What are fringe benefits?
If you, your spouse or your children receive benefits because of your employment, these are classed as fringe benefits.
These might include:
- car parking
- expense payments
- meals and entertainment
Some fringe benefits are subject to fringe benefit tax (FBT). Your employer is responsible for paying this – you only pay tax on your remaining salary – but your employer may reduce your salary as part of a salary sacrifice agreement to cover the cost of FBT.
Some items are exempt from FBT, but these items are limited to one per year per person, unless being replaced:
- computer software
- portable electronic device (from 2016 there is no limit per person for small businesses)
- protective clothing
- tools of the trade
Certain not-for-profit organizations are eligible for sizeable FBT concessions. The FBT cap on exempt benefits provided by public and not-for-profit hospitals and public ambulances is $17,667. For public benevolent institutions (except hospitals) and health promotion charities, it increases to $31,177.
Other tax implications of fringe benefits
Certain fringe benefits above $2,000, known as ‘reportable fringe benefits’, are included in your payment summary and listed in your tax return, but not included in your assessable income. They are, however, included in the calculations for a various income tests for certain government benefits including:
- Medicare levy surcharge
- deductions for personal super contributions
- super co-contributions
- spouse super contributions
- HELP and Financial Supplement repayments
- child support obligations
Fringe benefit tax on cars
If your employer provides you with a car as a fringe benefit, your usage of the car will be taxed. There are two possible ways to calculate the amount of FBT due for cars:
- Logbook —actual car usage is recorded in a logbook over a 12-week period and FBT is calculated as a percentage of the operating costs of the vehicle over the year. The lower the amount of private usage on the car, the lower the tax rate will be. The logbook must be completed once every five years.
- Statutory method — FBT is calculated as a percentage of the cost of the car provided. For cars acquired after 1 April 2014 this is a flat rate of 20%. For years prior to that, the percentage decreases as mileage increases:
Car fringe benefits statutory formula rates (2015–16)
|Statutory fraction of car base value Date contract entered into|
|Travel (kms)||Before 11/5/11||11/5/11 – 31/3/12||1/4/12 – 31/3/13||1/4/13 – 31/3/14||After 1/4/14|
|15 000–24 999||20%||20%||20%||20%||20%|
|25 000–40 000||11%||14%||17%||20%||20%|
|40 001 and over||7%||10%||13%||17%||20%|
Source: © Australian Taxation Office for the Commonwealth of Australia.
Ways to reduce FBT on cars
Ways to reduce FBT may include the following:
- Keep a logbook to see if this method will result in a lower tax amount
- For cars acquired before 10 May 2011, travel more to get your mileage into a lower tax bracket
- Consider getting a commercial vehicle – these are exempt
- If you go away for an extended period without the car, for example on holiday, return the car and keys to your employer
- Make an employee contribution towards the cost of the benefit
To show how making an employee contribution can help reduce tax when it comes to salary sacrificing, let’s look at the example of Josh. He earns $74,000 a year and has a car which cost $40,000 and has running expenses of $15,000 per year. He acquired the car in 2015, so regardless of how many kilometres he travels, the FBT will be $8,000 per year ($40,000 x 20%).
He will have to sacrifice either:
- $22 094 without any employee contributions
- $7000 if employee contributions of $8000 are made
The following table shows Josh’s options in this scenario:
Salary sacrifice example
|1 Salary only (no packaging)||2 Salary + car (without employee contributions)||3 Salary + car (with employee contributions)|
|Annual remuneration||$74 000||$74 000||$74 000|
|Less salary sacrifice||Nil||$22 094||$7000|
|Taxable income||$74 000||$51 906||$67 000|
|Less income tax||$15 597||$8416||$13 322|
|Less Medicare levy||$1480||$1038||$1340|
|Income after tax/salary sacrifice||$56 923||$42 452||$52 338|
|Less employee contribution||Nil||Nil||$8000|
|Less car expenses||$15 000||Nil||Nil|
|Net disposable income||$41 923||$42 452||$44 358|
|Reportable fringe benefits amount (taxable value × 1.8868)||Nil||$15 094||Nil|
Source: © Australian Taxation Office for the Commonwealth of Australia
You can see that by making the employee contribution, he ends up better off and doesn’t have any reportable fringe benefits that may affect his other income sources.
- Fringe benefits are any benefits that you, your spouse or your children receive from your employment
- Some benefits are tax-free but others are subject to fringe benefit tax (FBT). Your employer has to pay FBT but may well pass the cost on to you via a salary reduction
- Certain not-for-profits receive generous FBT concessions
- Having reportable fringe benefits may not affect your income tax amount but can affect your eligibility for other benefits since the value of the fringe benefit will be taken into account during some means tests
- If you have a car as a fringe benefit, you can either pay a fixed percentage of the cost of the car in FBT or you can keep a logbook to record your actual usage and calculate the tax based on that
- Making an employee contribution towards your car can reduce the overall amount of tax you pay and avoid reportable fringe benefits