What are exempt fringe benefits?
An exempt benefit, often referred to as an “exempt fringe benefit,” is a type of benefit that is not subject to Fringe Benefits Tax (FBT).
While they are commonly called exempt fringe benefits, the FBT Act officially designates them as “exempt benefits.” Importantly, an exempt benefit cannot be classified as a fringe benefit based on its definition.
These exempt benefits enjoy a special status in taxation because they are not only free from FBT but are also generally not subject to income tax for the employee who receives them, with one exception related to car expense payments.
Transport exemptions: private use of cars
In certain situations, the private use of a car by an employee can be exempt from Fringe Benefits Tax (FBT). This exemption applies to specific types of vehicles, including taxis, panel vans, utility vehicles designed to carry less than one tonne, and other road vehicles primarily designed for carrying goods rather than passengers.
To qualify for this exemption, the employee’s private use of such a vehicle must meet the following criteria:
- Travel between home and the workplace.
- Travel that is directly related to performing job-related tasks.
- Occasional and sporadic non work related use that is minimal in nature. For instance, occasional personal use of the vehicle, such as using it to dispose of household waste.
Thus, this exemption allows employees to use these types of vehicles for limited personal purposes without incurring Fringe Benefits Tax, as long as their private use aligns with the specified conditions.
Dual cab vehicles: work related use exemption
Dual cab vehicles are modified versions of standard goods vehicles, equipped with additional seating positions situated behind the driver and front passenger seats.
These vehicles share a common chassis, and various configurations can be added, including single or dual passenger cabs and alternative tray sections.
Qualification for Work related Use Exemption
To be eligible for the work related use exemption, dual cab vehicles must meet specific criteria:
1. Load Capacity or Passenger Capacity
Dual cabs qualify for the exemption if they are either designed to carry a load of one tonne or more, or they can transport more than eight passengers.
2. Load Capacity and Passenger Purpose
If a dual cab has a designed load-carrying capacity of less than one tonne, it can still qualify for the work related use exemption, but only if it is not primarily designed for carrying passengers.
To determine whether a dual cab is primarily designed for passengers, calculate the total passenger weight by multiplying the designed seating capacity (including the driver’s seat) by 68 kg, which is the figure used in accordance with the Australian Design Rules.
If the total passenger weight exceeds the remaining ‘load’ capacity of the vehicle, it is considered designed primarily for carrying passengers and is therefore not eligible for the work related use exemption.
Unregistered vehicles and personal services entities: FBT exemptions
Unregistered Vehicles for Business Use
If a car remains unregistered for the entire Fringe Benefits Tax (FBT) year and is primarily used for business purposes, any private use of that vehicle is exempt from FBT. It’s important to note that a car is considered registered if it is legally allowed to be driven on public roads.
Personal Services Entities and Car Benefits
A car benefit is categorized as an exempt benefit for a specific FBT year if the person providing the benefit cannot claim a deduction under the Income Tax Assessment Act 1997 due to Section 86-60 of that Act.
This section places limitations on the deductions that personal services entities can claim for car-related expenses. Specifically, deductions are not permitted for more than one car used for private purposes.
The use of these cars qualifies as an exempt benefit because the personal services entity is not eligible to claim an income tax deduction for these vehicles. In other words, if a personal services entity is unable to deduct car expenses for certain cars under Section 86-60 of the ITAA 1997, any benefits related to those cars are exempt from FBT.
Car expense reimbursements
In most cases, when you reimburse an employee for the operating expenses of their own car based on the distance traveled, an exempt benefit is generated. This exemption applies when expenses are reimbursed using a fixed rate per kilometer, for instance.
These exempt benefits are unique in that they are the only type of exempt benefits that are considered assessable income for the employee. All other exempt benefits are not subject to income tax for the employee, nor do they incur Fringe Benefits Tax (FBT).
Exceptions to the Exemption
The exemption does not apply in cases where car expense reimbursements are related to the following circumstances:
- Transport for employee holidays, including remote area and overseas employment holiday transport.
