Paying workers – Fringe benefits tax: Tax basics for small business

Paying workers – Fringe benefits tax: Tax basics for small business


If you have employees, you’ll need to determine
whether you provide any fringe benefits to them. If you do, you may need to register
for Fringe Benefits Tax and pay FBT. FBT is a tax you pay on certain benefits you
provide to your employees or your employees’ associates – typically family members- in
place of, or as well as, salary or wages. FBT is separate from income tax and is based
on the taxable value of the various fringe benefits you have provided. Remember, if you’re a sole trader or a partner
in a partnership, you are not an employee of the business. FBT applies only to benefits
you provide to your employees – it doesn’t apply to benefits you provide to yourself. If your business operates through a company
or a trust, you are likely to be an employee and/or director. FBT obligations for fringe
benefits provided to you will be the same as for other employees. Some examples of providing a fringe benefit
might be allowing an employee to use a work car for private purposes, or giving an employee
a low interest loan, or paying an employee’s private health insurance costs, or providing
cleaning services for an employee’s private residence, reimbursing an expense your employee
has incurred, or even providing entertainment by way of food, drink or recreation to an
employee. However, an FBT exemption applies for work-related
items when they are primarily used in the employee’s employment. These are items such
as a portable electronic device, an item of computer software, an item of protective clothing,
a briefcase, or a tool of trade. If you provide fringe benefits to employees,
you must keep the necessary FBT records and work out whether you have to pay FBT. If you
need to pay FBT, you must register for FBT, lodge an FBT return, pay FBT to the ATO and
if required, report fringe benefits on your employees’ payment summaries. For more information about providing benefits
to employees visit the Fringe benefits tax homepage at www.ato.gov.au/FBT I’ve heard of a salary sacrifice arrangement,
but what is it? A salary sacrifice arrangement is an arrangement
between an employer and an employee, whereby the employee agrees to forgo part of their
future entitlement to salary or wages in return for the employer providing them with benefits
of a similar value. A salary sacrifice arrangement is commonly referred to as salary packaging
or total remuneration packaging. What types of benefits can be included in
a salary sacrifice arrangement? All non-cash benefits can be sacrificed. The
important thing is that these benefits form part of the employee’s remuneration, replacing
what could otherwise have been paid as salary. The types of benefits employers generally
provide in salary sacrifice arrangements include super, car leases, payments of an employee’s
loan repayments, school fees, child care costs and home telephone costs. What are the implications of a salary sacrifice
arrangement for employers? A salary sacrifice arrangement giving employees
a non-cash benefit may result in you having FBT obligations for those non-cash benefits.
There are some exceptions, for example salary sacrificed super contributions that are made
to a complying super fund are not considered a fringe benefit for tax purposes. If you’re considering offering such arrangements,
you may wish to speak to a financial adviser about the implications for your business. For more information, go to ato.gov.au and
search for ‘salary sacrifice’.

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