The benefit is taxed at the employer level; the employee receiving the benefits does not pay tax on it.
Why employers provide Fringe Benefits to employees?
Companies offer fringe benefits as part of an employee’s salary package or through salary sacrifice. The benefit can have the bonus of lowering the employee’s tax bracket, which is a great advantage if the employee is in a higher tax bracket.
The benefits can motivate and assist with retaining employees. By offering benefits including gym memberships, entertainment and vouchers you create a great workplace with highly motivated staff.
Types of benefits?
There are a large range of fringe benefits that can be offered, following is a list of the most popular items:
- Motor vehicle including novated lease
- Meal entertainment – food, drink and accommodation
- Recreation – a game of golf, tickets to a movie, theatre or sporting event
- Gift card
- Gym memberships and private health insurance
When are Fringe Benefits reviewed?
The Fringe Benefits Tax (FBT) is separate to income tax. An FBT return is required to be lodged with the Australian Taxation Office (ATO) for the period from 1 April to 31 March.
Benefits and perks paid to employees are identified for the FBT calculation purposes. The benefit is grossed up by a rate determined by ATO and tax is calculated on the grossed-up benefit. The employer who is providing the benefits is liable to pay the tax.
If the grossed-up benefit exceeds a certain amount for the employee, this benefit may be required to be reported to the ATO on the employee’s PAYG payment summary depending on the type of benefits provided. This benefit is not taxed on the employee, but this amount will be form part of employee’s Adjusted Taxable Income (ATI). This ATI is used for income test purpose for various things such as several tax offsets and Centrelink benefits.
If you do provide Fringe Benefits to an employee, you will be required to lodge an FBT return with the ATO each year.
You can find more information on Motor Vehicle Fringe Benefit Tax here.