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As a business person, you understand the value of hard work and dedication. Whether you run a small enterprise or a large corporation, you know that your employees are the lifeblood of your business. Without those dedicated people, you would have serious issues filling orders and carrying out day-to-day tasks. That’s why it’s important to keep them well-paid and incentivised. How can you incentivise? Through fringe benefits for your employees!
Giving your employees benefits throughout the year is a wonderful gesture. However, it's important to always account for these benefits. It's important to make sure your accountant knows about all of these fringe benefits so that they can calculate your taxes correctly. If you are a new business owner, here is an easy guide to help you navigate the taxation of fringe benefits.
Put simply, a fringe benefit is a perk for your employees. These benefits are non-cash perks and they are delivered outside of their regular payment structure. This means that the benefits are outside of their regular salary, or on the fringe. Companies and businesses all across Australia provide different kinds of fringe benefits to their employees.
There are many different kinds of things that can be considered fringe benefits. For instance, private use of vehicles and staff parties are benefits that are outside an employee’s salary. Other fringe benefits include low-interest loans for private purposes, accommodation for those living away from home, computers, and mobile phones.
If you think that you may be able to skirt paying the tax on certain benefits delivered to employees, you ought to think twice. All fringe benefits are taxable if they are provided to an employee – or an associate of an employee – in respect of payment. For example, let’s say you have an employee who has done a wonderful job for the company, so you send him and a friend to an AFL match. This gesture is a fringe benefit and is most certainly taxable.
Taxable fringe benefits include:
Items that don't fall under the fringe benefits tax include:
By now we should have a certain understanding of what constitutes a fringe benefit. Now, let’s look at just how to apply the tax to the benefits themselves. To begin, decipher the pre-gross taxable amount on all fringe benefits for your employees. From this, you’ll be able to see which benefits receive a GST credit (type 1), to which you can find the grossed-up taxable rate (multiply by the type 1 rate) for those fringe benefits. Next, look for the GST-free benefits (type 2) and calculate the grossed-up taxable rate for those items. Add these gross amounts and multiply it by the fringe benefits tax (FBT). This is what you owe for your employee benefits.
Read more about how to calculate your fringe benefits tax on the ATO website.
For entertainment and meals, the FBT calculations can be a little more difficult. For this reason, there are 3 ways to accurately log the information.
There is the logbook method, in which you must log every fringe benefit incurred over a 12-week period. After these 12 weeks, you can decide which entertainment benefits are client-based and which are employee-based. Once you ascertain this, apply an appropriate percentage to any entertainment expenses that come up during the rest of the year.
Then there is the 50:50 method, in which you take half of the yearly expenses and apply the full FBT to them.
The third is the actual method, where you meticulously record every fringe benefit and apply the according to FBT for those expenses.
Once you have decided that your business is going to provide benefits for your employees, you will need to apply for an FBT. As with all lodgements, you will need your FBT lodged between April 1 and March 31. If you are interested in registering for the FBT, you can learn more on the ATO website. You can also contact our office for assistance.
As is the case with any bookkeeping task, it's important that you prepare for all situations. That’s why it’s crucial to stay on top of your books – including your FBT accounting. If you are providing entertainment or meals for your clients or employees, you will need to choose a method to use. The 50:50 and actual methods are much simpler to use and won’t cause as much panic come year-end. The last thing you need to be doing at the end of the financial year is to be combing through ledgers looking for a meal that went unaccounted for.
If you need any assistance with your FBT lodging or have any questions about the process, we at Darcy Bookkeeping & Business Services are able to help. Give us a call and let us help you get through your FBT process.
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