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How do Fringe Benefits work in Australia? | A Guide for Overseas Employers

If you’re hiring employees in Australia you might find the tax and employment laws there to be different from your home country.  An example of this is the fringe benefits tax (FBT) which is a separate tax paid on benefits provided to employees and their family.

If you are new to Australia, how will you learn what types of fringe benefits are taxable, and how are they reported and paid?  This guide to FBT will help get you started on understanding and following Australian regulations.

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What are Fringe Benefits in Australia?

There is a long list of taxable benefits, and each category has different valuation rules for taxability.  Types of fringe benefits subject to tax include:

  • Car and parking expenses
  • Housing and food
  • Loans and debt waivers
  • Entertainment

There is also a residual category to cover non-listed categories of benefits, so basically any non-business benefits will be taxable.

Do I Need to Pay Fringe Benefit Tax in Australia?

If your employees use company assets for their own personal enrichment or enjoyment you will need to pay FBT.  Common examples are using a company car for personal use, reimbursing school fees, offering discounted loans from the company, and paying for gym memberships or entertainment packages.

There are some benefits that are exempt from FBT such as work-related items (laptop, software, briefcases) and taxi expenses, as long as the benefits are primarily used for employment.

How do I Register for Fringe Benefit Tax in Australia?

You will register for FBT if you provided taxable benefits during the FBT year (April 1-March 31).   Registration can be done either online, by phone, through a tax agent or simply by filing the FBT return.

How do I Calculate, Report and Pay Fringe Benefit Tax in Australia?

When you file your FBT return, it will be necessary for you or your agent to calculate the FBT for all items and expenses.  Here are the steps involved:

  • Find the taxable value of each separate fringe benefit.
  • Work out the total taxable value of all the fringe benefits for which you can claim a GST credit, as well as those not available for GST credit.
  • Then there is fairly complex formula to calculate the grossed-up taxable value (the amount that an employee would have to earn at the applicable tax rate to buy the benefits post-tax).
  • The gross-up tax rate will be different for GST and non-GST benefits, ranging from 47-49%.  Some fringe benefits will have a different rate, such as car expenses.

After the calculations are made, you can then report the amounts via your FBT return. This can be done with enabled software, through an agent, or by post.  Payment of the total FBT must be made by May 21, unless you set up an installment payment method.

Case Example: Business Related Fringe Benefits

One of our clients with employees in Australia had a question about how to handle benefits that are primarily business related and not subject to FBT.  We let them know that the Australia Tax Office requires that the employee sign a declaration that the submitted expenses are of a business nature.

To assist with this, we prepared a template which was made available on Dropbox, so all the employee had to do was fill it out and sign it, and then submit it back via the Dropbox account.

Need More Information About Australia?

Reviewing the FBT requirements might bring up more questions about meeting these tax rules in Australia, such as:

How to calculate the grossed-up taxable value for fringe benefits?

What is the main factor determining is a benefit is business related?

What happens if a mistake is made in calculating FBT, and are there any penalties?

Our local employer of record and in country experts can assist with all of these items, and ensure that FBT is paid accurately and on time to avoid any tax compliance issues.  This is one way that we make international employment simple, in the areas of tax, payroll, employment and immigration.

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