- Relocation transport.
- Transport for attending an employment interview or selection test.
- Transport for work related medical examinations, medical screenings, preventative healthcare, counseling, or migrant language training.
- Transport provided after the employee has stopped performing the duties of their employment.
Public transport benefits
Business Providing Transport to the Public: If your business offers transportation services to the general public, providing free or discounted travel (excluding aircraft) to your employees for commuting to and from work is considered an exempt benefit. The same exemption applies to free or discounted travel on a scheduled metropolitan service operated by your business.
Associate Company’s Benefit: If the benefit is offered by a company associated with yours, it is also exempt, but a condition is that both your company and the associate must be engaged in the public transport business.
Police Officer’s Travel: Providing public transport travel to a police officer for their commute between their residence and primary workplace is also considered an exempt benefit for FBT purposes.
Public transport residual benefits under salary packaging arrangements
There is a specific exemption that applies to residual benefits for private home-to-work travel via public transport and travel on scheduled metropolitan services, but this exemption does not apply if:
- The benefit is provided internally (in house).
- The employee accesses the benefit through a salary packaging arrangement.
Motor vehicles – residual benefits
Providing a non-car motor vehicle
If you provide an employee with the use of a motor vehicle that is not classified as a car, this usage can be considered an FBT exempt benefit under specific conditions. The private use of this vehicle must be restricted to the following circumstances:
Travel to and from work: Employees can use the vehicle for commuting to and from their workplace.
Use Incidental to Work related Travel: Private use must be related to travel necessary for performing employment-related duties.
Minor, Infrequent, and Irregular Non-Work Use: Limited non work related use, such as occasional personal use like disposing of household rubbish, is allowed.
However, if the private use of the vehicle exceeds these limits, it becomes a residual benefit, and its taxable value can be determined using either the cents-per-kilometer method or the operating cost method.
Business-Connected Unregistered Vehicle
If the motor vehicle is primarily used in connection with your business operations and remains unregistered at all times, any private use by the employee is also considered an exempt benefit. It’s important to note that a motor vehicle that can legally be driven on public roads is considered registered.
Fly-in fly-out(FIFO) arrangements – residual benefits
FIFO transport refers to the provision of transportation to employees who work in remote areas within Australia or overseas, on offshore oil rigs, or other installations at sea.
This arrangement is often used for employees who regularly travel between their place of residence and their remote worksite.
For this exemption to apply, the transport provided to employees must be classified as a residual benefit.
If the transport provided falls under the category of property or expense payment fringe benefits, the “otherwise deductible” rule may apply, which could potentially reduce the taxable value of the benefit.
Operating costs of motor vehicles
When the use of a motor vehicle results in a fringe benefit, the associated benefits related to the operating costs of the vehicle are considered exempt benefits.
This means that you, as the employer, do not incur additional Fringe Benefits Tax (FBT) liability for expenses you provide, including registration, insurance, repairs, and fuel.
This exemption applies because the valuation rules for the use of the motor vehicle already take into account these operating costs.
Employment interviews and selection tests
A benefit that covers the costs of traveling to an interview or selection test, which is related to seeking new employment or pursuing a promotion or transfer within an existing employer, is considered an exempt benefit.
However, if the benefit would typically be categorized as an expense payment fringe benefit (but for the exemption), you are required to obtain documentary evidence of the employee’s expenditure.
If an applicant or current employee uses their own vehicle for travel to the interview or test and is reimbursed based on a cents-per-kilometer rate for the distance traveled, it’s important to note that the benefit is not automatically exempt.
In such cases, there may be a possibility of reducing the taxable value of the benefit, but it does not qualify for full exemption.
Exempt car parking benefits from FBT
Residual benefits
Car parking provided by an employer that does not qualify as a car parking fringe benefit is considered a residual benefit and is exempt from FBT.
