What is FBT and how does it affect my business?
Fringe benefits tax was first introduced in 1986, as a way of preventing many businesses from maintaining a relatively lavish lifestyle, having their business pay for it, and hence using the expenses as a way of minimising income tax obligations.
The most obvious expenses that can be caught under the FBT umbrella are lunches and entertainment, motor vehicles paid for by business but available for private use of individuals, and other non-business expenses paid for on behalf of directors and employees of the business.
FBT is an expenses tax to administer due to its complexity and we often advise clients to do what they can to avoid having expenses that will come under the FBT income tax laws. Not just because of the 46.5% tax rate of FBT, but also because of the administrative efforts required to ensure compliance with the law.
If you feel that you may be paying for expenses that are subject to FBT can I strongly urge you to consider a better way of running your business. Having said that, some individuals may well be happy to pay the FBT if it means saving them some personal tax, but for the average small business owner, FBT is a headache that can and should be avoided.