The word ‘tax’ strikes fear in most people’s hearts – it is complex and constantly changing. But the chance of a tax audit is far greater now than at any time in the past – so understanding even just the basics is important.
Performing artists and other creative businesses who carefully plan their taxation affairs well in the early years, even though they may not be earning big incomes, can save tax in the later years.
And of course, having a good tax advisor or accountant is critical.
Fringe Benefits Tax (FBT) is an area that is quite often miscalculated and misunderstood.
Did you know, for example, that FBT is approximately equal to the value of the benefit provided? It effectively doubles the cost to your business.
Here are some FBT basics every business needs to know.
What is a fringe benefit?
A fringe benefit is a non-cash benefit provided to an employee by an employer in respect of his or her employment, such as meals and entertainment, tickets to events, mobile phones, laptops and motor vehicles.
What is the Fringe Benefit Tax (FBT)?
Fringe Benefits Tax (FBT) is a tax paid by employers not employees, and is payable on benefits provided to employees and their relatives.
The FBT year is from 1 April to 31 March and the current FBT rate is 49%. The rate will decrease to 47% on 1 April 2017, which means if your business has an FBT liability, it will pay less tax. FBT returns must be lodged annually by 25 June – it is quite separate from income tax.
Is your business liable for FBT?
Here are some key questions you should ask yourself:
Are any of your business cars being used privately by an employee?
If the answer is yes, FBT may be payable. You need to have a valid log book to substantiate business versus private use. If you don’t have a log book for each car, start one ASAP.
Do you provide entertainment – food, drink or a form of recreation – to your employees?
If your organisation provides meals and entertainment to an employee, FBT may be payable, especially if it is at a restaurant, a social situation, alcohol is present or the meal is elaborate.
Do employees have a holiday as part of a business trip?
If business travel is mixed with holiday travel, yes FBT may be payable.
Answer ‘yes’ to any of these other questions, you may also be caught by FBT.
- Do any of your employees have a salary package arrangement in place?
- Have you paid for, or reimbursed, an expense incurred by an employee?
- Do you provide a house or unit of accommodation to your employees?
- Do you provide employees allowances for living away from home??
- Have you provided your employees with goods at a lower price than they are normally sold to the public?
- Do you provide loans at reduced interest rates to employees?
- Have you released an employee from a debt they owed?
Is every fringe benefit subject to tax?
No. Importantly, there are a number of work-related items which are exempt from FBT including:
- Portable electronic devices that are provided primarily for use in the employee’s employment, such as mobile phones, electronic diaries, laptops, tablets or similar portable computers, portable printers, GPS
- Computer software
- A tool of trade (such as a musical instrument, sheet music etc)
- Protective clothing required for the employee’s job
- A briefcase
- A calculator
In this digital age, and with so much technology impacting live performances and creative industries generally, these FBT exemptions can be quite powerful. But it is important to remember that while portable electronic devices such as laptops or mobile phones are free from FBT, to obtain the exemption the devices must be used primarily for work.
Another thing to remember is that only one device a year can be provided FBT free per employee, although this rule has recently been relaxed for small businesses (those with a turnover of less than $2 million), who are now able to provide their employees with more than one device a year (for example, a laptop, a tablet and a phone).
If you’re not sure if your business has a FBT liability or not, that’s ok. We are here to help you, so please get in touch with us.
When working with clients we review their particular situation to ensure they are getting the benefits they are eligible for and those that will support their lifestyle.