The Tax Implications of Offering Employee Benefits for Small Businesses

Appealing employee benefits, like financial initiatives and memberships, retain existing employees and entice new talent. It enables you to “give back” to your employees, fostering a positive, supportive workplace culture. 

Although sustaining high employee morale is key to productivity, a decent benefits program can impact your annual tax bill.

Follow this guide if you want to balance the benefits you provide with a beneficial tax strategy. 

What Is a Fringe Benefits Tax?

Fringe benefits tax (FBT) applies to non-salary employee gains provided to current employees, their associates, or partners. Review fringe benefit examples below:

  • Gym or health club membership
  • Tickets for events like concerts, sports games, and theatrical shows
  • Tuition fees
  • Car parking permits
  • Entertainment
  • Off-site food and drink
  • Discounted loans
  • Work cars for professional and personal use
  • Seasonal parties
  • Gifts

You don’t pay FBT on employees’ usual salary or wage, super contributions, termination payments, or shares. FBT doesn’t apply to any volunteers or contractors your business works with.

How Do Fringe Benefit Taxes Work? 

As an employer, you’re solely liable for lodging and paying this tax for each FBT year from 1st April to 31st March. FBT isn’t included in your income tax bill, which you return by 31st October. 

Calculate payable FBT by determining the value of the benefits you’ve given. This process is called “gross-up.” Here, the value represents the amount your employees would need to earn against the highest tax rate to afford those benefits personally. 

You’d pay 47% of this value towards FBT. 

You could receive tax benefits by providing fringe benefits to your employees. If you’re eligible for goods and services tax (GST) credits, you can claim the GST-exclusive cost of the benefits as an income tax deduction

Accounting Tax Solutions are here to help you with FBT

Tax unawareness could be detrimental to your business’s financial health. With over 25 years of experience helping small entities understand the implications key business decisions have on tax, we’re confident we can help you. Contact us to take control of your financial obligations.