Your job, your fringe benefits

Being paid money for your work is nice, but sometimes getting recompense for your efforts in another form is even nicer – especially if you don't have to pay tax on it. Many workplaces are willing to offer certain items or benefits in place of part of your normal salary, such as giving you a laptop computer or mobile phone, protective clothing or tools of trade.

The upside for you is that your income tax liability is based only on that part of your salary left after deducting the value of the non-cash benefit.

However, the taxman still gets his finger in the pie. Even though you don't have to pay tax on the value of the fringe benefit, your employer has to pay fringe benefits tax (FBT) on the 'taxable value' of certain fringe benefits provided to you – at the top marginal rate (currently 46.5%).

The Tax Office has listed the fringe benefits that don't attract FBT, and that your employer is free to offer without having to pay tax on those items (see link in the member section). But the general rule of thumb is that to escape having to pay FBT for items not on the exempt list, an employer needs to be able to show that the item offered as a benefit must be solely for work-related use (such as the common ones listed in the link below).

Tax-free benefits
There are many more fringe benefits that the boss can offer tax-free than those mentioned above (including most minor benefits valued at less than $300), but as there are changes to the list now and then, it is worth checking (members access this by logging in).

In most cases the tax legislation has made it a condition of exemption that the items are used to enable employees to do their job. In determining the 'primary use' of any item, the Tax Office bases its decisions on the employee's 'intended use' at the time the benefit is provided.

This means that your employer does not have to record the actual use of any item over the year – but they need to be able to provide a 'reasonable basis' that would show that a benefit has been provided to facilitate employment, for example via job descriptions, duty statements or employment contracts.

Some employers can get concessional treatment on FBT, such as benevolent institutions, non-profit entities, public hospitals and religious organisations. Generally, benefits provided to volunteers and contractors don't attract FBT.

The boss also needs to be aware that even if benefits are provided by an associate of theirs or by a third party, they need to consider whether they are liable for FBT. This is because the law treats the employer as being liable if the other party provides the benefit because of the employment relationship between the employer and the employee, and not because of some independent relationship between the other party and the employee.

For example they may deal with a supplier who provides free goods to the staff of the employer (and the staff get those goods because they work for the employer), and that would trigger an FBT liability to the employer, and not to the supplier.

So although there may be a tax liability for your employer in offering a fringe benefit, it can still be an attractive option in your salary package. This is because you get to receive it tax-free, and while your employer may have to pay 46.5% FBT, they do get a tax deduction for the cost of providing that benefit so the net cost is probably a lot less overall. The FBT varies over the range of benefits that can be offered, and every workplace will have a view on which benefit it is comfortable offering, and which it is not.

Different benefits, different values
The FBT legislation contains a list of categories of fringe benefits, and has specific rules to derive the 'taxable value' (on which the tax is calculated) for each, so that employers can gauge whether these benefits are a viable option to offer staff.

They include car fringe benefits, loans, debt waiver fringe benefits, expense payments, parking, travel and other goods.

The rules for calculating the taxable value of a fringe benefit vary according to the benefit. And if you receive certain categories of benefits with a total taxable value of more than $2,000, your employer will need to report them on your annual tax summary, or group certificate.

This will not be included in your taxable income or affect the Medicare levy, but it will be taken into account for the purposes of any income threshold tests for government benefits.

If you need to convince the boss to provide a certain benefit, there is even the option of your sharing some of the cost, which reduces the employer's FBT liability as the taxable value of a benefit excludes any contributions made by the employee out of their own pocket.

With a car, for example, you could agree to contribute to the operating costs, such as fuel, that you are not then reimbursed for. This then reduces the FBT-attracting taxable value, for your boss, of the fringe benefit.

You can also focus on a benefit that you would normally be able to claim as an income tax deduction anyway, had you paid for it yourself.

Known as the 'otherwise deductible' rule, it reduces the taxable value of the fringe benefit by the amount you would have been able to claim on your own tax return. Say you incur a work expense, for example, that would be wholly deductible in your personal tax return. If you are reimbursed for this expense (as a fringe benefit to you) the taxable value for your employer's FBT calculations would be zero. Just remember you won't be able to claim a deduction for that work expense in your tax return since you didn't pay for it yourself.

Related story: Novated car leases and FBT explained

Last reviewed 2/08/2012

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