The lowdown on fringe benefits myths
FRINGE Benefits Tax exists to ensure that employees are not getting a salary disguised in another form and avoiding tax. But such a broad concept has its problems. So here are the myths and realities of fringe benefits.
MYTH 1 - MOTOR VEHICLES: You don't pay FBT on company cars.
As soon as your team starts taking the company car home at night, uses it to travel to and from work, uses it on weekends, or for its own purposes then FBT will apply. Even if the employee doesn't actually use the car on weekends, the fact that it is available for their use would generally mean that FBT applies.
FBT also generally applies to road tolls paid by the business and incurred by team members travelling to and from work or for private purposes.
MYTH 2 - DIRECTORS: You don't pay FBT if something is salary packaged.
If you receive benefits in connection with your role as a director then the FBT rules treat you just like an employee. If you take a company car home or one is available to you, then FBT applies. If you don't pay for the business's products and services that you use or pay a discounted rate, then FBT applies. Don't forget, even though you might own the company, if you are employed by the company, then the same rules apply to you.
MYTH 3 - STAFF BENEFITS: You don't pay FBT if something is salary packaged.
While salary is not subject to FBT, additional benefits such as health insurance packaged into an employee's salary can trigger FBT. This is even in industries where employees are required to undergo medical testing. Pretty much anything given to staff with a value of $300 or more can incur FBT.
MYTH 4 - LOANS: Advances given to staff don't incur FBT.
Let's say an administrative error means that a team member has been overpaid by quite a large amount for the past 12 months. The employee can't afford to repay the whole amount in one go so a repayment plan is agreed to. No interest is charged as it wasn't the employee's fault and this wouldn't be fair. The ATO would consider the overpayment a loan. The fact that no interest is being charged means that FBT would apply. Loans need to be charged interest of at least the ATO's published interest rate to avoid paying FBT. The ATO's rate for 2012-2013 is 7.40%
MYTH 5 - MEALS: Meals provided to employees are not subject to FBT.
While there are some exceptions that apply to meals provided to employees, there are many situations where the provision of food and drink to an employee or their associate is subject to FBT. The risk of FBT applying to increases when you are entertaining, rather than just providing sustenance. The main exceptions are where the meal is consumed by an employee while travelling for business purposes or on the employer's business premises. Food and drink provided to employees and associates at a party can be exempt from FBT if the cost per head is under $300. Food and drink that gives rise to entertainment but is not subject to FBT is not deductible to the business.