Today’s job market is very competitive, and businesses are continuously looking for, and adopting, ways to gain competitive advantage in attracting valuable new talent or retaining and motivating their current employees. A frequently used method is by offering Fringe Benefits.
What are Fringe Benefits?
Fringe Benefits are provided in addition to employee wages, forming a total remuneration package, and can be in the form of:
- Use of a company or workhorse vehicle;
- Novated vehicle lease;
- Provision of car parking;
- Entertainment, events or food expenses
- Payments of personal expenses, such as school fees, gym memberships or health benefits
- Provision of items that are normally used by an employee for work such as mobile phones, laptops, tablets, portable printers, protective clothing, tools of trade etc.
- “Minor and infrequent benefits” that are less than $300 in value for the year
As an employer, what do I need to know?
The provision of Fringe Benefits is an enticing incentive for employees, but can be lucrative for employers, particularly in the health and charity sectors who receive concessional tax treatments. However, the associated compliance requirements and tax ramifications need to be thoroughly understood for Fringe Benefits to be effective and valuable:
- Employers providing Fringe Benefits must register for Fringe Benefits Tax (FBT), which is currently payable at 47%, and report the value of the benefits to the ATO through the lodgement of an FBT return.
- The reporting period for FBT is 1 April to 31 March, and the due dates for the lodgement and payment of the FBT return, for the 2021 financial year, is 21 May 2021 (if lodging by paper) and 25 June 2021 (if lodging electronically or through your tax agent).
- An FBT return should be lodged for every year, even if it is nil, as this limits the period the tax office can audit your FBT activity for that year to 3 years. Non-lodgement for any particular FBT year means the tax office has an indefinite period of time to audit that FBT year.
- Costs associated with the provision of Fringe Benefits as well as the associated FBT are generally tax deductible for the employer, However, there are ways to reduce the FBT such as requiring employees to make an “employee contribution” payment back to the business. This repayment must be calculated to ensure the fringe benefit value is reduced to the desired level or nil.
- If an employee’s taxable Fringe Benefit amount exceeds $2,000 for the year, the employer is required to report the value on the employees annual STP salary lodgement.
- Employers must determine whether individuals are engaged as contractors are, in fact, genuine contractors or are common law employees. Various compliance requirements will apply to these individuals such as PAYG withholding, superannuation guarantee, and FBT if they are judged to be common law employees.
- Strict records such as log-books and employee declarations must be kept around the Fringe Benefits provided to facilitate preparation of the annual returns and to satisfy any tax office audit. There are various applications available to assist in the maintenance of log books, such as https://www.driversnote.com.au/.
Providing Fringe Benefits can benefit your business but it is important to understand the compliance associated with the regime. Archangel Wealth have qualified advisors happy to provide you with more information- feel free to contact our office!
Your trusted team at Archangel Wealth