Higher FBT rates and your business – December 2014

What does a higher FBT mean for your business?

Small business owners should write in their diaries that from April 1, 2015, the rate of fringe benefits tax (FBT) will increase from 47% to 49%. It is planned to return to its present rate two years later.

The rise is mostly due to the 2% Temporary Budget Repair Levy, and is designed to prevent individuals who earn more than $180,000 from salary sacrificing into fringe benefits in order to bring their income under the levy’s threshold, and so avoid the extra tax. The FBT rate will return to its current level on March 31, 2017 to align with the end of the levy and the end of that FBT year.

Fringe benefits can be a central option for employers seeking to make salary packages more attractive. There are many different possibilities and options to offer as salary sacrifices, including the use of a car, school fees, entertainment, healthcare and many other benefits. Competitive salary packages are often essential tools for securing the best staff for a business, as the right remuneration structures can let employers attract the right talent, minimise staff turnover and hopefully increase productivity.

When the FBT rate increases next April, many small businesses are likely to be affected. Employers may want to reconsider their current fringe benefit arrangements with affected employees in light of the increase.

For employees on packages of less than $180,000 a year, it may end up that it will be more beneficial to provide remuneration via salary and allowances rather than fringe benefits after next April 1. For example, where employers provide benefits such as paying for an employee’s private health insurance, it may be a better option to provide additional salary, which would be taxed at a substantially lower rate than 49%.

The increase in FBT means that employers should reconsider all current fringe benefits arrangements with their staff to limit the impact of possible additional costs and ensure that any arrangement is still as beneficial as possible, for both the employee and the employer.

For certain entities there is a cap imposed on the concessions available with regard to fringe benefits provided to employees. Therefore, after April 1, 2015, public benevolent institutions, public hospitals and certain other tax-exempt entities will have their fringe benefit caps increased to align with the new FBT rate. This is to ensure that employees are protected from having their incumbent packages eroded by reason of the increased FBT rate. For “rebatable employers” (certain non-profit bodies, registered charities, public educational institutions), the rebate available will also be re-aligned to match the new rate.

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