Expense payment benefits
When an employer pays or reimburses an employee’s car parking expenses, this is exempt from FBT, provided the expense does not fall under the category of a car parking expense payment fringe benefit.
Parking for the disabled
Car parking provided for a car used by a disabled employee who is legally entitled to use a disabled person’s parking space and displays a valid disabled person’s car parking permit on the vehicle is exempt from FBT.
Exempt employers
Certain types of employers are exempt from FBT concerning car parking fringe benefits and car parking expense payment fringe benefits. These exempt employers include:
- Scientific institutions (excluding those operated for profit or gain for shareholders or members).
- Registered religious institutions.
- Registered charities endorsed by the ACNC (Australian Charities and Not-for-profits Commission) and endorsed by the tax authorities.
- Public educational institutions.
- Government bodies when the employee is exclusively employed in, or connected with, a public educational institution.
Small business car parking
If you are a small business, any car parking benefits you provide to employees are exempt from FBT if all the following conditions are met:
- The parking is not provided in a commercial car park.
- You are not a government body, a listed public company, or a subsidiary of a listed public company.
- You meet one of the conditions mentioned below:
- You were classified as a small business for the last income year before the relevant FBT year. OR
- If your overall income in the income year just prior to the relevant FBT year was below $10 million. In this context, “income” includes both ordinary income and statutory income , which includes total gross income before any deductions.
Exempt benefits for traveling to receive medical treatment
Benefits that cover the costs of travel from a workplace located in a foreign country for the purpose of obtaining medical treatment are considered FBT exempt benefits from taxation.
The exemption applies when the travel is necessary solely because:
The employee requires medical treatment, or
A family member living with the employee requires medical treatment.
The exemption also covers travel for individuals who must accompany the patient as an escort for medical reasons, travel with a patient under 18 years of age, or travel by a family member who visits or accompanies the patient.
Exempt accommodation and meals
In addition to travel, accommodation, and meals provided en route or during any period in which the person traveling must stay at the place of treatment for medical reasons are also exempt from taxation.
However, it’s important to note that hospital accommodation and meals provided to the patient are not exempt from taxation.
Residual exemptions – recreational and child care facilities
Recreational or child care facilities
If you provide recreational facilities or child-minding facilities on your business premises for the benefit of your employees, these are considered exempt benefits.
The exemption also applies if such facilities are provided on the business premises of a related company within a wholly-owned company group.
Residual exemptions - use of property
When plant or equipment located on your business premises is used primarily for business operations and an employee uses it privately, such as for private telephone calls, it is considered an exempt benefit.
This applies irrespective of whether the plant or equipment is used on a working day or a non-working day.
Limited use of equipment off premises
Limited use of equipment off your business premises is exempt if the equipment is typically located on your premises or at your worksite for business use.
For example, if an employee borrows a power tool or personal computer for overnight or weekend use, it is considered an exempt benefit.
However, this exemption does not extend to the use of one of your motor vehicles.
Amenities on business premises
The use by employees of amenities like tea or coffee making facilities, vending machines, and water dispensers located on the business premises is also exempt from FBT.
Residual exemptions - child care facility priority of access
Payments made by you to obtain priority access to certain child care facilities for the children of your employees may qualify as exempt benefits.
These payments should be made under a government-administered program to a child care service, including eligible child care centers, family day care, care outside school hours, or care during school vacations.
Residual exemptions - no private use declaration
Residual benefits covered by a “No private use declaration – residual benefits” are exempt benefits.
To qualify, these residual benefits must arise from the use of property subject to a consistently enforced prohibition on private use.
Under the “otherwise deductible” rule, these benefits would have a taxable value of nil.
In such cases, you can make an annual declaration stating that the benefits were provided solely for employment-related purposes, and there was no private portion.
This declaration should be made in a form approved by the tax authorities and submitted by the due date of your FBT return.
Relocation exemptions
Relocation exemptions - living away from home accommodation (Expense Payments)
Instead of providing a cash living away from home allowance, you may choose to reimburse an employee for their accommodation expenses or directly pay these expenses on their behalf, similar to an expense payment fringe benefit.
