Fringe benefits are taxed under specific legislation, the Fringe Benefits Tax (FBT) Assessment Act 1986 (Cth) (FBTAA), separate from the Income Tax Assessment Act 1936 (Cth) (ITAA36) and the Income Tax Assessment Act 1997 (Cth) (ITAA97).

FBT is a tax paid by employers on certain benefits provided to their employees or their associates in place of salary or wages. Its purpose is to prevent employers providing non-cash benefits to their employees and associates/family members without anyone being taxed on these benefits.

These benefits can include:

• Car fringe benefits
• Car parking fringe benefits
• Entertainment-related fringe benefits
• Expense payment fringe benefits
• Debt waiver fringe benefits
• Loan fringe benefits
• Housing fringe benefits
• Board fringe benefits
• LAFHA fringe benefits
• Property fringe benefits
• Residual fringe benefits

Who Pays FBT?
FBT is paid by the employer, not the employee, and it is separate from income tax. If you provide non-cash benefits to your employees and associates/family members, you may have an FBT liability.

The FBT year runs from 1 April to 31 March, and the return is generally due by 21 May (or later if lodged through a tax agent).

Employers can reduce FBT by:

• Using employee contributions
• Providing exempt or concessional benefits (e.g., portable electronic devices for work)
• Structuring benefits carefully under the current ATO rules

10 Common Errors in FBT Return Preparation

1. Missing Odometer Readings: Failing to record odometer readings at both 1 April and 31 March can invalidate logbooks and lead to incorrect car fringe benefit calculations.
2. Incorrect or Outdated Logbooks: Using a logbook older than five years or one that doesn’t reflect current usage may result in an inaccurate business use percentage.
3. Not Accounting for Employee Contributions: Overlooking after-tax contributions made by employees can lead to overstated fringe benefits and excess FBT liability.
4. Incorrect Valuation of Benefits: Using market value instead of statutory methods, or failing to apply correct valuation methods (e.g., statutory formula vs. operating cost method) for car benefits.
5. Omitting Minor Benefits Exemption: Not applying the minor benefit exemption correctly for infrequent, irregular benefits under $300, potentially resulting in unnecessary FBT payable.
6. Incorrect GST Treatment: Not grossing-up correctly using Type 1 or Type 2 rates depending on whether the benefit entitles the employer to a GST credit. Another common error is failing to include GST-inclusive figures when calculating benefits.
7. Failing to Identify Reportable Benefits: Not reporting certain benefits on the employee’s PAYG summary (e.g., car benefits, loan benefits), which is required if they exceed $2,000 in a year.
8. Assuming All Benefits Are Exempt: Misapplying exemptions such as work-related items, travel expenses, or relocation benefits without checking conditions under the law.
9. Not Keeping Adequate Records: Incomplete documentation such as travel diaries, invoices, or signed declarations can result in denied exemptions or deductions.
10. Missing the FBT Return Deadline: Not lodging the FBT return or paying the liability on time can lead to interest charges and penalties from the ATO.

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.