Fringe Benefits Tax
The FBT framework
FBT is a tax on employers for benefits provided to employees in respect of employment. It is separate from income tax and is imposed on the employer. The FBT year runs from 1 April to 31 March. Key concepts: the definition of a fringe benefit, the exclusion of salary and wages, and the exemption for certain benefits.
Key concepts
Understand the two valuation methods: the statutory formula method (for cars) and the operating cost method. Know the gross-up rates (Type 1 and Type 2) that reflect whether the employer is entitled to input tax credits. Understand exemptions: work-related items, portable electronic devices, and the minor benefits exemption (under $300).
Traps
A common trap is forgetting that FBT is not deductible to the employee (it is a benefit) but the employer may claim a deduction for FBT. Another is confusing the FBT year with the income tax year. Watch for the otherwise deductible rule, which reduces the taxable value where the employee could have claimed a deduction.
Worked example
An employer provides a car benefit with a taxable value of $10,000. Using the Type 1 gross-up rate (where input tax credits are available) of 2.0802, the grossed-up value is $20,802. FBT at 47% = $9,777. Rule of thumb: gross up the taxable value, then apply the FBT rate.