What are fringe benefits, and how are they taxed?

In Plain English

Fringe benefits are extra benefits employers give to their employees on top of their regular salary or wages. These can include things like company cars, health insurance, or entertainment.

Generally, fringe benefits are taxed separately from your income. Instead of taxing the employee, the employer usually pays Fringe Benefits Tax (FBT) on the value of these benefits. The FBT rate is currently 47%. However, there are some fringe benefits that are excluded from FBT.

Also, if the total taxable value of certain fringe benefits you receive from your employer exceeds $2,000 in a tax year, this amount is reported on your income statement. This is called your "reportable fringe benefits amount" and it can affect things like your Medicare Levy Surcharge.

Detailed Explanation

Fringe benefits are benefits provided to an employee in respect of their employment. The Fringe Benefits Tax Assessment Act 1986 (FBTAA) outlines how these benefits are taxed.

Fringe Benefits Tax (FBT):

  • Imposition: FBT is imposed on the fringe benefits taxable amount of an employer for a year of tax, as per the Fringe Benefits Tax Act 1986.
  • Rate: The rate of FBT is 47%, as stated in the Fringe Benefits Tax Act 1986.
  • Employer Liability: Generally, the employer is liable to pay FBT on the taxable value of the fringe benefits provided to employees.

Employee's Individual Fringe Benefits Amount:

  • Calculation: An employee's individual fringe benefits amount is the employee's share of the taxable value of each fringe benefit provided in respect of their employment, excluding excluded fringe benefits (section 5E of the Fringe Benefits Tax Assessment Act 1986).
  • Excluded Fringe Benefits: Section 5E(3) of the Fringe Benefits Tax Assessment Act 1986 lists several excluded fringe benefits, including meal entertainment (not provided under salary packaging), car parking fringe benefits, and remote area housing. The Fringe Benefits Tax Assessment Regulations 2018 also prescribe additional excluded fringe benefits, such as certain health care services, benefits for Defence Force members, and benefits for police.

Reportable Fringe Benefits:

  • Reportable Fringe Benefits Amount: An employee has a reportable fringe benefits amount for a year of income if their individual fringe benefits amount for the year of tax ending on 31 March in the year of income is more than $2,000 (section 135P of the Fringe Benefits Tax Assessment Act 1986).
  • Calculation: The reportable fringe benefits amount is calculated using a formula based on the individual fringe benefits amount (section 135P(2) of the Fringe Benefits Tax Assessment Act 1986).
  • Reportable Fringe Benefits Total: An employee's reportable fringe benefits total for a year of income is the sum of each of the employee's reportable fringe benefits amounts for the year of income in respect of their employment by an employer (section 135N of the Fringe Benefits Tax Assessment Act 1986).
  • Medicare Levy Surcharge: A person's reportable fringe benefits total can affect the amount of Medicare Levy Surcharge they are required to pay under the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999.

Exemptions:

Valuation of Fringe Benefits:

  • The Social Security Act 1991 provides methods for valuing certain fringe benefits, such as car fringe benefits, school fees fringe benefits, health insurance fringe benefits and loan fringe benefits.