Lexi Webster
Australia's fringe benefits tax (FBT) rate is a fixed percentage applied to the taxable value of fringe benefits. The current FBT rate is 47% for the FBT years from 31 March 2022 to 31 March 2026. The FBT year runs from 1 April to 31 March. Employers must self-assess and pay FBT on benefits they provide to current, former, or future employees, or their family members. These benefits are not considered part of the employee's income but can affect their overall compensation and tax situation. Benefits include company cars, private healthcare, fitness club memberships, and more. Employers can use the FBT car calculator to determine the taxable value of car-related benefits.
| Characteristics | Values |
|---|---|
| FBT rate | 47% |
| FBT year | 1 April to 31 March |
| FBT liability threshold | $3,000 |
| Reportable fringe benefit threshold | $2,000 |
| Gross-up rates | Type 1 and Type 2 |
| Type 2 gross-up rate | 1.8868 |
| Car fringe benefit rate | 20% |
| Electric vehicle home charging rate | 4.20 cents per kilometre |
| Salary packaged meal entertainment and entertainment leasing expenses (ELFE) capping threshold | $5,000 per employee |
| Car parking threshold for the 2024 FBT year | $10.40 |
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What You'll Learn
How fringe benefits are taxed
In Australia, fringe benefits are extra benefits that supplement an employee's monetary wage or salary. Examples include company cars, private healthcare, fitness club memberships, and reimbursements for phone or internet services. These benefits are not considered part of the employee's income and can be given to current, former, or future employees or their family members. While the benefits are taxed, the tax is paid by the employer and not the employee. This tax is called the Fringe Benefits Tax (FBT) and was first imposed in 1986.
The FBT rate is currently 47%, which is applied to the "grossed-up" taxable value of all benefits given to employees, less any contributions made by the employee. This rate has been in effect since 2022 and will continue until 2026. The FBT year runs from 1 April to 31 March. The grossed-up taxable value reflects the gross salary an employee would need to earn to purchase the benefit themselves after paying income tax. There are two types of gross-up rates: Type 1 and Type 2. The Type 1 gross-up rate is used when the employer can claim a Goods and Services Tax (GST) credit.
If the total taxable value of the fringe benefits provided to an employee and/or their family exceeds $2,000 in an FBT year, this becomes a reportable fringe benefits amount. This amount must be reported on the employee's end-of-year income statement and helps accurately reflect the employee's total earnings for tax purposes. However, certain benefits, such as meals, entertainment, and employer-provided car parking, are not included in the reportable amount. Additionally, items necessary for the job, such as mobile phones and occupational-specific clothing, are generally not taxed as fringe benefits.
Some benefits are exempt from FBT, and others are only taxed if the value exceeds a certain threshold. For example, laptops and similar portable digital assistants were previously exempt but lost their exemption in 2008. Benefits provided by public benevolent institutions, such as charities and public/non-profit hospitals, may also be exempt up to a certain value. When a benefit is exempt, it means there is a 0% FBT liability rather than no FBT at all.
Employers may offer fringe benefits as part of a salary packaging arrangement, where the benefits are provided in place of part of the employee's salary. This can help reduce the employee's income tax liability and overall compensation package. While the employer pays the FBT, they may recover the cost from the employee as part of the packaging arrangement.
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FBT rates for company cars
In Australia, a fringe benefit is a payment to an employee that is not considered part of the employee's income. Fringe benefits can be given to current, former, or future employees or a member of their family, a trustee, or a director. The tax is paid by the employer only, and is not expected to be paid by the employee. The fringe benefits tax rate is a fixed percentage applied to the taxable value of fringe benefits, currently 47%.
Company cars are among the most frequently provided benefits to employees. If the company car is available for the employee's private use, the employer will be liable for Fringe Benefits Tax on the taxable benefit provided, at a rate of 47%. Private use includes situations where the car is garaged at the employee's home or business premises and the employee is allowed to use it for private purposes.
Special rules apply to employer-provided motor vehicles. Either of two methods may be used: the statutory formula method or the operating cost method. The statutory formula method is more popular as it requires less record-keeping and provides lower FBT rates as vehicle usage increases and vehicle capital value decreases. The diminishing value depreciation rate for cars purchased on or after 10 May 2006 is 25%.
A flat statutory rate of 20% applies to all car fringe benefits provided from 1 April 2014, regardless of the distance travelled.
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FBT rates for employee meals
The current fringe benefits tax (FBT) rate in Australia is 47%. This rate applies to the "grossed-up" taxable value of benefits given to employees, excluding any contributions made by the employee. The FBT year runs from 1 April to 31 March, and the 47% rate is applicable from 31 March 2022 to 31 March 2026.
