A fringe benefits tax (FBT) issue will normally arise under a salary package agreement entered into between an employer and employee.
Under Australian tax law three conditions must be present for a FBT liability to arise namely:
- Employer / employee (or associate) relationship: The benefit must be paid as a consequence of an employment agreement. The employer is liable to pay FBT if a fringe benefit is provided to an employee or an associate of the employee (for instance spouse or relative).
- Employer must give employee (or associate) a benefit: The term ‘benefit’ includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility.
- The benefit must be a fringe benefit: There are thirteen specific categories of benefits that are liable to FBT (the most common being a car fringe benefit). There are also certain benefits that are specifically exempt from these provisions.
The FBT financial year begins on 1 April and ends on 31 March. The employer can claim a tax deduction in respect to the cost of providing the fringe benefit and the amount of FBT payable.
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