What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) is a tax on the non-cash benefits a business may provide to an employee or their employee’s family or other associates. One of the most common examples of Fringe benefits are using business vehicles (cars) for private use.
If fringe benefits are provided to the employee, the employee must provide a contribution equal to the taxable value of the benefit or the employer must value the benefits in accordance with the legislation and pay FBT at the rate of 47%.
How does an FBT exemption save you money?
As stated above, normally fringe benefits provided in the form of private use of business vehicles would result in either the requirement of an employee contribution equal to the taxable value of the benefit or for the employer to pay FBT of 47% on the grossed up value of the benefit. These amendments effectively cease these payments being required as the vehicle is exempt from these measures.
To understand the magnitude of the savings this generates, An employer offering a $50,000 electric car to an employee as a fringe benefit could save up to $9,776.94 a year.
Alternatively, where the same car was provided under a salary sacrifice arrangement such as a novated lease, it could save the employee up to $4,700 a year (depending on their individual tax rate).
Of course this is not the first time the government has been generous with FBT exemptions. Commercial vehicles are also exempt from FBT where “minor and infrequent” private use is exempt. Although not as broad as the new Electric Vehicle (EV) exemption, this is still in part the reason why the humble dual-cab ute is so dominant on Australian roads today. Something we expect the government is trying to replicate the success of with these Electric Vehicle concessions.
How to access the FBT exemption
For employers looking to access the FBT exemption for themselves or on vehicles they provide to their employees, the vehicle will simply need to be acquired or leased in the business name.
For employees looking to take advantage of the new exemptions, it is best to discuss this with your employer as you will need to enter into a novated lease with your employer.
For employers offering novated leases to their employees, it can come with a fairly heavy administrative burden if done directly with employees however there are a number of external providers that look after that for you at minimal cost and administration to the business.
It is also worth noting that whilst exempt from FBT, benefits provided will still be included for the purposes of determining an employee’s reportable fringe benefits which can still impact other tax elements (such as the Medicare levy surcharge), determining entitlement to certain tax offsets and determining eligibility for certain family assistance payments.
What cars are included and from when?
For cars to be eligible for the exemption, they must be:
- A zero or low emissions vehicle;
- The value of the car at the first retail sale was below the luxury car tax threshold for fuel efficient vehicles ($84,916 for the 2022-23 FY); and
- The car is first held and used on or after 1 July 2022.
The act defines a zero or low emissions vehicle as:
- A battery electric vehicle;
- A hydrogen fuel cell electric vehicle; or
- A plug-in hybrid electric vehicle (only until 1 April 2025).
Are you looking to take advantage of these new exemptions in your business? Take this opportunity to talk with us. Our team at BLG Business Advisers are Wollongong Accountants who service right around Australia.
Whatever you decide we wish you and your business every success!