SMEs must revisit FBT arrangements

Small business employers are being urged to reconsider their fringe benefits tax (FBT) arrangements ahead of the rate increase due to come into effect next year.  

From 1 April 2015, the rate of FBT in Australia will increase from 47 per cent to 49 per cent. The change is aimed at preventing individuals earning over $180,000 from salary sacrificing fringe benefits and avoiding paying the temporary 2 per cent debt levy.

The FBT rate will return to normal on 31 March 2017 to align with the FBT year and the end of the temporary debt levy.

The changes are likely to impact small businesses offering competitive salary packages that include the use of a car, healthcare, school fees, entertainment and cheap loans, according to RSM Bird Cameron.

For employees on packages under $180,000 per annum, employers may find it beneficial to provide remuneration via salary and allowances rather than fringe benefits, as these will be taxed at 49 per cent.  

For example, where employers provide benefits such as paying for an employee’s private health insurance cover, the employer could provide additional salary grossed up at a marginal rate, which would be taxed at a substantially lower rate than 49 per cent.

If the changes are not passed onto the employees, the result will be additional costs to the employer, said Andrew Graham, national head of business solutions at RSM Bird Cameron.

 “Employers should review their salary packaging arrangements with their staff to limit the impact of the additional cost and ensure that any arrangement is still as beneficial as possible, for both the employee and the employer.”