As a business person, you understand the value of hard work and dedication. Your employees are the lifeblood of your business, whether it’s a small enterprise or a large corporation. 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 incentivise the workplace. How can you incentivise? Through fringe benefits for your employees!
While giving your employees benefits throughout the year is a wonderful gesture, they must always be accounted for in the end. Specifically, there will be a tax involved with these benefits that you may not know about. Your accountants will need to know about these fringe benefits as they are given to the employees. If you are a new business owner, here is an easy guide to help you navigate the taxation of fringe benefits.
What Is a Fringe Benefit?
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 wage, or on the fringe. Companies and businesses all across the Gold Coast 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.
Are All Fringe Benefits Taxable?
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. Private vehicle use, loans, reimbursement for schooling, and benefits that sacrifice a portion of the employee’s salary are all taxable as well.
Working Out the Fringe Benefit Tax
By now we should have a certain understanding of what constitutes as a fringe benefit. Now, let’s look at just how we are supposed 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.
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 this is completed, 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.
How to Register for a Fringe Benefit Tax
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, follow this link or contact our office for assistance.
How to Stay Ahead
As with any bookkeeping service, you always want to be organized for whatever may come your way. That’s why it’s important 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 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.