The biggest myths about fringe benefits tax (FBT)

March marks the period when your business must disclose any activities that fall within the realm of fringe benefits tax.

This tax catches a lot of business owners out, so here is a quick explainer and some of the biggest misconceptions about FBT-related expenses and reporting.

What is Fringe Benefits Tax?

Fringe Benefits Tax (FBT) is a tax the Australian government imposes on non-cash benefits employers provide to employees and associates in connection with their employment. 

This can include company cars, health insurance, and entertainment expenses. 

Employers are responsible for calculating and paying FBT to the Australian Taxation Office annually, based on the taxable value of the fringe benefits provided throughout the FBT year, which runs from 1 April to 31 March. 

Adhering to FBT regulations is essential if you want your business to avoid a potential audit and financial penalties.

Why do businesses have to pay FBT?

Employers use non-monetary compensation like vehicles and entertainment as incentives for staff, but it means items of value are being exchanged that aren’t taxed. 

Think of it this way; if you paid your employee an extra $500 per month to cover the cost of a car, they would have to pay tax on that money. When you provide the car, some form of taxation has to occur. 

Fringe Benefit Taxes work as a kind of catch-all tax for anything not covered under other legislation. The tricky part is that there are exemptions, and the rules can be complex. With this in mind, here are five common misunderstandings: 

Biggest myths about Fringe Benefits Tax

Having these beliefs can result in your business being audited:

#1: Work vehicles are fully FBT exempt

Many business owners will think, “I bought myself a big ute, so I don't need to worry about FBT because it's going to be a hundred per cent for business use.” Then they're off four-wheel driving and using the ute for purposes other than work. 

It isn’t the style of vehicle that gets taxed, it’s the style of its use. You or your team members will need to keep a logbook of how the vehicle is used (include personal and private use) so you can figure out how much FBT will apply. 

# 2: All small expenses are exempt from FBT

If you take your team out for drinks every Friday, it’s too easy to feel like this expense falls under the minor expense category. However, while you may only spend around $200 - 300, if it occurs on a regular basis it may qualify as a fringe benefit. 

The caveat for exemption is ‘minor and infrequent’. Don’t forget about frequency as a factor. 

#3: Loans don’t count

Some people believe that they can provide a loan to an employee with no tax implications, especially if the money is repaid within a year. 

The expectation is if you loan money to an employee, you will charge them interest in correlation with the base rate of the time. If you charge below market interest rates, you can expect to pay tax on the difference. 

If you loan money to an employee, talk to your accountant first to ensure you charge them the right amount of interest to avoid extra tax.

#4: The ATO won’t know

The ATO uses increasingly advanced technology to track spending and expenses, and has the right to access your records. If it suspects inaccurate or incomplete reporting, it will conduct a review. 

#5 Electric vehicles are exempt from FBT

Some electric vehicles may be exempt from FBT, but don’t fall back on this as a reason to spend extra on these types of cars just because conditions and criteria apply.

Staying above board with your FBT

Here are two more tips to keep your FBT reporting on track:

• Track everything: Whether it’s receipts for spending at the bar, a register for ongoing entertainment expenses or staff logbooks for vehicle usage, keeping records of all your business spending is best so you can share the right information when it’s needed. 

• Talk to your accountant: The fact is, FBT is complicated, especially when you start introducing programs like salary sacrificing, or if you run a not for profit organisation. 

Hand your receipts and records over to an expert and you’ll have better peace of mind that you are compliant in this area. 

Need help to organise accurate FBT reporting? Contact JVP Advisory today.