LexisNexis Practical Guidance®

When employers provide non-cash benefits to an employee, fringe benefits tax (FBT) issues arise.

FBT is a tax on employers which applies to most non-cash benefits provided to employees in respect of their employment. The common law tests apply to determine whether a person is an employee.

There are a number of categories of fringe benefits. Each category contains prescriptive rules to determine when a particular kind of fringe benefit has been provided and how to value the benefit.

See Providing fringe benefits.

FBT is levied on the employer at a rate of 46.5% of the aggregate sum of the grossed up taxable values of the employer’s fringe benefits for the year (47% for years of tax beginning on 1 April 2014 and later years of tax). The intention is to provide for a similar overall tax outcome as if the employee received salary on which they paid the highest marginal rate of tax plus Medicare levy and then the employee spent the after-tax amount on paying for the benefit themselves. FBT generally is paid in four instalments, but it is assessed on an annual basis for each year ending 31 March.

Failure to pay FBT means that the employer is subject to the imposition of penalties and interest charges in addition to the primary tax.

Employers that have obligations under the FBT system also have record keeping obligations, and obligations to provide prescribed information to the Commissioner of Taxation and the employee.

See Paying fringe benefits tax.

An employer that has a fringe benefits tax liability must furnish the Commissioner with an annual return.

An employer must also keep records that record and explain all transactions and other acts engaged in by the employer or any other persons that are relevant for ascertaining the employer’s FBT liabilities.

See Administrative obligations.

In 1992, a superannuation guarantee scheme was established by the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Superannuation Guarantee Charge Act 1992 (Cth). The superannuation guarantee scheme indirectly requires employers to make superannuation contributions on behalf of their employees by providing that employers are liable to pay a superannuation guarantee “charge” to the Australian Taxation Office (ATO), but that charge will be reduced (possibly to nil) if they make superannuation contributions on behalf of their employees.

The amount of the charge is determined on a quarterly basis. To avoid the charge in respect of a quarter employers must:

• •make at least the minimum superannuation contributions on behalf of all eligible employees;
• •pay the minimum superannuation contribution into a complying superannuation fund or retirement savings account; and
• •pay the minimum superannuation contribution by the cut-off date for payment for that quarter.

The charge is payable for a quarter for which the employer fails to meet these requirements. The amount of the charge comprises:

• •the total of the “individual superannuation guarantee shortfalls” for each employee (calculated on the employee’s total salary and wages rather than ordinary time earnings);
• •interest of 10% per annum on that amount; and
• •an administration fee of $20 per employee for whom there is an individual superannuation guarantee shortfall for the quarter.

See What are the superannuation obligations on employers?

Payroll tax is a state-based tax imposed on employers in all states and territories. The payroll tax system is found in the following legislation:

• •Payroll Tax Act 2007 (NSW);
• •Payroll Tax Act 2007 (Vic);
• •Payroll Tax Act 1971 (Qld);
• •Pay-roll Tax Assessment Act 2002 (WA);
• •Payroll Tax Act 2009 (SA);
• •Payroll Tax Act 2008 (Tas);
• •Payroll Tax Act 2009 (NT); and
• •Payroll Tax Act 2011 (ACT).

Since 2007, there has been a process to harmonise payroll tax law and administration though some differences continue to exist, such as those relating to thresholds, rates and other minor differences. Accordingly, recourse should be had to the legislation of each particular state.

Payroll tax is a tax imposed on employers or deemed employers in each jurisdiction, on the wages that they pay or are liable to pay, that are taxable in the relevant jurisdiction. The term “wages” is broadly defined. In all jurisdictions there is a general deduction threshold. Payroll tax is payable only if the employer’s or deemed employer’s total Australian wages exceed the payroll tax deduction threshold.

The legislation in all jurisdictions provides for “grouping” of employers in certain situations. The wages of all employers in a group are aggregated for the purposes of calculating payroll tax, and the group can only claim one payroll tax deduction threshold, however, the group members remain primarily responsible for paying payroll taxes on their own wages.

See What is an employer’s payroll tax obligation?

As payroll tax is a state-based taxation regime, it is necessary to determine in which state or territory payroll tax is to be paid with respect to particular payments. Where services are performed wholly in one jurisdiction in a relevant month, payroll tax is payable in that jurisdiction. If services are performed in in more than one jurisdiction in a given month, a tiered test is applied for determining the jurisdiction in which payroll tax is payable.

Where an employer pays wages in one jurisdiction only, payroll tax is generally calculated at the relevant rate on the amount by which the wages exceed the prescribed threshold. Where an employer pays wages in a number of jurisdictions, payroll tax is payable in each jurisdiction on only those wages which are taxable in that jurisdiction.

See What are the payroll tax requirements of each State/Territory?

Employers that are registered for payroll tax have obligations regarding registration and returns in each jurisdiction in which they are required to be registered.

See What are an employer’s registration and lodgment obligations?

A salary sacrifice (or salary packaging) arrangement (SSA) is an agreement between an employer and employee to replace future cash salary with in kind benefits. Based on the different tax outcomes for different components of remuneration (eg salary, benefits, superannuation contributions), the SSA is intended to increase the after-tax (take home) value of an employee’s remuneration without increasing the total cost to the employer.

Various employees can benefit from salary sacrifice, including executives, professional staff, trades staff and award workers.

The Australian Taxation Office has published guidance of when SSAs are effective SSAs and when they are ineffective to achieve particular tax outcomes. An effective SSA must be prospective — it must be an agreement to substitute future salary for benefits from the employer.

See What is a salary sacrificing arrangement?