If your business has provided any benefits to your employees, you may be liable for fringe benefits tax (FBT). This includes benefits to current, prospective and former employees,as well as their associates. It’s important to keep in mind that this applies no matter what structure your business has – sole trader, partnership, trustee, corporation, unincorporated association, etc. If a benefit was provided in respect of employment, then it may be a taxable fringe benefit.
Although the Australian income tax year runs from 1 July to 30 June, the FBT year is different, running from 1 April to 31 March the following year – so now is the time to consider your business’s FBT obligations and organise your records for the year 1 April 2020 to 31 March 2021.
In total, there are 13 different types of taxable fringe benefits, each with their own specific valuation rules. The FBT tax rate of 47% may seem fearsome, but there are ways to reduce the amount of FBT your business may have to pay where a benefit has been provided.
One of the simplest ways to reduce the amount of your business’s FBT liability is for your employees to make payments towards the cost of providing the fringe benefit. This is known as employee contribution, and certain conditions still apply.
Your business can also take advantage of various exemptions and concessions to reduce FBT liability, but you’ll need to keep specific and careful records, including employee declarations and invoices and receipts. As a general rule, you should keep these documents for at least five years after the relevant FBT return is lodged.