Fringe Benefits and Friends with Benefits – Not the same thing…

March is a unique month for accountants because it’s the end of the FBT year. FBT?  Is that the equivalent of friends with benefits, a one night stand with your best friend’s sibling or someone from the office?  I hear you ask.

Not quite. Unfortunately, FBT (or fringe benefits tax) is a tax that employers must generally pay on benefits (other than taxable salary and wages) that form part of your overall salary arrangement.  Some employers will allow you to include benefits other than salary in your overall ‘package’, – generally described as ‘salary packaging’.  Think cars, mobile phones or perhaps certain expenses.  While different types of benefits are great, the fringe benefits tax (FBT) that your employer needs to pay on them is, like the morning-after wrath from your best mate, what usually brings us back to earth with a thump.  Fringe benefits tax applies to taxable fringe benefits at the highest marginal income tax rate plus Medicare levy (currently 46.5%). Also, while FBT is a tax that is assessed to and paid by your employer, the majority of employers will charge it back against your taxable salary – reducing the overall amount of money you take home which is bad, right?

Well maybe, maybe not. The key is to look at your total take-home benefits and salary under a salary packaging arrangement when compared with taking home a straight taxable salary.  In many cases, packaging can provide a better result.  The combinations of benefits possible to package, like the endless possibilities friends with benefits offers, can be unlimited; some are common, there are also some exemptions and concessions.  These include:

Superannuation – I can hear you yawning already but don’t discount it right off the bat.  Superannuation is exempt from fringe benefits and is a great way to reduce your taxable income and save income tax (the cap for concessional superannuation contributions is currently $25,000 per year and contributions attract tax at the rate of 15% in the fund – you save the difference between your marginal tax rate and 15%).

Mobile phones – now you’re talking! Provision of one mobile phone handset per year is also exempt from fringe benefits tax provided you can substantiate that it is used primarily in your employment.

Laptop computers – there aren’t many tax concessions these days but this isn’t a bad one either.  The same rules apply as for mobile phones.

Cars – these can be pretty sexy.  In the past packaging a car has been a great way to save tax for many people.  However, the savings from 1 April 2013 onwards aren’t going to be quite as good as they used to be, but packaging a car can still be worthy of consideration.

There are also some great fringe benefits concessions which apply to employees who work for public benevolent institutions (including many charities and public hospitals) as well as religious institutions.  Eligible employees of some of these organisations may be entitled to package fringe benefits up to about $16,049 completely tax free!

Fringe benefits tax is a pretty complex area.  In the same way as inadvertently getting involved with your best friend’s brother or sister or someone from the office without first checking the ground rules, there can be a whole truck load of awkward if you get it wrong or don’t understand what you’re letting yourself in for.  In order to sidestep the morning-after head ache it’s important to consult with a qualified income tax adviser before entering into any salary packaging arrangement.

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By Dean Johnson