Company cars
If you provide a vehicle to your employees for private use.
If you’re a residential builder or tradie running your own business, you may have heard of Fringe Benefits Tax (FBT).
Understanding what FBT is and how it impacts your business is essential to staying compliant with tax laws and managing your finances effectively. In this article, we’ll explain FBT in simple terms and provide tips for dealing with it in the construction industry.
What is FBT?
Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits they provide to their employees (or their employees’ family members) in addition to wages or salaries. FBT is separate from income tax and is calculated on the taxable value of the fringe benefits you provide. These benefits are known as “fringe benefits” and can include things like:
How FBT Affects Construction Businesses
In the construction industry, FBT commonly applies to benefits like company vehicles, meals, and accommodation for employees working on remote projects. Understanding how FBT works and its impact on your business is important for several reasons:
Tax Liabilities
FBT can significantly increase your tax liabilities if not managed properly. For example, if you provide company vehicles for personal use, the FBT on those vehicles could add up quickly.
Record-Keeping
Businesses need to keep accurate records of the fringe benefits they provide. This includes logging how and when a company vehicle is used, and ensuring proper documentation for meal and entertainment expenses.
Cash Flow
FBT payments can affect your cash flow. If you’re not prepared, you could end up with a surprise tax bill at the end of the financial year.
Tips for Dealing with FBT
Here are some practical tips for managing FBT in your construction business:
Track Company Vehicle Use
If you provide company vehicles to your employees, make sure to track their usage carefully. FBT applies to personal use, so keeping a logbook can help you distinguish between business and private use. There are exemptions for work-related travel, such as driving directly to a construction site, but it’s important to record this information.
Use FBT-Exempt Benefits
Some benefits are exempt from FBT, such as work-related items like tools, protective gear, or a mobile phone. Providing these types of benefits can reduce your FBT liability.
Review Your Fringe Benefits
Regularly review the fringe benefits you provide and assess whether they’re necessary. For example, if providing a company car results in a high FBT bill, you might consider alternatives like offering a car allowance instead.
Salary Packaging
In some cases, you can reduce your FBT liability through salary packaging. This involves restructuring an employee’s pay and benefits, so certain items are included in their salary rather than as a fringe benefit. Consult with an accountant to see if this is a viable option for your business.
Outsource Payroll and HR
Managing FBT and other tax obligations can be complex. If you find it overwhelming, consider outsourcing your payroll and HR functions to a specialist. They can ensure you’re compliant with FBT laws and help you minimize your tax liabilities.
Helpful Resources
- Australian Taxation Office (ATO) Website: The ATO provides detailed information on FBT, including how to calculate it and what benefits are exempt. You can visit their FBT page here.
- Tax Agents and Accountants: Working with a tax agent or accountant who understands the construction industry can make managing FBT much easier. They can provide tailored advice and ensure you’re meeting all your tax obligations.
- Fair Work Ombudsman: For general employment and wage-related information, the Fair Work Ombudsman is a great resource. Visit their website here.
- Business Australia: Business Australia offers free resources and tools for small businesses, including tax planning advice. Check out their website here.
FBT can be a complex area of taxation
FBT can be a complex area of taxation, but understanding how it applies to your construction business is crucial for managing your tax obligations. By keeping accurate records, reviewing the benefits you provide, and seeking professional advice when needed, you can stay on top of FBT and avoid any unexpected tax bills.
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