This payment is considered an exempt benefit if it meets the criteria.
Relocation exemptions - living away from home accommodation (Residual Benefits)
When an employee’s job requires them to live away from their usual residence, and they are provided with the use of accommodation, this use is considered an exempt benefit if it satisfies specific living away from home accommodation requirements.
Relocation exemptions - removals and storage of household effects
If you, as an employer, cover the expenses related to the removal and storage of household items for your employees, including both new hires and existing employees, who need to live away from home due to job location changes, this benefit is exempt from taxation.
The exemption includes the costs of removal, storage, packing, unpacking, and insurance for household items (including pets) primarily used for the employee’s or their family’s personal use.
This exemption also applies if the employee’s usual residence changes to another location, provided that the removal or storage occurs within 12 months after the employee starts their employment-related duties at the new location.
Relocation - sale or acquisition of dwelling
It is common for employers to cover various relocation expenses for both new and existing employees who need to change their job location.
Some of these relocation expenses, particularly those associated with the sale and/or purchase of a dwelling by the employee, may qualify as exempt benefits.
These expenses include:
- Stamp duty, advertising, legal fees, and agent commissions.
- Mortgage discharge and borrowing expenses related to funds exclusively used for the dwelling (excluding principal repayments, interest, and loan service fees).
- Similar capital expenses, such as those for building surveys, pest inspections, and geo-tech reports.
Additional exempt costs:
Costs related to the connection or reconnection of gas, electricity, and telephone services for the new dwelling are also exempt from Fringe Benefits Tax (FBT).
It’s important to note that costs related to the acquisition of a new dwelling for employment purposes are FBT exempt as long as the employee sells or intends to sell their old dwelling within two years after starting their new job.
However, if the old dwelling is not sold within this timeframe, the benefit may become FBT liable in the year in which the two-year period expires.
Relocation - connection or reconnection of utilities
When an employee is required to live away from home for employment duties or when there is a change in the employee’s usual place of residence, the costs associated with connecting or reconnecting gas, electricity, and telephone services at the new place of residence may be considered exempt benefits.
Relocation - leasing of household goods
If an employee is provided with the benefit of leasing household goods primarily for domestic purposes while living away from home for employment purposes, this benefit may qualify as an exempt benefit.
To meet the exemption criteria, the benefit must be of a type that would typically be categorized as an expense payment fringe benefit or a residual fringe benefit, but it is exempt from taxation.
Additionally, the employee must be provided with living away from home accommodation that is an exempt expense payment or exempt residual benefit.
Relocation - transport
When an employee is required to live away from home or needs to relocate their usual place of residence for employment-related duties, the costs associated with providing relocation transport, including any expenses for meals and accommodation, are considered exempt benefits.
This exemption also applies when the employee is returning to their usual place of residence after working at another location.
It’s important to note that the exemption does not apply to a reimbursement of the employee’s car expenses if the reimbursement is calculated based on the distance traveled by the car.
However, there may be an option for a reduction in the taxable value in such cases.
Exemptions for registered religious institutions
Benefits provided by registered religious institutions to a religious practitioner are exempt from Fringe Benefits Tax (FBT) if these benefits are primarily provided due to the practitioner’s pastoral responsibilities or other tasks associated with the practice, education, instruction, or dissemination of religious beliefs.
Registered public benevolent institutions & registered health promotion charities
If you are a public benevolent institution or health promotion charity and provide benefits to your employees (excluding public or not-for-profit hospitals), these benefits are exempt from FBT if the total grossed-up taxable value of certain fringe benefits for each employee during the FBT year is $30,000 or less.
If the total benefits provided to employees exceed this threshold, FBT is applicable only to the excess amount or the aggregate non-exempt amount.
Public & not-for-profit hospitals & public ambulance services
Public and not-for-profit hospitals, as well as public ambulance services, qualify for Fringe Benefits Tax (FBT) exemptions if the total grossed-up taxable value of specific fringe benefits provided to individual employees remains below a set cap. This cap is currently set at $17,000 per employee.
