Benefits provided to employees or their associates in addition to salary or wages are known as fringe benefits. These benefits are paid for by the employer from pre-tax earnings, making the provision of benefits attractive to employees as it may reduce their taxable income while receiving payment in other forms.
However, this isn't all good news as Fringe benefits tax (FBT) may apply based on the type of benefit provided. Employers can generally claim a tax deduction for the benefits and related tax payable, but at 47% tax, this is not the best outcome for everybody. Tax is payable because the benefits are a different form of payment by an employer instead of salary and wages. The tax is calculated on the taxable value of the benefit, which reflects the grossed-up salary the employee would have had to earn to pay for the benefits from post-tax earnings. Types of Benefits There are many different types of fringe benefits employers may provide to employees. These include:
Amounts below $300 (inclusive of GST) spent on employees on an infrequent basis, are not subject to FBT. Tax deductibility may depend on the expense. For example, entertainment expenditure (meals, movie tickets, sporting events, airline tickets) would be non-tax deductible. However, gifts such as hampers, gift vouchers and bottles of alcohol will be tax deductible. FBT Administration The fringe benefits tax year runs from 1 April to 31 March. You must then include the reportable amount for each employee on their Single Touch Payroll finalisation by 14 July, so it flows through to their annual income statement. As with all business transactions, keeping accurate records is essential to determining whether FBT applies and how much needs to be included on the employee's income statement, if any. There are two methods to calculating the FBT on benefits:
FBT on the Christmas party and gifts Christmas is an opportunity for employers to say ‘thank you’ to the team for a job well done, and to celebrate the wins. Unfortunately, Christmas expenditure can attract the interest of the taxman! Let’s take the information above and work it into a non-FBT Christmas function example; When booking a restaurant, or similar, ensure the cost per employee and their associate (e.g. spouse) is less than $300. You can also give them a non-entertainment gift such as a voucher, hamper or a bottle of wine. The gift must also be less than the $300 and not something you do often, making it an infrequent gift. If you have any questions about FBT and how it may affect your business, please don't hesitate to contact us. Comments are closed.
|
AuthorHelpful articles written by our knowledgeable and experienced team. Archives
May 2024
Categories |