Fringe benefit tax (FBT) is a tax employers pay on certain benefits they provide to their employees, including their employee associates. FBT may be in addition to, or part of, their salary or wages package.
If a taxpayer is director of a company or trust, the benefits taxpayers received may be subject to FBT. FBT is different from income tax and is computed on taxable value of the fringe benefits provided.
FBT law includes different categories of fringe benefits and specific valuation rules for each category.
Taxpayer will need to pay FBT even if the benefits are provided to an associate of your employee.
Various types of fringe benefits are mentioned below:
- Car fringe benefits.
- Car parking fringe benefits.
- Entertainment fringe benefits.
- Expense payment fringe benefits.
- Debt waiver fringe benefits.
- Housing fringe benefits.
- Board fringe benefits.
- Living away from home allowance fringe benefits.
- Property fringe benefits (including property ,goods or share).
- Residual fringe benefits ( benefits not covered by above categories).
Taxpayer must file a FBT return if taxpayers have a liability during an FBT year (1 April to 31 March). Taxpayer must lodge their return and pay total FBT amount due for FBT year ending 31March and the payment must be made within 21st May. However if a tax agent is preparing taxpayers FBT return, different filling arrangements may apply.
How to calculate the FBT
While working out taxpayers FBT liability they must gross- up the taxable value of benefits they provides to reflect the gross salary employees would have to earn at the highest marginal tax rate to buy the benefits after paying tax.
There are two methods of Gross-up rates to calculate the FBT.
- Higher Gross-up rate: is used where taxpayers are entitled to a GST credit for GST paid on benefits provided to an employee. This is also known as GST creditable benefits. The current type 1gross up rate is 2.0802.
- Lower Gross-up rate: is used where there is no entitlement to a GST credit. the current type 2 gross up rate is 18.8868.
Following steps to calculate the FBT
Compute out taxable value of each fringe benefit taxpayers provided to each employee. The rules for calculating the taxable value of a fringe benefit vary according to the types of benefit.
- Calculate the total taxable value of all fringe benefits, taxpayers provided for which they can claim a GST credit.
- Compute the gross up taxable value of these benefits by multiplying the total taxable value of fringe benefits they can claim a GST credit (from step 2) by the type 1 gross up rate.
- Compute out the total taxable value of all those benefits for which taxpayers can’t claim a GST credit.
- Calculate out gross up taxable value by multiplying the total taxable value of all fringe benefits that tax payers can’t claim a GST credit (from step 4) by the type 2 gross up rate.
- Add the grossed up amounts from step 3 ad 5. This is taxpayers total fringe benefits taxable amount.
- Multiply the total fringe benefits taxable amount from step 6 by the FBT rate i.e. is 47%.