Employee assignation is a top priority for company administrators these days, as holding and productivity strategies become critical for firms universally. Whether your business is big or small, you know how significant it is to hire the optimum employees and retain them for as long as possible. It is significant for businesses to have a low worker turnover rate. This idea makes sure the company can keep the gifts and intellectual assets of its present staff while minimising the costs related to onboarding.
Although it may seem straightforward to want to thank your staff, how you decide to do so may put you in a challenging position. The worst-case scenario is that you give up on the concept altogether because you are too overwhelmed by the taxes, terms, and alternatives.
The issue disappears when you give up, but only momentarily. More engaged teams are more content, effective, and productive.
Fringe Benefits Tax (FBT) is something you may have encountered that makes you want to give it up. Since every kind of benefit has potential ramifications, it can be challenging to determine when FBT applies and when it doesn’t.
Employers occasionally may make an effort to increase a worker’s level of involvement by providing them with incentives and awards that strengthen the working connection. However, developing tactics for engagement that work is not simple. Initiatives aimed at increasing employee engagement must be customised to each worker’s particular requirements and incentives to be successful.
A fringe benefit: what is it?
Items provided to employees that are not cash and do not come from their normal wages are known as fringe benefits.
They consist of things like:
- Taking personal use of company vehicles
- granting discounted loans to workers
- Covering the cost of gym memberships
- amusement such as event tickets
- Paying back a worker’s costs
- Benefits associated with agreements for salary sacrifice
Anything you provide to an employee might be considered a fringe benefit, thus there are a tonne more examples available.
Nevertheless, the following things are certainly not fringe benefits:
- Wages and Salaries
- Purchases of company shares made by employees under employee share acquisition plans (unless a financing arrangement is in place to acquire shares)
- Contributions to superannuation
- Payments for employee termination
As long as they are principally utilised for work, the following job-related goods that are frequently included in salary sacrifice agreements are exempt benefits (limits apply):
A briefcase, a piece of protective gear, computer software, a portable electronic gadget, and a tool for trade.
Other exemptions include costs that would otherwise be deductible to the employee, along with modest and occasional perks.
Not-for-profit organisations, charitable organisations, and places of worship are also eligible for a range of extra exemptions and concessions.
Asking an employee if they receive a personal benefit from the perk issue outside of work is a pretty simple approach to determine what constitutes a fringe benefit and what does not.
FBT: What is it?
The purpose of FBT is to prevent firms from offering non-salary perks to workers in an effort to evade paying income taxes.
FBT is a tax that requires the employer to impose the same level of taxes as if the worker had been paid a salary, was subject to top marginal taxation, and had to use their after-tax income to pay for the benefit.
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What is the exception for minor benefits?
A perk is classified as a “minor benefit” and excluded from FBT if it has less than $300 in notional taxable value and is deemed inappropriate to be considered a fringe benefit.
Many factors are taken into account when determining whether a benefit is deemed “unreasonable,” including the frequency and regularity of the minor benefits, the benefit’s total value alone and in combination with other benefits, the difficulty of determining the benefit’s value, and the circumstances surrounding the benefit’s delivery.
How is the FBT determined?
The formula for calculating FBT is rather intricate, and it varies depending on the kind of benefit.
Determining the benefit’s worth is essentially the first step. This is usually the benefit’s cost to the employer (including GST), however the computation varies depending on the kind of benefit.
The taxable value is then obtained by “grossing up” the benefit’s value. The term “grossing up” refers to raising the taxable value of benefits to the amount that, after taxes, employees would have to earn at the highest marginal tax rate to purchase the benefits.
Why do businesses provide perks to employees?
Considering how much of an administrative nightmare it all seems, why do businesses even bother?
Benefits and perks are often provided to recruit, hire, and retain staff. A corporation can utilise fringe perks to attract more applications to hire a top-tier employee.
Tech companies have introduced benefits like Google’s free cafeteria for all meals of the day (“food consumed on premises” is one exemption), transportation scooters and education subsidies (also an exemption) by means of some extremely shrewd exclusions.
Imparting to your staff a sense of worth, support, and availability improves the work environment and supports many aspects of work-life balance and productivity.
Under some conditions, employees may receive tax benefits from fringe perks, resulting in lower income tax payments.
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What information regarding FBT should workers know?
Not all fringe benefits are reportable, but if your reportable fringe benefits taxable total exceeds $2,000 in the FBT year (1 April to 31 March), you must include it on your income tax return.
The good news is that this amount will be disclosed to you and included in your payment summary by your company. Your summary will include a special column labelled “reportable fringe benefits amount.”
Fringe Benefits are included in your adjusted taxable income (ATI), which is used to determine other things like the Medicare levy and required HECS or HELP repayments, even though they are not taxable income. Aside from your tax return, your adjusted taxable income affects things like Centrelink payments and child support responsibilities.
Fringe benefits do not include the following:
- salary or wage payments
- shares acquired under authorised employee share acquisition programmes
- Employer payments to super funds that comply
- Payments for leaving your job (such as a corporate automobile that is sold or handed to your employee)
- Amounts paid that are considered dividends
- advantages that are exempt, such as some that religious organisations give to their adherents.