It’s hard to believe it’s March already.
And with March comes the need to report Fringe Benefits Tax (FBT).
Unlike your personal income tax return, FBT doesn’t follow the Australian financial year (1st July – 30th June).
Rather, the FBT year ends on the 31st of March – a date that’s only a handful of short weeks away!
This isn’t the first time our personal accountants in Melbourne have talked about fringe benefits tax – here’s a link to the last time we talked about FBT.
Why are we bringing it up again? Simple: the last time we talked FBT returns, we approached it from the perspective of businesses.
But what about the employees receiving the benefit (read: you?)
Fringe benefits tax, explained
A fringe benefit is any non-monetary benefit or bonus you receive from your employer in addition to your salary or wages.
This can include:
- A company car
- Gym memberships
- Entertainment expenses
- Private health cover
- Childcare costs
- Shares or bonds
It’s important to remember that FBT is paid by the employer, NOT the employee – that means you won’t have to include it in your total income or loss, or pay any income tax on it.
Your employer files an FBT return using the ATO’s practitioner lodgment service (PLS), often with the assistance of a business accountant. As an employee, no money will come out of your pocket – thus, you won’t have to do anything.
Okay, so if FBT doesn’t affect your tax return or your earnings, why are we talking about it?
Simple. While it may not affect your earnings directly, FBT can affect some of your other liabilities, such as:
- The Medicare levy surcharge
- Your eligibility for the private health insurance rebate
- Your eligibility for family assistance payments
- Eligibility for government co-contributions for personal super co-contributions
- Whether you can offset business losses against other income
Not to mention, it’s also used by the ATO in certain means tests to evaluate your eligibility for certain allowances and whatnot.
That’s why it’s so important that you ensure that when it’s time to do your tax return that you enter the correct amount of reportable FBT. The wrong number could affect many other parts of your finances.
Luckily for you, the process for calculating your reportable FBT is quite straightforward.
It’s worth noting that FBT can also influence your vacant land tax liabilities.
Calculating reportable FBT
Do I have to crunch any numbers?
Don’t worry, as a recipient you won’t have to do much in the way of calculations and the like – your employer will automatically track the value of fringe benefits, as well as the reportable fringe benefit amount.
When you receive your payment summary in June or July, it will also list the taxable value of all fringe benefits you’re entitled to as well.
“But wait,” we hear you say, “don’t FBT and income tax use different calendars?”
That’s correct. That’s why when your payment summary turns up in July, it will feature reportable fringe benefits for the previous FBT year.
For example, this year your payment summary would feature your FBT total for the 1st of April 2019 to the 31st of March 2020.
Using this total and the gross-up rate, you can find your reportable FBT.
What are gross-up rates?
When calculating FBT, it isn’t enough to just tally up the total value of all benefits given to an employee – first, you’ll need to get the gross-up rate.
Essentially, these rates are supplied by the ATO to help determine the true value of a reportable fringe benefit.
According to the ATO, this number reflects how much salary you would have to earn to purchase the benefit from your after tax income.
Employees and recipients use the lower gross-up rate of 1.8868 (at the time of writing). To obtain the reportable FBT amount, you’ll want to multiply your taxable FBT value by this number.
There are also certain exemptions such as the work test exemption explained by a personal accountant, that you should be aware of.
Now that you have this number, all you have to do is enter it in the appropriate field of your tax return.
Learn more about how the ATO oversees these processes as a tax accountant Melbourne explains ATO data matching in detail.
Some benefits don’t need to be included on your payment summary – if you notice your benefits aren’t being reported, don’t panic just yet – it could just be that your benefits fall into an excluded category.
This can include:
- Parking benefits
- Emergency healthcare received while working outside of Australia
- Private usage of a pooled or shared car
- Remote housing assistance and ownership schemes
- Travel costs if you live in a remote area
If your benefits haven’t properly been calculated or that some have been improperly excluded (or included) for whatever reason, it can affect your other entitlements and obligations.
That’s why it’s so important that you get this right!
Worried your benefits aren’t accurate? Don’t be afraid to broach the issue with your personal accountant.
Worried about your taxes? Don’t be!
Expert advice from our personal accountants in Melbourne
Whether you’re concentrating on sorting your FBT or the entire idea of your tax return is doing your head in – when it comes to matters of tax, it’s important that you get the right advice.
Only then can you be confident that you aren’t:
- Paying more than you need to
- Underpaying tax
- Missing out on things that you’re entitled to
For more than 50 years, Bruce Edmunds & Associates’ accountants in Melbourne have been helping individuals and businesses do just that by getting their financial affairs in order.
And you can be one of them.
Get rid of the stress that comes with tax time – for professional financial advice regarding FBT (or any of your other obligations), get in touch with a personal tax accountant today!
Give us a call on (03) 9589 5488, or submit an enquiry here.