If the total benefits provided to employees exceed this threshold, FBT is applicable only to the excess amount or the aggregate non-exempt amount.
Exemptions for live-in residential care workers
Accommodation, residential fuel, meals, or other food and drink provided to employees (and their spouse or children) of government bodies, registered religious institutions, and not-for-profit organizations may qualify as exempt benefits.
Exemptions for live-in domestic employees in registered religious institutions
Accommodation, household fuel, meals, and other food and drink provided to an employee may be exempt benefits, but this applies only if the employer is either a registered religious institution or a religious practitioner.
To qualify for this exemption, the employee’s primary duties must involve providing domestic and/or personal services to one or more religious practitioners, including their relatives if applicable. These duties must require the employee to live with the practitioner or within the same premises.
Domestic services may encompass tasks such as child care, gardening, home repairs, house cleaning, nursing care, and meal preparation. Personal services could include roles like a personal secretary or chauffeur.
Exemptions for non-live-in domestic employees
Food and drink provided to domestic employees who do not live on the premises may be exempt benefits. However, this exemption is applicable only if the employer is a registered religious institution or a natural person (excluding trustees).
The exemption applies specifically to food and drink consumed by the employee at their place of employment, typically around the time when the employee is performing their employment-related duties.
Domestic employees in this context may be engaged in activities such as child care, gardening, home renovations, home repairs, house cleaning, nursing care, or meal preparation.
An example illustrating this exemption is when a babysitter cares for children in their own home and shares lunch with them.
Exempt Property fringe benefits
Property such as food or drink provided to an employee may be exempt from FBT if the property is both provided and consumed on a working day on the employer’s premises. If the food or drink is classed as meal entertainment, the expenditure is not tax deductible by virtue of ITAA section 32-5.
Exemption Limitations
This exemption does not apply to:
- Employers exempt from income tax when entertainment involves providing food and/or drink.
- Income tax-paying entities that choose to value entertainment as meal entertainment.
- Meals provided under a salary sacrifice arrangement.
Remote area exemptions
Benefits related to remote area housing are considered exempt benefits.
Meals for Primary Production Employees
Certain meal-related benefits, such as expense payment, property, board, or residual benefits, are exempt if the following conditions are met:
- The employer is engaged in primary production as defined in the Income Tax Assessment Act 1997.
- The primary production business operates in a remote area.
- The meal is provided to the employee, with the exception that a board benefit may also be provided to an associate of the employee.
- The provision of the meal does not qualify as a meal entertainment benefit.
In house health care facilities
Medical services and various health care forms are exempt benefits when provided in on-site first aid posts and medical clinics.
This exemption covers any care or tests related to a person’s health, including medical treatment, first aid, physiotherapy, diagnostic services, health counseling, or providing drugs.
The clinic or facility must primarily focus on treating work related injuries of employees and be located on the employer’s premises, related company premises, or near the employee’s worksite.
While the clinic should mainly cater to work related injuries, incidental treatment for non-work related illnesses or injuries, as well as treatment for employees’ family members, also qualifies for exemption.
Health care provided by clinic staff away from the clinic, such as a home visit by a company doctor, is also covered.
Emergency assistance
Benefits provided as emergency assistance are exempt from FBT.
Emergency assistance includes first aid or emergency health care, emergency meals, food supplies, clothing, accommodation, transport, use of household goods, temporary repairs, or similar immediate relief for victims or potential victims of emergencies.
If the emergency assistance involves health care, the exemption applies when treatment is provided by an employee of the employer or a related company, on the employer’s premises or those of a related company, or near an employee’s worksite.
For example, treatment by a company doctor at the accident site qualifies.
Long-term benefits, such as providing a new house or car to replace one destroyed during an emergency, are not exempt as emergency assistance.
Minor benefits
Minor benefits are considered exempt benefits.
