Fringe benefit tax (FBT) is a tax imposed on employers who provide a benefit to their employee. The benefit must be in connection with the employee’s employment. FBT is intended to tax fringe benefits that had previously been received free of tax and encourage a switch from remuneration paid in the form of non-taxable benefits to cash remuneration, which is subject to tax in the hands of the employee.


What are fringe benefits?

Some fringe benefits included in the legislation are:

  • The making available of a motor vehicle (either owned, leased or rented) to an employee for their private use. Note: Travel to and from an employee’s home is private use. So if the employee, who has use of the employer’s motor vehicle, takes the motor vehicle home at the end of the day then the employer must apportion its work and private use.

There is an exemption where the employee is required, in the performance of their employment, to use a vehicle and to be regularly absent from home with the vehicle for a period of at least 24 hours continuously. A travelling salesperson is such an example;

  • Employment-related loans, provided the rate of interest on the loan is less than the “prescribed” rate;
  • Subsidised transport;
  • Discounted goods and services;
  • Other fringe benefits;
  • Sickness, accident, or death benefit fund contributions if exempt income;
  • Non-monetary superannuation contributions to a superannuation scheme;
  • Employer’s contribution to an employee’s sickness, accident or death benefit fund;
  • Contributions to an employee’s funeral trust;
  • Paying a specified insurance premium or a contribution to an employee’s insurance fund of a friendly society;
  • Other unclassified benefits ie free, subsidised or discounted goods and services.

Who has to pay

The liability to pay FBT is dependent on the existence of an employment relationship.

A benefit is not a fringe benefit for FBT purposes unless it is provided or granted by an employer to an employee “directly or indirectly, in relation to, in the course of, or by virtue of the employment of the employee”.

Example 1

Mike works full-time in his father’s auto repairs shop. His father, who operates his business as a sole trader, gives Mike a car for his 21st birthday.

Although Mike is an employee, no FBT liability arises because the gift was not given to him by virtue of the employment relationship but rather out of natural love and affection for a family member.

(If Mike’s father operated his business as a company, instead of as a sole trader, the provision of the free car to Mike would still not be subject to FBT, but it would constitute a dividend, being company property distributed for less than market value to an associated person of a shareholder).


Example 2

Mike (from the previous example) purchased a new set of car mats from his father’s business at 20 per cent discount. The same discount is available to all employees. In this case an FBT liability arises because the benefit was provided by virtue of the employment relationship.


Other fringe benefits

In addition to benefits provided by employers directly to current employees, the following are also subject to FBT:

  • Fringe benefits provided to employees who have not yet commenced working for the employer;
  • Fringe benefits provided to former employees (ie an employer continues to provide a low-interest loan to a former employee);
  • Fringe benefits provided to associated persons of employees (ie a spouse); and
  • Fringe benefits provided to employees by third persons with whom the employer has entered into an arrangement.


Car parks

Car parks provided by an employer to its employees on owned or leased premises are within the exemption (this also applies to car parks provided by group companies and on group company premises). However, the exemption does not extend to car parks where the employer only licenses the car park. That is because such car parks are not provided on the employer’s premises.


Note: in exposure draft XPB0025 (issued following the expiry of a previous Ruling on 31 March 2005, BR Pub 99/6, TIB vol 11:8 (September) 1999 at 12) considers the provision, CX 23 of the ITA 2007 and in particular the definition of ‘premises of a person’ as it appears in s CX 23(2). The exposure draft provides the following examples:


Example 1

During the year ended 31 March 2009, an employer provides some of her employees with car parks on land across the road from the property from which she carries on her business. The employer is the lessee of that land pursuant to an enforceable and written lease agreement.

The definition of “premises of a person” includes land leased by the employer. Therefore, the car parks provided by the employer to the employees are excluded from the definition of “fringe benefit” by section CX 23. No fringe benefit arises. The employer does not have to carry on her business on the leased land for the exclusion in section CX 23 to apply.


