Tolerable Tax - A pinch of FBT to get you

I am Brett Beaver, a Perth based “business services” tax tragic. I have had 14 years in the tax and accounting industry and have come to realise recently that knowledge I “take for granted” in these fields, many people either don’t know, or just don’t know what to ask!

Pitched in an easy to understand and (hopefully!) interesting manner, with Tolerable Tax, my aim is to get you thinking about various tax principles and how these may apply in your business or group structure. I will naturally lean towards Australian tax topics, but am also aiming to cover a number of thought provoking accounting and business ideas. So stay tuned!

Tolerable Tax will post each and every Wednesday, giving you something to read other than returning your latest Facebook poke, examining the new butt shot Tweet (generally curtesy of Kim or her sisters!) or Tinder/Ginder’ing your latest date… well… maybe just delay this last one for 5 – 10 minutes and read my post first (work life balance!)!

Tolerable Tax will be short and sharp, and will not contain specific advice. Each taxpayer’s circumstances differ and you should always seek advice (specific to you) before taking any action.

So with the inaugural Tolerable Tax, I thought it prudent that with 31 March fast approaching, heralding the end of everyone’s favourite “season”, the “Fringe Benefits Tax (FBT) season” (sorry Santa…), I shed some light on FBT!

FBT is a tax payable by employers on non-cash benefits provided to employees, both past and present, and/or to employee’s associates. FBT is only applicable where there is an employer/employee relationship. This includes Directors, even in cases where you are acting in an unpaid position! FBT may also apply where non-cash benefits are provided to employees working overseas.

examples of non cash benefits

FBT is levied at 47% (I hear you… ouch!) of the Grossed-Up Taxable Value of benefits provided. On the plus side (albeit a very minor “plus”), FBT is one of the few “tax deductible” taxes payable by Australian businesses.

Whilst, on face value, it seems like you can’t do much for your employees without being slogged an additional tax, there are numerous ways to reduce an FBT liability, and some of these include:

  • Provision of primarily work related items
  • Provision of minor and infrequent benefits
  • Consider the Tax Free Threshold for “in house property” benefits
  • Provision of Otherwise Deductible benefits
  • Application of the small Business Car Parking Exemption

It is worth noting that in some cases, an employer’s ability to utilise exemptions require detailed and diligent record keeping and in some cases elections or declarations from employees. Ask yourself, have you kept your paperwork up to date?

In some cases, employers may also need to disclose “Reportable Fringe Benefits Tax” on employees Individual PAYG Payment Summary at the end of the Financial Year. Whilst Reportable Fringe Benefits are not taxable, it does impact on the calculation of employee’s adjusted Taxable Income (which is used for many purposes including, calculation of various tax rebates and concessions to which that employee may be entitled).

So with your newly acquired understanding of what FBT is, where to from here?

Given the FBT season is coming to an end soon, I encourage you to:

  • talk to your tax advisor about strategies to minimise your businesses FBT exposure (elections/declarations);
  • work with your tax advisor regarding what information you can collate in an effort to save compliance costs on preparation of the annual fringe benefits tax return; and
  • think about how you should aim to “kick off” the new FBT season to ensure you are efficiently monitoring/accounting for fringe benefits for the 2016 FBT year.

Next week, I will be discussing Division 7A, a subject that comes up regularly for many of my clients both from a compliance and cash flow planning perspective. So until then, may your tax be tolerable!