Fringe Benefits Tax & Salary Sacrifice: A Guide for Australian Businesses

Employers often shy away from offering "perks" like company cars or gym memberships because they are terrified of the dreaded Fringe Benefits Tax (FBT). The FBT rate is currently 47% (the top marginal tax rate), which sounds punishing.

However, smart businesses know that FBT isn't a penalty—it's a system. If navigated correctly using "Salary Sacrifice," you can provide significant tax savings to your employees without costing the business a cent.

1. What Exactly is FBT?

FBT is a tax paid by employers on certain benefits provided to their employees in place of salary. It is separate from income tax.

Common benefits include:

• Private use of a company car.
• Paying for an employee's private health insurance.
• Entertainment (client lunches where staff are present).
• Car parking provided in a CBD.

2. The "Exempt" List (The Sweet Spot)

The best way to manage FBT is to offer benefits that are FBT Exempt. These allow an employee to pay for items out of their pre-tax salary (Salary Sacrifice), lowering their taxable income, while the employer pays $0 FBT.

Exempt items primarily include "Portable Electronic Devices" used primarily for work:

• Laptops and tablets (one per year).
• Mobile phones.
• Briefcases and calculator.
• Tools of trade (for tradies).

3. Company Cars & EV Exemptions

Traditionally, company cars attract FBT. However, the government has introduced a massive incentive for Electric Vehicles (EVs) and Plug-in Hybrids.

If you provide an eligible EV (below the luxury car tax threshold) to an employee, it is currently FBT Exempt. This makes an EV novated lease one of the most tax-effective salary packages available in Australia right now.

4. Reducing FBT to Zero: Employee Contributions

If you provide a benefit that is taxable (like a petrol car), you don't necessarily have to pay FBT. You can use the "Employee Contribution Method."

This is where the employee pays a post-tax contribution back to the business equal to the taxable value of the benefit. This reduces the FBT liability to $0. While the employee pays from after-tax income, it is often still cheaper than owning the car privately due to fleet discounts and GST savings on running costs.

Summary

Fringe benefits are a powerful tool for staff retention. Don't be afraid of the paperwork. With the right "Salary Sacrifice Agreement" in place, you can boost your team's take-home pay legally.