You can get a free $1,200 out of your company each year
Do you want a $1,200 write off each year, just for you? If you have a company, you can take advantage of the fringe benefit tax rules. Check out our video below on how this works! We get into more detail on how this works below.
If you're a small business owner, understanding how Fringe Benefit Tax (FBT) applies to different business structures is crucial. While companies can provide themselves with vouchers up to $1,200 per year without incurring FBT, the situation is different for sole traders, partnerships, and trusts.
For companies, the FBT rules allow for an annual exemption of up to $1,200 (and at $300 per wuarter) per employee for unclassified benefits, which include vouchers. This means you can provide yourself with vouchers up to this amount without triggering FBT, as long as the total value of all unclassified benefits provided to all employees does not exceed $22,500 in a year.
However, for sole traders and partnerships, the rules are different. These entities do not pay FBT on benefits like business vehicles used privately. Instead, they must apportion the expenditure between business and private use, making income tax and GST adjustments for the private portion. This means that sole traders and partners cannot take advantage of the FBT exemption for vouchers in the same way companies can.
Trusts, on the other hand, are generally subject to the same FBT rules as companies when they provide benefits to employees. However, the specific tax treatment can vary depending on the nature of the trust and its activities. Trusts must also consider the implications of providing benefits to beneficiaries, which may not always align with FBT rules.
Unclassified benefits are essentially any non-cash benefits provided to employees that do not fall under specific categories like motor vehicles or low-interest loans. These can include gifts, prizes, or any other benefits provided in connection with employment. The key is that these benefits must not exceed the $1,200 per employee annual limit or the $22,500 total limit for all employees to remain exempt from FBT.
In summary, while companies can utilise the FBT exemption for vouchers, sole traders and partnerships must handle benefits differently, focusing on apportioning expenses for private use. Trusts need to navigate both FBT and trust-specific tax rules. Understanding these distinctions can help you manage your business's tax obligations more effectively.
Please note that you can’t take cash in lieu of vouchers as mentioned above - the vouchers need to be purchased by the company in the company name to meet deductibility criteria. Cash bonuses always need to be taxed - be it for shareholder employees or any other employees of a business.
For more detailed information, you can refer to the IR409 Fringe Benefit Tax Guide.
Please note this only applies to companies and doesn’t work for sole traders, partnerships or trusts.
Disclaimer: this is general information only. Please reach out to Prosper Business for specific advice to your situation.