Fringe benefits tax

Fringe benefits tax is covered by the Fringe Benefits Tax Assessment Act 1986 (Cth). It is payable by the employer rather than the employee.

The method of calculating fringe benefits tax was changed in 1994 to what is called the grossing up method, which had drastic consequences for some employers.

Advantages of fringe benefits

A number of benefits remain exempt from fringe benefits tax, and are income tax free to the employee (see Exempt benefits, below). The employer also gets a tax deduction for the cost of the benefit.

Further, some fringe benefits taxable to the employer are taxed at values well below the cost an employee would incur if they had to pay for them personally (for example, cars, loans, remote area housing, discounted goods and services).

These may be attractive benefits, partcularly for employees on the maximum rate of income tax.

Exempt employers

Employers who do not have to pay fringe benefits tax are:

religious institutions, in relation to religious work (s.57)
international organisations, embassies and consulates
public benevolent institutions and state health authorities, in relation to benefits to employees only (s.57A).

These concessions are now subject to certain limits.

Exempt benefits

Some benefits exempt from fringe benefits tax are:

residential accommodation for live-in residential care workers and their families (s.58)
free or discounted commuter transport, if the employer is in the business of providing transport and travel is to and from work or on the employer’s scheduled metropolitan services (s.47)
recreational and childcare services provided by the employer on the employer’s business premises (and elsewhere in the case of government-funded childcare services) (s.47)
private use of business property on an employer’s premises, both in and out of working hours
the first $500 worth of ‘in house’ fringe benefits — discounted goods and services of a type normally sold by the employer in the course of business. Note that no taxable fringe benefit arises anyway unless goods are sold to the employee at less than cost or services are sold at a discount greater than 25% of the employer’s usual selling price
workers compensation payments and associated benefits
relocation costs (travel, temporary accommodation, furniture removal, costs incurred in purchase and sale of houses)
small, occasional, hard to record and value benefits (for example, a bottle of wine at Christmas)
accommodation and meals for live-in help for disadvantaged and elderly people
emergency relief, safety awards (to $200), long service awards (to $500) and meals for domestic employees.
Concessional benefits
These are benefits taxed at less than their market value or cost to the employer:
cars, especially if the statutory formula is adopted. This varies according to the vehicle’s annual mileage. In practice, the great majority of employers adopt the statutory formula
loans, if the interest rate charged is equal to or greater than the benchmark rate
remote area accommodation and holiday travel (50% of the usual value).