Numerous retail companies appear to get the greatest out of their staff members by providing positive aspects and perks above and over their ordinary salary and wages. Although that can be a good way to incentivise personnel, there are likely tax outcomes that need to be borne in thoughts.
If you supply rewards to your staff, you could locate that your small business is liable to fork out Fringe Advantages Tax (FBT). This is a tax compensated by the employer – not the worker – on the taxable worth of certain added benefits paid to workforce. When we refer to staff members, this also covers gains delivered to the loved ones of workers or to associates (such as good friends) of workforce.
Examples of Fringe Rewards
Amongst the most commonly offered gains that can give increase to FBT are:
- Furnishing a car for your staff that can be utilised for private reasons
- Providing free or subsidised motor vehicle parking for your personnel
- Furnishing your staff members with “entertainment”, these as foods, drinks, sporting or leisure pursuits (such as a round of golfing or tickets to a sporting function), theatre tickets and vacations
- Either reimbursing an staff for private expenses or spending for these types of fees immediately to a third occasion (for instance, paying your employee’s domestic utility expenses)
- Providing your personnel a financial loan and charging no interest or a lowered level of interest
- Providing accommodation to an worker rent-free of charge or at a diminished rent
How is FBT calculated?
FBT is payable primarily based on the grossed up ‘taxable value’ of the gain supplied. This grossing up course of action is intended to reflect the gross salary employees would have to make to invest in the advantages you are giving soon after paying out tax. Fringe Added benefits are split into Variety 1 and Type 2 gains. The true calculation can be complicated and is most effective finished by your accountant, but the course of action can be summarised as follows:
- Discover the complete taxable value of Fringe Advantages you offer for which you can claim a GST credit rating (Style 1 advantages).
- Get the job done out the grossed-up taxable value of these Type 1 benefits by multiplying the full taxable benefit by the form 1 gross up charge (at present 2.0802).
- Establish the overall taxable worth of rewards for which you are not able to assert a GST credit history, for illustration, provides you made that were GST-absolutely free (Type 2 benefits).
- Get the job done out the grossed-up taxable worth of these Sort 2 added benefits by multiplying the complete taxable by the type 2 gross up rate (now 1.8868).
- Add the grossed-up amounts from measures 2 and 4. This is your full Fringe Rewards Taxable total.
- Multiply the whole Fringe Positive aspects Taxable total (from phase 5) by the FBT charge (now 47 per cent). This is the full FBT sum you are liable to pay back.
Let us believe you provide a vehicle to a member of workers which they can use privately. The taxable benefit of the profit is $10,000 all through the 2022/23 FBT 12 months. FBT payable by the employer is labored out as follows:
|Multiplied by Gross-up rate x||2.0802|
|Grossed-up taxable benefit||$20,802|
|FBT Payable (rounded)||$9,777|
Can my small business minimize its FBT liability?
It is possible to minimize your FBT liability, or even reduce it entirely, by acquiring your personnel to make a income contribution to the cost of the advantage offered to them. Every dollar that they pay back in direction of the provision of the advantage reduces the taxable value of the reward by the very same volume.
Are any advantages FBT free of charge?
Some gains are absolutely free from FBT, this sort of as the provision by a compact business enterprise of equipment or electronic units (these as laptops) that are primarily utilized for work applications. So-referred to as ‘minor benefits’ are also FBT absolutely free. A slight benefit is a single with a notional taxable worth of less than $300 and could involve matters like the yearly personnel Xmas bash, provided the charge per head is much less than $300.
There are a variety of generous FBT concessions and exemptions available to selected not-for-earnings organisations like charities, hospitals and spiritual establishments.
What are Reportable Fringe Positive aspects?
I pointed out previously that FBT is payable only by companies. Nevertheless, if the sum of fringe gains delivered to an employee exceeds $2,000, the determine have to be claimed in the calendar year finish income statement delivered to staff members and is then included on the individual’s tax return.
This is not taxable income so there are no immediate profits tax consequences for the personnel. Even so, these Reportable Fringe Rewards can be taken into account in operating out a number of other positive aspects and obligations, like Loved ones Tax Rewards, Medicare levy surcharge, personal health and fitness insurance rebate, kid assistance payments, superannuation co-contributions, Bigger Education and learning Financial loan System (Support) repayments, and a variety of tax offsets.
How does my enterprise report and pay FBT?
The FBT calendar year operates from 1 April to 31 March so now is the time to establish if your small business requires to sign-up for and pay back FBT.
If you deliver rewards to your workforce and feel you could possibly have an FBT liability, the first action you need to have to take is to sign up for FBT with the ATO. Your tax agent can help you with that approach.
If you have delivered fringe rewards for your staff members, you have to then lodge an FBT return. The most up-to-date day for lodging an FBT return is 21 May possibly, nevertheless if you use a tax agent you may possibly qualify for an prolonged deadline.
If you haven’t paid out FBT just before, or if the total of FBT you experienced to pay out for the prior year was a lot less than $3,000, you only make 1 payment for the yr when you lodge your FBT return. Usually, FBT is payable quarterly by means of your activity statements for the subsequent FBT 12 months.
For more data about FBT go to https://www.hrblock.com.au/
Mark Chapman is director of tax communications at H&R Block.