In the dynamic world of small businesses, offering enticing employee benefits can be game-changing for staff recruitment and retention. From additional super contributions to providing perks like motor vehicles, phones, and concert tickets, these offerings not only enhance your employees’ experience but also carry significant tax implications that need careful consideration. Let’s delve into the key aspects of employee benefits and the associated tax landscape to help you make informed decisions.
Understanding Fringe Benefits
Any benefits provided to an employee in connection with their employment, but in a different form to salary or wages, is termed a ‘fringe benefit’. Fringe Benefits Tax (FBT) is the mechanism through which employers pay tax on certain benefits provided to their employees, their families, or other associates. It may seem strange that the employer pays tax for a benefit an employee has received; but that is how the system works. Employers are required to lodge FBT returns on an annual basis if a liability arises.
Why do businesses offer fringe benefits?
Employee benefits extend beyond mere compensation; they serve as a strategic tool for employers to attract, retain, and motivate their workforce. In an era where businesses are vying for top talent, the competition goes beyond salaries, and fringe benefits are an effective way to gain a competitive edge. The landscape of employment has evolved, and those employers who recognise the value of comprehensive benefit packages are better positioned to create a workplace that not only meets, but exceeds the expectations of their employees.
Common Employee Benefits
Not all benefits automatically become a fringe benefit simply because it was provided within an employer-employee/associate relationship. Taxable fringe benefits require a discernible link between the provision of the benefit and employment.
Here are a few examples of common fringe benefits:
- Motor Vehicles: If a motor vehicle is provided to staff with private use, it is subject to FBT. However, the exception to the rule is for those considering electric vehicles — the government has legislated that eligible electric vehicles below the luxury car threshold are exempt from FBT. To find out more on the FBT considerations for eco-friendly vehicles, read our article here as this is a huge opportunity to provide tax exempt benefits to your employees.
- Car Parking: Car parking provided to employees can be subject to FBT, adding a layer of consideration for businesses with parking facilities. However, if the parking is not in a commercial car park the benefit will be exempt if the business has aggregated turnover under $50 million.
- Entertainment Benefits: Providing tickets to sporting events, concerts, meals or holidays for employees are subject to FBT and will come with extra tax to pay. Providing exempt benefits such as a bottle of wine / scotch or a shopping voucher on a minor (<$300) and irregular (eg. Birthday and Christmas) is exempt.
- Purchased Annual Leave: Purchasing annual leave for employees is an allowable benefit under FBT salary packaging agreements.
Tax Implications to Consider
Ultimately, there are competitive advantages of using benefits when it comes to incentivising both current and future employees. However, it is important to consider the tax implications of certain types of benefits to your business and what those benefits are actually costing your business.
If you strategically want to investigate lowering your business’ FBT, one way to do this is to use alternatives to fully taxable fringe benefits. Some examples of benefits that are exempt fringe benefits include:
- Additional Superannuation Payments: These are among the most common benefits and are generally not subject to FBT.
- Mobiles, Laptops, and Tablets: These items are exempt from FBT, providing a cost-effective way to equip your team with necessary tools.
If you’re unsure about the FBT requirements of your business, or what additional filing procedures need to be implemented so that you can stay on top of your admin, contact the team at Hoffman Kelly today! Whether you are exploring new benefit options or looking to optimise existing ones, our team is here to guide you through the process. By better understanding the tax implications, we can help you to not only enhance your financial strategy, but also create an attractive workplace for your most valuable asset — your employees.
Contact us online, or call us today on 07 3394 2311.