A minor benefit is a benefit that is both less than $300 in value and unreasonable to treat as a fringe benefit.
To assess whether a benefit is a minor benefit, its “notional taxable value” must be less than $300. This value is broadly the amount that would be the taxable value if the benefit were a fringe benefit.
If an employee receives separate benefits connected with each other (e.g., a meal, accommodation, and taxi travel), each individual benefit’s notional taxable value should be less than $300.
Benefits provided to associates are not included when determining if a benefit qualifies as a minor benefit.
If the notional taxable value of a benefit is less than $300, it should be evaluated to determine if it would be unreasonable to treat it as a fringe benefit.
Long service awards
Long service awards recognizing 15 years or more of service are exempt from FBT (Fringe Benefits Tax), provided the award’s value doesn’t exceed a specified maximum amount.
The maximum value depends on the length of service being recognized:
For a 15-year service award, the maximum value is $1,000.
For longer periods of service, the maximum value increases by $100 for each additional year.
If an employee has received a prior long service award from the same employer, the maximum value for subsequent awards is determined by the number of years beyond 15 years of service being recognized.
If the award’s value exceeds the specified maximum, no part of the award is exempt from FBT.
Safety awards
Safety awards granted to employees in recognition of occupational health or safety achievements are exempt from tax if the award’s value does not exceed $200.
If multiple safety awards are granted to an employee during an FBT year, each award is exempt as long as the total value of all awards combined does not exceed $200.
If the total value of the awards exceeds $200, none of the awards are exempt from FBT.
Specific records of awards to individual employees are not required if it can be reasonably concluded that the value of awards granted to an employee will not exceed the $200 limit.
Provision of certain work related items
An FBT exemption applies to the provision of specific work related items to employees. These items include:
- Portable electronic devices
- Computer software
- Protective clothing
- Briefcases
- Tools of trade
A portable electronic device is characterized by its portability, designed for use outside an office environment, small and lightweight, capable of operating independently without an external power supply, and designed as a complete unit.
Examples of portable electronic devices include mobile phones, calculators, personal digital assistants (PDAs), laptops, portable printers, and portable GPS navigation receivers.
Provision of certain work related items
An FBT exemption applies to the provision of specific work related items to employees. These items include:
- Portable electronic devices
- Computer software
- Protective clothing
- Briefcases
- Tools of trade
A portable electronic device is characterized by its portability, designed for use outside an office environment, small and lightweight, capable of operating independently without an external power supply, and designed as a complete unit.
Examples of portable electronic devices include mobile phones, calculators, personal digital assistants (PDAs), laptops, portable printers, and portable GPS navigation receivers.
Retraining and reskilling
An FBT exemption is available for employer-provided retraining and reskilling benefits, provided they meet specific conditions. This exemption was introduced on or after 2 October 2020.
To qualify for the exemption, certain conditions must be met:
- The benefit is provided to an employee for education or training.
- The employee is considered “redundant.”
- The employer has complied with any obligations under the Fair Work Act 2009 regarding redundancy.
- The education or training’s primary purpose is to enable the employee to gain employment or produce income related to the training.
The exemption covers not only the cost of education or training but also related expenses such as course materials, textbooks, travel, and accommodation. This applies to both current as well as former employees.
Worker entitlement contributions
Worker entitlement funds, which manage employee long service leave, sick leave, or redundancy payments, are exempt from FBT if specific criteria are met.
Contributions to worker entitlement funds for the FBT year starting from 1 April 2006 and all later FBT years are exempt if the following conditions are satisfied:
- The payment is made to an approved worker entitlement fund.
- The payment is made under an industrial agreement.
- The payment is for leave, redundancy, or reasonable administrative expenses of the fund.
Funds can only be considered approved worker entitlement funds if they are limited to making payments to the employee for whom contributions were received.
However, in case of an employee’s death, the fund can make payments to the employee’s dependents or the trustee of the employee’s deceased estate without losing its approved status.
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.