Now, let's focus on FBT rates specifically for employee meals. Meals provided to employees within the office premises during lunch, such as sandwiches and juice, are generally not subject to FBT and are deductible. However, caution is advised if the meals take on an entertaining nature, such as including alcohol or multiple courses, as this may change the tax treatment.
When meals are provided outside of the office, such as taking employees out for lunch, FBT considerations come into play. The two main methods for calculating FBT on meal entertainment are:
- Minor and Infrequent Exemption: If the GST-inclusive cost of the meal benefit is less than $300 per person and it is an infrequent occurrence, the meal entertainment benefit is exempt from FBT.
- Meal Entertainment Valuation Rules: If there are no exemptions available, FBT is payable, and the cost of the meal entertainment benefit is deductible. The taxable value of the meal entertainment is calculated using these rules, and the FBT amount is then determined by applying the 47% FBT rate.
It's important to note that when meals are provided to both employees and non-employees, such as clients, only the portion related to employees and their associates is subject to FBT. Additionally, special rules apply to employer-provided meals during work-related travel, which may impact the FBT treatment.
In summary, while simple meals provided in the office are typically FBT-exempt, meals provided outside the office or with an entertaining nature may trigger FBT liability. Employers should be mindful of the FBT rates and thresholds to ensure compliance and effectively structure employee benefits.
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FBT exemptions
The fringe benefits tax (FBT) rate in Australia is currently 47%. While employers are the ones who pay FBT, employees should understand this tax as it can affect their overall compensation and tax situation.
There are several FBT exemptions and concessions that apply to all employers, not just not-for-profit organisations. These exemptions should be considered first. No FBT is payable on certain work-related benefits that are used mainly for the employee's employment, such as:
- Electronic devices and software
- Protective clothing
- Portable electronic devices and tools of trade
- Laptops and similar portable digital assistants
- Travel by employees in taxis to or from the workplace, or on public transport operated by the employer
Some minor benefits under $300 are also exempt, such as flowers provided by an employer on an employee's birthday.
Certain benefits that are not normally exempt can become exempt if provided by a public benevolent institution (e.g. charities and public/non-profit hospitals), up to a certain value. Benefits provided by religious institutions to religious practitioners in recognition of their pastoral duties are also exempt from FBT and are not reportable.
Not-for-profit organisations may be entitled to an FBT exemption, and they should check the exemption capping threshold. If the total grossed-up value of fringe benefits provided to an employee during the FBT year is equal to or less than the capping threshold, the benefits are exempt from FBT.
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FBT calculation
In Australia, fringe benefits tax (FBT) is a fixed percentage applied to the taxable value of fringe benefits. The current FBT rate is 47%. This rate is used when the benefit provider is entitled to a goods and services tax (GST) credit in respect of the provision of a benefit. The FBT year runs from 1 April to 31 March.
FBT is calculated on the taxable value of the fringe benefit. As an employer, you must self-assess your FBT liability for the FBT year. If you have an FBT liability, you must lodge an FBT return and pay the FBT you owe. A fringe benefit is like a payment to an employee, but in a different form to salary or wages. For example, a company car, private health care, fitness club membership, phone or internet service reimbursement.
To calculate FBT, you must use the grossed-up rate applicable and the maximum tax threshold of 45% plus the Medicare levy of 2%. The formula is: taxable value x grossed-up rate x FBT rate. For example, if you provide an employee with a fringe benefit of $1,000, the calculation would be: $1,000 x 2.0802 (gross-up rate) x 0.47 (FBT rate) = $977.69.
There are two gross-up rates, "Type 1" and "Type 2". The type 1 gross-up rate is 2.0802 and is used for fringe benefits for which the employer can claim a GST credit. The type 2 gross-up rate is 1.8868 and is used for fringe benefits that are either GST-free or input taxed.
It's important to keep detailed records of fringe benefits provided to employees, especially regarding their use of company cars in non-business-related events. Employers can use dedicated accounting software to reduce the manual handling involved in record-keeping.
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Frequently asked questions
The fringe benefits tax rate in Australia is currently 47%.
The FBT rate is applied to the "grossed-up" taxable value of benefits received by the employee or their associate. This rate reflects the gross salary employees would have to earn at the highest marginal tax rate (including the Medicare levy) to buy the benefits themselves.
While it is the employers who pay the FBT, employees should still understand this tax as it can affect their overall compensation and tax situation and help them negotiate their salary packages more effectively.
To calculate the FBT amount payable, multiply the grossed-up taxable value of the fringe benefits by the current FBT rate.
