How fringe benefits can affect your retail business

A lot of retail firms seem to get the ideal out of their workers by delivering added benefits and benefits about and above their typical wage and wages. Even though that can be a terrific way to incentivise team, there are likely tax repercussions that need to be borne in mind.

If you deliver gains to your staff, you could obtain that your enterprise is liable to spend Fringe Positive aspects Tax (FBT). This is a tax paid out by the employer – not the personnel – on the taxable value of selected gains compensated to employees. When we refer to personnel, this also covers benefits provided to the household of workers or to associates (such as close friends) of staff.

Examples of Fringe Gains

Among the most frequently delivered advantages that can give rise to FBT are:

• Giving a motor vehicle for your staff that can be utilized for private reasons
• Supplying no cost or subsidised auto parking for your employees
• Supplying your staff members with “entertainment”, these kinds of as meals, beverages, sporting or leisure pursuits (such as a spherical of golfing or tickets to a sporting occasion), theatre tickets and holidays
• Possibly reimbursing an staff for private bills or paying out for these types of fees straight to a 3rd occasion (for instance, shelling out your employee’s domestic utility expenses)
• Offering your personnel a loan and charging no interest or a diminished rate of fascination
• Supplying lodging to an worker lease-free of charge or at a minimized hire

How is FBT calculated?

FBT is payable primarily based on the grossed up ‘taxable value’ of the advantage offered. This grossing up procedure is meant to mirror the gross salary personnel would have to gain to invest in the benefits you are giving right after paying out tax. Fringe Gains are split into Sort 1 and Sort 2 benefits. The precise calculation can be elaborate and is finest completed by your accountant, but the procedure can be summarised as follows:

1. Detect the overall taxable value of Fringe Advantages you offer for which you can claim a GST credit rating (Form 1 rewards).
2. Work out the grossed-up taxable value of these Type 1 positive aspects by multiplying the total taxable value by the kind 1 gross up fee (presently 2.0802).
3. Establish the overall taxable price of gains for which you simply cannot declare a GST credit rating, for instance, supplies you made that were being GST-absolutely free (Kind 2 positive aspects).
4. Function out the grossed-up taxable price of these Variety 2 rewards by multiplying the complete taxable by the style 2 gross up amount (at this time 1.8868).
5. Incorporate the grossed-up amounts from ways 2 and 4. This is your total Fringe Positive aspects Taxable total.
6. Multiply the overall Fringe Benefits Taxable quantity (from stage 5) by the FBT charge (at the moment 47 percent). This is the total FBT sum you are liable to fork out.

Illustration:

Let’s suppose you provide a auto to a member of staff which they can use privately. The taxable value of the reward is $10,000 all through the 2022/23 FBT calendar year. FBT payable by the employer is labored out as follows:

Can my small business reduce its FBT liability?

It’s doable to reduce your FBT liability, or even do away with it altogether, by receiving your worker to make a hard cash contribution in direction of the price tag of the profit furnished to them. Every single greenback that they pay back toward the provision of the benefit decreases the taxable worth of the profit by the identical volume.

Are any advantages FBT free of charge?

Some positive aspects are cost-free from FBT, these kinds of as the provision by a small small business of tools or electronic devices (this sort of as laptops) that are largely applied for operate applications. So-identified as ‘minor benefits’ are also FBT cost-free. A minor profit is just one with a notional taxable benefit of considerably less than $300 and could involve points like the annual staff Xmas occasion, presented the value for each head is considerably less than $300.

There are a number of generous FBT concessions and exemptions obtainable to particular not-for-earnings organisations like charities, hospitals and spiritual institutions.

What are Reportable Fringe Added benefits?

I pointed out previously that FBT is payable only by businesses. Even so, if the volume of fringe advantages furnished to an staff exceeds $2,000, the determine ought to be reported in the year stop profits assertion furnished to employees and is then incorporated on the individual’s tax return.

This is not taxable cash flow so there are no direct cash flow tax effects for the worker. Nonetheless, these Reportable Fringe Added benefits can be taken into account in doing the job out a range of other advantages and obligations, which includes Relatives Tax Benefits, Medicare levy surcharge, non-public overall health coverage rebate, boy or girl support payments, superannuation co-contributions, Greater Schooling Mortgage Method (Help) repayments, and numerous tax offsets.

How does my business enterprise report and pay FBT?

The FBT calendar year operates from 1 April to 31 March so now is the time to decide if your business enterprise requirements to sign up for and pay back FBT.

If you provide benefits to your personnel and imagine you might have an FBT legal responsibility, the first action you need to have to take is to sign-up for FBT with the ATO. Your tax agent can support you with that approach.

If you have presented fringe advantages for your staff, you will have to then lodge an FBT return. The most current day for lodging an FBT return is 21 Could, even though if you use a tax agent you may well qualify for an prolonged deadline.

If you have not paid FBT right before, or if the sum of FBT you had to pay for the preceding year was fewer than $3,000, you only make a single payment for the year when you lodge your FBT return. Usually, FBT is payable quarterly as a result of your exercise statements for the up coming FBT calendar year.

For far more details about FBT go to https://www.hrblock.com.au/

Mark Chapman is director of tax communications at H&R Block.