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In general terms, fringe benefits tax (FBT) is a tax paid by an employer when it provides non-salary benefits to its employees. This often occurs when an employee chooses to have some of their salary paid in the form of benefits for example having some of their salary directed to paying their rent or to paying a car lease.
The fringe benefit tax rate is 49% for the FBT year 31 March 2016 to 31 March 2017 (the highest marginal tax rate of 47%, plus Medicare levy of 2%). This is paid by an employer based on the value of non-salary benefits provided to its employees. Employers normally require employees to cover the FBT they pay so that the employer is not out-of-pocket because of the salary packaging arrangement chosen by the employee.
FBT rates change from year to year. Please check the Australian Tax Office for the most recent rate.
Note also that from 1 January 2017, when calculating eligibility for family assistance and youth income support payments, 100 per cent reportable fringe benefits will be counted as income, instead of the current 51 per cent. However, if your organisation is registered as a benevolent institution, health promotion charity, relevant hospital or relevant ambulance service, employees may be exempt (but will still need to take certain steps). For more information about changes to reportable fringe benefits visit the Department of Human Services.
There are some general exceptions to the above. For example, no FBT is payable on certain work related benefits that are used mainly in the employee's employment such as mobile phones, a laptop or tablet. Some minor benefits that are provided to employee's are also exempt. For example, if an employer provides an employee with flowers on their birthday.
There are specific FBT concessions for:
- charitable institutions and rebateable employers, and
- health promotion charities and public benevolent institutions (PBI).
The FBT regime can be complex, and we recommend organisations seek advice about where they are required to pay FBT and where exemptions may apply.
Rebate for charitable institutions and rebateable employers
An FBT rebate (essentially a tax discount) is available to organisations that are:
- charities registered with the ACNC and which are recognised as charitable institutions by the ATO (Tax Concession Charities), and
- certain non-government not-for-profit community organisations (called 'rebateable employers').
Rebateable employers include not-for-profit organisations established:
- to encourage music, art, literature or science
- to encourage or promote a game, sport or animal races
- for community service purposes, and
- to promote the development of Australian information and communication technology resources, or agricultural, pastoral, horticultural, viticultural, aquacultural, fishing, manufacturing or industrial resources of Australia.
These organisations are entitled to have their liability reduced by a rebate equal to:
- 48% of the gross FBT payable, subject to a cap of $30,000 per employee for the 2015 and earlier FBT years
- 49% of the gross FBT payable, subject to a cap of $31,177 per employee for the 2016 and 2017 FBT years
- 47% of the gross FBT payable, subject to a cap of $30,000 per employee for the 2018 FBT year and onwards.
The benefit of this rebate is that the organisation can offer employees non-salary benefits that are subject to the discounted FBT.
The Not-for-profit Law fact sheet below explains the application process for endorsement as a Tax Concession Charity.
Exemption for health promotion charities and public benevolent institutions (PBIs)
Health promotion charities and public benevolent institutions (PBIs) are exempt from FBT, subject to a cap. This allows the health promotion charity or PBI to provide salary packaging which is attractive to their employees.
This exemption is subject to a cap of $30,000 ($17,000 for public and non-profit hospitals and ambulance services) in grossed up benefits provided to an individual employee.
This means that FBT is not payable on benefits provided by a health promotion charity or a PBI to its employees, subject to the limit.
For information on endorsement as a Deductible Gift Recipient, go to the Not-for-profit Law page on DGR.
Reporting obligations for a health promotion charity or a PBI
As benefits provided by a health promotion charity or PBI are exempt from FBT (subject to a cap), the health promotion charity or PBI is not required to register for FBT with the ATO or lodge an FBT return, but must be endorsed as a PBI or health promotions charity for FBT purposes.
If the cap for an individual employee is exceeded, and FBT is payable, then the organisation will need to register for FBT with the ATO, lodge an FBT return for the relevant FBT year and pay FBT by the due date.
Reporting obligations in relation to the employees
Even though a health promotion charity or PBI doesn't have to pay FBT, it must (in general terms) report the value of benefits provided to individual employees in excess of $2,000 on its employee payment summaries.
This amount is not shown as income in the employee's tax return, and therefore no tax is payable on it and no Medicare levy is payable on it, however the amount is used in various income tests, eg. HECS repayments, child support payments, means tested government benefits, Medicare levy surcharge, and super co contribution.