Employers, Are You Confused by Fringe Benefits Tax?
If you own a small business and employ others, you may have had to be creative when first recruiting by offering certain "frills" to draw staff away from your competition. Yet you do need to account for these add-ons and other payments in kind, as the tax regulator considers them to be fringe benefits. What do you need to know about your obligations as you prepare to lodge your end-of-year returns?
The first thing to remember is that the ATO's fringe benefits tax applies to the employer. The tax is imposed on you if you provide benefits other than salary or wages to any employee, in association with their employment. It's important to remember that the tax is not levied against the employee at all, even though they are receiving the perceived benefit.
Transportation or Accommodation
Often, an employer will give a new staff member a vehicle. They may use it to visit clients or prospects but will also be able to use the car or truck for non-business-related journeys. Sometimes, an employer will offer housing accommodation or give the staff member a certain allowance if they need to live away from home due to their vocation.
On occasion, an employee may be tempted to jump ship from one company to another if they offer a private health insurance package or membership to a local health club. Again, the tax authority considers these to be taxable based on the actual cost of the benefit. However, sometimes, the taxable value must be calculated based on a certain formula, particularly when it comes to the provision of a car benefit.
Still, not everything is taxed in this way. For example, if you provide the employee with a laptop mainly intended for work purposes, fringe benefits tax will not be imposed. Also, some benefits are considered to be "minor" and need not be reported. Should you decide to throw an end-of-year party and the total cost per head was minimal, this would be exempt.
For the average business owner, this situation can often be difficult to interpret, especially in recent times due to pandemic-related obligations. For example, you may wonder whether you need to account for fringe benefits tax if you now have to pay for items that allow your employees to work remotely. For answers to this and other questions, consider talking with a local accountant.