Example 2

During the year ended 31 March 2009, an employer provides parking at a commercial car park for three of her employees. No particular spaces are designated for them, but the car park owner has an area reserved for pre-sold parking that is limited to the number of parking spaces available so there are always three car parks for these employees.

The CIR considers that the car park, or any part of it, does not come within the meaning of “premises of a person”. This is because the car park does not form part of the employer’s premises as the car parks are not owned by the employer, and the car park owner has not parted with possession so still retains control of the park.

Another distinguishing feature is the lack of specifically allocated parks. The requisite ownership or possessory interest is not present so the car park cannot come within the meaning of “premises of a person”. Accordingly, the provision of places at the car park by the employer to the employees is subject to FBT under sections CX 2 and CX 37. The provision of the car parks is not excluded from the definition of “fringe benefit” under section CX 23.


Example 3

During the year ended 31 March 2009, an employer provides parking at a commercial car park for three of her employees. The employer is allotted a particular area in the car park (ie spaces numbered 8 to 10), and the car park proprietor bills the employer direct. The car park is not owned by the employer and no part of the car park is subject to a rental or lease agreement between the employer and the proprietor of the car park (although the employer occasionally refers to the charges made for the use of the car park as “rent”).

Although the employer could say that the ability to exclude others from the designated spaces is significant, this is nevertheless a licence arrangement (regardless of the use of the word “rent”), as the employer does not have an estate or possessory interest in the car park or any part of it, only a personal permission for herself and her employees to enter the land for a stipulated purpose.

The occupation of space in fulfilment of that purpose is not intended to negate the owner’s exclusive possession of the car park or even of the designated spaces as would be the case if there were a lease agreement. The car parks are not “premises of a person”; the employer merely has rights to use them. Because the owner of the car park remains in possession and retains general control over the premises, the arrangement is simply a contractual licence, outside the FBT exemption in section CX 23. Consequently, the employer is liable for FBT on the taxable value of these fringe benefits.


Example 4

A company having many employees who use the facilities provided by a nearby commercial car park, decides it would like to lease the whole of the top floor of the car park.

The available area is less than that of the other floors and would suit the requirements of its staff. The owner of the commercial car park agrees to grant a lease to the company, and installs a card access gate so that only the company’s employees can use the top floor. The written lease agreement provides that the car park owner will perform custodial duties and maintain the top floor to the standard of the other areas of the car park.

The CIR considers that in these circumstances “premises of a person” extend to and include the top floor leased from the car park proprietor, and no fringe benefit liability arises by virtue of section CX 23.


Payment of FBT

Employers must choose either the single rate option; alternate rate option; close company option or small business option for calculating and paying their FBT.

There are three FBT returns: quarterly, income year or annual returns. An employer may qualify to file an income year or annual return if:

  • Their annual gross tax and ESCT (employer superannuation contribution tax) for the previous year is $500,000 or less; or
  • They were not an employer in the previous year; or
  • They are a closely-held company and the only benefit provided is the use or availability of a motor vehicle to shareholder-employees for private use and that liability is for no more than two vehicles.

Where FBT is paid on an annual basis, it is calculated in the same manner as it would be calculated for fringe benefits provided or granted in the four consecutive quarters that comprise that year.

Otherwise for those employers who do not fall within the criteria for annual returns they must file quarterly. For the FBT periods ending 30 June, 30 September and 31 December then within 20 days from the end of the quarter, every employer must file an FBT return showing the details requested in the return, and must pay the due amount of FBT within the same period.

The time for filing the return for the fourth (March) quarter is extended to 31 May.

Where no fringe benefit has been provided, a nil return is required. There is provision for this requirement to be waived by the CIR.

The annual FBT return is due by 31 May following the year end, together with the FBT and any use of money interest owing. Use of money interest is calculated from the day a quarterly FBT payment would have been due, to the day of annual payment.

No interest is payable where an employer pays FBT on an annual basis.


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