FBT – there is still time to save

By Sam Hornbrook & Blake Hawes

May is always a month when a lot of people start thinking about fringe benefit tax (FBT). With final FBT returns due at the end of the month, if you’re not all over the options for calculating FBT and you’re confused about what option best suits your needs, this article provides a summary of your options.

FBT attribution has been around the whole 21st century and exists because of the 39% top personal tax rate. If you’ve ever wondered how FBT rates are calculated, they’re a gross-up of the personal tax rate (so use the formula “tax rate / (1 – tax rate)” and you’ll quickly realise that 0.39/0.61 equals the very high 63.93% FBT rate).

In the first decade of the century FBT attribution was pretty common, but with the highest tax rate being removed in 2010, many taxpayers reverted to just paying FBT at the top rate of 49.25% (equivalent to the then top personal tax rate of 33%) on all benefits, on the basis that any available savings may have been lower than the associated compliance costs.

With the 39% top personal tax rate (and therefore 63.93% FBT rate) coming back from 1 April 2021, more taxpayers are once again looking at options to save on FBT costs by not paying at the flat rate.

Deloitte recently ran some employment tax webinars and when we polled our audience, 60% were intending to undertake a full attribution, 25% were planning to do one of the ‘short-form’ options, but 15% were still planning to pay at the flat rate of 63.93%.

For those 15%, we expect it is a lack of understanding of the options and a lack of time which drives them to the quicker but much more expensive option. In which case there is a very simple solution – outsource! Deloitte prepares FBT fourth quarter calculations for a significant number of clients and can virtually guarantee that our fee for doing your calculation will be a small fraction of the tax savings you’ll achieve (we’ll tell you at the outset if your employee/benefit profile is unlikely to result in savings). Please get in touch with your usual Deloitte advisor if you’d like to talk about the options.