With the fringe benefits tax (FBT) year ending on 31st March it is that time of year for employers to review the non-cash benefits they have provided to their employees and assess their FBT liability. It is important to note that FBT is levied at the highest tax rate (currently 47%) on the taxable value of the fringe benefit provided to an employee. So whilst providing additional benefits to employees may provide intangible benefits doing so can come at a high tax impost. In this article we look at some of the exemptions available to employers in providing various fringe benefits to employees.
1. Exemptions for Public Benevolent Institutions (other than hospitals) and Health Promotion Charities
A PBI (registered charity) can provide fringe benefits to its employees free of FBT if the grossed-up taxable value of fringe benefits does not exceed $30,000 per employee. Grossing-up refers to increasing the taxable value of a benefit to reflect the gross salary of an employee would have to earn at the highest marginal tax rate, including the Medicare Levy if they had received a cash salary rather than the fringe benefit. The gross up rates are 2.0802 for benefits where the employer can claim back GST on the payment or 1.8868 where no GST is claimable meaning the value of exempt payments is either $14,421 or $15,900 respectively.
2. Exemptions for Public and Not-For Profit Hospitals and Public Ambulance Services
A public or not-for profit hospital and public ambulance services can provide fringe benefits to its employees free of FBT if the grossed-up taxable value of fringe benefits does not exceed $17,000 per employee. The gross up rates are 2.0802 for benefits where the employer can claim back GST on the payment or 1.8868 where no GST is claimable meaning the value of exempt payments is either $8,172 or $9,010 respectively.
Tip : If you work for an employer in any one of these areas ask your employer about what salary sacrificing arrangements they have in place you can take advantage of.
3. Work Related Items
Items provided by an employer that are primarily for use in the employee’s employment will be exempt from FBT. Common examples include portable electronic devices, mobile phones, protective clothing, briefcase, subscriptions to trade & professional journals, airport lounge membership and tools of trade. In these circumstances a no private use declaration should be signed by the employee.
4. Relocation Benefits
Note that where an employee is being relocated to perform their employment duties there are a number of benefits that can be provided as exempt fringe benefits. These include cost of removal and storage of furniture and household effects, temporary accommodation costs including connection of gas, telephone & electricity and travel costs resulting from the relocation.
Most significantly costs incidental to the sale (in the old locality) and purchase of a dwelling (in the new locality) are exempt subject to time restrictions (generally 2 years). These costs would include stamp duty and agents commission which would result in significant savings if they formed part of salary sacrifice arrangements with the relevant employee.
5. Meals Consumed on Premises
Meals provided to an employee on the employer’s premises and consumed at the employer’s premises are exempt fringe benefits.
6. Taxi Trips
Single taxi trips beginning or ending at work are exempt from fringe benefits tax.
7. Minor and Infrequent Benefits
Minor and infrequent benefits with a taxable value up to $300 such as Christmas and welcome gifts, store vouchers and meals provided on an adhoc basis are exempt from FBT.
8. In-House Benefits up to $1,000 Taxable Value
Where an employee is provided with benefits that are similar or identical to those provided to the employer’s customers or clients. In the case of a retailer a fringe benefit is only provided to an employee if the goods are provided at below cost. This means that goods to a value greatly in excess of $1,000 can be provided at a discount from the retail price without the exemption being breached.
9. Otherwise Deductible Rule
An exemption from FBT also exists for employers that make payments on behalf of employees that would otherwise be tax deductible to the employee. Whilst this may not result in any additional tax saving note that the employer will be entitled to claim the GST credits on the payment thus reducing the overall cost of the benefit.
The above is not an exhaustive list of the FBT exemptions available but provides opportunities for employers to structure benefits for their employees tax effectively, should you require assistance in this area please contact us.