One of the more common fringe benefits provided to employees is an expense payment fringe benefit.
These may arise in either of two ways:
- Where the employer reimburses the employee for expenses that incur, or
- Where the employer pays the third-party supplier (e.g. shop) directly in satisfaction for expenses incurred by the employee.
The expenses paid for or reimbursed can consist of basically any goods or service including work related items such as laptops or private expenses such as health insurance premiums.
Fringe Benefits Tax (FBT) may however arise unless the expense would have been deductible to the employee had they incurred it themselves, or unless the employee made an after-tax employee contribution to the cost of the benefit, or unless the expense is exempt from FBT such as where:
- The employer reimburses the car expenses of a car held by an employee on a cents per kilometre basis
- The employer pays for or reimburses an employee for Living Away From Home accommodation
- The employer reimburses or pays for car expenses in respect of a car held by an employer
- There is a provision of certain work-related or other benefits such as newspapers, costs incurred in relocating an employee, and employee health benefits such as compassionate travel.
Employers should consider whether an item you wish to provide to employees (i.e. expense you wish to meet on their behalf) is an exempt benefit, or will be deductible to them if they had paid for it themselves If so, employers will reimburse the employee or pay directly pay the third-party who provided the goods or services.
On the other hand, if the benefit is not exempt or would not be deductible to the employee had they incurred it themselves, or they have not made an after-tax employee contribution to the benefit, then employers should consider paying the amount as an allowance to the employee instead. This is because in most cases the employee will pay a lower marginal rate of tax on the allowance than the 49% FBT rate. The employee will only pay an equivalent rate of tax on such an allowance where their annual taxable income is more than $180,000.