – Paying or reimbursing personal expenses
- Entertainment Benefits – Meals, event tickets, travel perks
- Property Benefits – Transfer of property (goods) to employees
- Board and Lodging Benefits
- Residual Fringe Benefits – Benefits not covered by other categories
Who receives Fringe Benefits?
Fringe benefits are typically provided to:
- Full-time and part-time employees
- Contractors or consultants in certain roles
- Directors or trust beneficiaries who work in the business
- Employee associates – such as spouses or family members (e.g., use of a company car by a spouse)
These benefits form part of the overall employee compensation package and are often used to attract and retain talent or provide financial perks beyond salary.
How to calculate Fringe Benefit Tax?
Calculating FBT involves a few key steps. Here’s a simplified breakdown:
Step-by-Step FBT Calculation
- Identify the benefit type – Each benefit is valued differently (e.g., car vs. entertainment).
- Determine the taxable value – Use the correct ATO method to calculate the benefit’s base value.
- Apply the gross-up rate – This reflects the gross salary equivalent.
- Type 1 (2.0802): Applies if the employer can claim a GST credit.
- Type 2 (1.8868): Applies if there’s no GST credit entitlement.
- Multiply by the FBT rate – As of the latest rate, this is 47%.
Example: Company Car Benefit
- Taxable value: $10,000
- Gross-up rate: 2.0802 (GST credit available)
- Grossed-up value: $10,000 × 2.0802 = $20,802
- FBT payable: $20,802 × 47% = $9,977
So, the employer would need to pay $9,977 in Fringe Benefits Tax for that benefit.
Tip: Use FBT calculators or seek assistance from a tax professional to ensure correct reporting.
Are There FBT Exemptions or Concessions?
Yes. The ATO provides FBT exemptions and reductions depending on the type of benefit and the context:
- Minor Benefits Exemption – Less than $300 and provided infrequently
- Work-Related Items – Laptops, phones, protective equipment
- Remote Area Housing – For employees working in remote areas
- Not-for-Profit Organisations – May be eligible for FBT rebates or exemptions
- Small Business Car Parking Exemption – Certain small businesses may be exempt from FBT on parking benefits
Why Is Understanding FBT Important?
Failing to comply with FBT obligations can lead to penalties, audits, and unexpected tax bills. Understanding and managing FBT is also crucial for:
- Budgeting employee benefits
- Designing attractive salary packaging
- Reducing unnecessary tax liabilities
- Meeting ATO reporting standards
If your business provides any non-cash employee perks, you must assess whether they attract FBT — and how to manage it properly.