If you want to reduce your taxable income while enjoying job perks, Fringe benefits is your answer. Fringe benefits are the “extra” benefits you get from your employer. The “benefit” can be anything for you, your spouse or your children. Not only do you get the benefit, but you also don’t have to pay tax on it. Your employer pays the “Fringe benefits” Tax (FBT). This is different from income tax and is only calculated on the taxable value of the fringe benefit.
For example, if your annual salary for a particular year is $120,000, you pay $31,897 in taxes.* Now, your employer offers to buy you a car, completely for your own use, which is worth $60,000. This would result in your taxable income being $60,000, so you’d pay only $11,047 in taxes*. It’s win-win, you not only have a car, but also pay much less tax.
If you’re wondering why your employer will buy you a car for your private use, don’t worry. Perks are a part of company culture these days. The environment is becoming highly competitive and companies want to motivate, help and retain their employees. The best way for them to do so is through offering perks like fringe benefits. And even if they do pay fringe benefits tax, they can still reap some own tax benefits from this arrangement.
So, your employer can buy you a car for private use, or pay your child’s school fees, or even buy you private insurance or concert tickets. Whatever the value of the “benefit”, your taxable income will be reduced. Even though you get the benefit such as the car plus your salary, total worth $120,000, your taxable income falls under a lower bracket (as you’re only taxed for the actual salary and not the car) and you pay less tax. This is especially beneficial if you’re a high-income earner.
Fringe benefits that you can get from your employer include:
- Real Property – land and buildings
- Cars (for private use)
- Discounted loans
- Childcare costs and school fees
- Gym/health memberships
- Entertainment expenses – food, drink, cinema, concert, accommodation
- Private health insurance
On the other hand, you should be aware of what is NOT a fringe benefit:
- Salary and wages
- Shares purchased under approved employee share acquisition schemes
- Contributions to your Super by the employer
- Employment termination payments
- Benefits provided to volunteers and contractors
- Exempt benefits, such as those provided by religious institutions to religious practitioners.
For more information on what benefits are exempt, or whether the benefits you want to obtain from your employer are eligible for the Fringe Benefits Tax (FBT), you should speak to a registered tax agent like Solution In.
We’re happy to help you plan your taxes and figure out how to maximize your tax benefits. Contact us on firstname.lastname@example.org or 0405012345 to make an appointment today and get your financial planning and income tax in order!
*excluding medicare levy, levi surcharge etc. from the simple tax calculator.