Fringe benefits tax regime

Under a salary packaging arrangement, an employee can choose to have all or some of their salary paid in the form of benefits instead of salary. For example, an employee may choose to have their rent paid by their employer from their gross salary.

In general terms, FBT of 46.5% (the highest marginal tax rate of 45% for 2009/2010, plus Medicare levy of 1.5%) is payable by an employer on the value of non-salary benefits provided to its employees.  It is usual for the amount of FBT paid by the employer (46.5% of the value of the benefit) to be passed on to the employee so that the employer is not out-of-pocket because of the salary packaging arrangement chosen by the employee.

There are some exceptions to the above. For example, no FBT is payable if the benefit provided is a ‘minor benefit' such as a mobile phone used mainly in the employee's employment or a laptop (or similar portable) computer .

We recommend that organisations seek the advice of a qualified accountant with FBT experience to review the FBT liabilities, if any, of the organisation and the salary packaging options available.

*NOTE* The law regulating charities has changed. The information on this page has not been updated to reflect the changes. For more information about the changes, go to the PilchConnect page on the ACNC here.

Rebate for charitable institutions and rebatable employers

A FBT rebate is available to organisations that are registered charities with the ACNC, and have been endorsed by the ATO as charitable institutions, and to certain non-government organisations called 'rebatable employers'.

The most common way to be endorsed as a charitable institution is to apply to be a Tax Concession Charity.  We have included a short information sheet about applying to be a Tax Concession Charity below, as well as links to relevant documents below.

Rebatable employers include not-for-profit organisations established:

• to encourage music, art, literature or science;
• to encourage or promote a game, sport or animal races;
• for community service purposes; and
• to promote the development of Australian information and communication technology resources, or agricultural, pastoral, horticultural, viticultural, aquacultural, fishing, manufacturing or industrial resources of Australia.

The FBT liability of these organisations is reduced by a rebate equal to 48% of the gross FBT payable, subject to a cap of $30,000.

Fact sheet: Applying for Tax Concession Charity (TCC) endorsement?

The fact sheet below has been written to assist community organisations who wish to apply to the ACNC to become a registered charity, and then the Australian Taxation Office (ATO) for endorsement as a Tax Concession Charity (TCC). It is designed to help your organisation understand whether it is likely to be a charity (as defined in taxation laws) and if so, how to apply for TCC endorsement. We have also included relevant links to ACNC and ATO information in the Resources section below.

If your community organisation is endorsed as a TCC, it will be exempt from paying income tax. It may also get access to a range of other tax concessions (eg. GST and fringe benefits tax).

You can check if you are already a registered charity by searching the Charity register.

You can check your TCC endorsement by searching the ABR register.

Exemption for health promotion charities and public benevolent institutions (PBIs)

Benefits provided by some categories of deductible gift recipient including health promotion charities and public benevolent institutions (PBIs) are exempt from FBT, subject to a cap. This allows the health promotion charity or PBI to provide salary packaging which is attractive to their employees.

This exemption is subject to a cap of $30,000 in grossed up benefits provided to an individual employee.

This means that FBT is not payable on benefits provided by a health promotion charity or a PBI to its employees, subject to the above limit.

Reporting obligations for a health promotion charity or a PBI

Reporting obligations in relation to the organisation

As benefits provided by a health promotion charity or PBI are exempt from FBT (subject to a cap), the health promotion charity or PBI is not required to register for FBT with the ATO or lodge a FBT return.

If the cap for an individual employee is exceeded, and FBT is payable, then the organisation will need to register for FBT with the ATO, lodge an FBT return for the relevant FBT year and pay FBT by the due date.

Reporting obligations in relation to the employees

Even though a health promotion charity or PBI doesn't have to pay FBT, it must (in general terms) report the value of benefits provided to individual employees in excess of $2,000 on its employee payment summaries.

The amount reported is the grossed up value of the benefit. This is the amount the employee would have to earn in order to purchase the benefit from after tax income.

The grossed up value is determined by applying a formula to the value of the benefit.

This amount is not shown as income in the employee's tax return, no tax is payable on it and no Medicare levy is payable on it.

The amount is used in various income tests and calculations eg HECS repayments, child support payments, means tested government benefits, Medicare levy surcharge, super co contribution etc.

Resources

Australian Charities and Not-for-Profit Commission (ACNC)

Australian Taxation Office (ATO)

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