Fringe benefits and payroll tax
Fringe benefits provided to employees are liable for payroll tax in New South Wales if they are taxable under the Fringe Benefits Tax Assessment Act 1986.
What is a fringe benefit?
A fringe benefit is:
- a “payment” to an employee, but in a different form to salary or wages, and
- a benefit provided in relation to employment.
There are different types of fringe benefits. Some common examples include:
How fringe benefits are treated for payroll tax
The taxable value of fringe benefits under the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are liable for payroll tax in New South Wales (NSW).
If the benefit is exempt under the FBTAA, or has a nil value, it is not liable for payroll tax.
For more details on values and exempt benefits see Part III of the FBTAA.
Calculating taxable fringe benefits with the gross-up rate
Use the formula below to calculate the fringe benefit taxable value for your payroll tax returns.
(Type 1 aggregate amount + Type 2 aggregate amount)* x Type 2 gross-up rate
Type 1 and Type 2 fringe benefits are defined in your fringe benefits tax (FBT) return.
*Tax exempt bodies should exclude their entertainment fringe benefits from this calculation.
Gross-up rate
The Type 2 gross-up rate for the period 1 July 2019 to 30 June 2024 is 1.8868.
Monthly returns
There are 2 calculation methods for payroll tax returns. These are the actual method and the alternative method.
Your business may use the alternative method if it has paid fringe benefits for at least 15 months before the start of the current financial year.
If your business does not meet this requirement, you must use the actual method.
Actual method
You must calculate and declare your actual fringe benefits on a month-to-month basis throughout the year.
Alternative method
Use the FBT return preceding the start of the financial year and divide the taxable value of fringe benefits grossed-up by the Type 2 factor by 12. Include that amount as taxable FBT in your monthly payroll tax returns from July to May.
In your annual return, use the FBT return immediately preceding the end of the financial year to declare the Type 1 and Type 2 benefits grossed up by the Type 2 factor.
Declaring your liable fringe benefits in your annual return
Actual method
If you have declared your actual fringe benefits in your monthly payroll tax returns, you need to:
- Add the amounts declared in your July to May monthly returns.
- Add any taxable fringe benefits calculated for the month of June.
- Use this total in the “Fringe benefits” field in your annual return.
Include any taxable fringe benefits that were attributed to other jurisdictions in the “Gross interstate wages” field of your payroll tax returns for NSW.
Alternative method
If you have used the alternative method to lodge your monthly payroll tax returns, you need to:
- Calculate the taxable fringe benefits grossed up by the Type 2 rate from question 14 of your FBT return immediately preceding the payroll tax annual return.
- Use this total in the “Fringe benefits” field in your annual return.
The FBT year is from April to March. For the alternative method, the taxable FBT in your payroll tax annual return should be based on the latest FBT return lodged within that financial year.
Include any taxable fringe benefits that were attributed to other jurisdictions in the gross interstate wages field of your payroll tax returns for NSW.
Where your business employs in NSW and interstate
If you have employees in other states/territories and cannot identify the NSW component of fringe benefits, you may declare your NSW taxable fringe benefits on an apportionment basis.
For example, if 70% of your total Australian wages are paid in NSW, you would declare 70% of your grossed up fringe benefits in NSW. This apportionment will form part of your alternative method calculation.
Alternative method examples
Business A only employs in NSW. Business A uses the alternative method to calculate taxable FBT for the 2023-24 financial year.
Monthly return calculation
Business A’s FBT return calculation details for the FBT year ending 31 March 2023 are:
- $80,000 for the Type 1 aggregate amount, and
- $150,000 for the Type 2 aggregate amount.
For payroll tax, the taxable fringe benefit value is ($80,000 + $150,000) × 1.8868 = $433,964.
Business A’s taxable fringe benefit value for their monthly returns is $433,964 ÷ 12 = $36,164.
Business A declares taxable fringe benefits of $36,164 for each monthly return from July 2023 to May 2024.
Annual return calculation
Business A’s FBT return calculation details for the FBT year ending 31 March 2024 are:
- $90,000 for the Type 1 aggregate amount, and
- $170,000 for theType 2 aggregate amount.
For payroll tax, the taxable fringe benefit value is ($90,000 + $170,000) × 1.8868 = $490,568.
Business A declares taxable fringe benefits of $490,568 for the 2024 annual return for payroll tax.
Business B employs in multiple states/territories in Australia. Business B uses the alternative method to calculate taxable FBT for the 2023-24 financial year.
Business B paid Australian taxable wages of $1,200,000 (excluding fringe benefits) in the 2022-23 financial year. From this amount, $900,000 (excluding fringe benefits) were NSW wages.
Monthly return calculation
Business B’s FBT return calculation details for the FBT year ending 31 March 2023 are:
- $95,000 for the Type 1 aggregate amount, and
- $175,000 for the Type 2 aggregate amount.
For payroll tax, the taxable fringe benefit value is ($95,000 + $175,000) × 1.8868 = $509,436.
The NSW value of taxable fringe benefits is calculated as ($900,000 ÷ $1,200,000) x $509,436 = $382,077.
Business B’s taxable fringe benefit value for their monthly returns is $382,077 ÷ 12 = $31,840.
Business B declares taxable fringe benefits of $31,840 for each monthly return from July 2023 to May 2024.
Annual return calculation
Business B’s FBT return calculation details for the FBT year ending 31 March 2024 are:
- $105,000 for the Type 1 aggregate amount, and
- $195,000 for the Type 2 aggregate amount.
For payroll tax, the taxable fringe benefit value is ($105,000 + $195,000) × 1.8868 = $566,040.
The NSW value of taxable fringe benefits is calculated as ($900,000 ÷ $1,200,000) x $566,040 = $424,530.
Business B declares taxable fringe benefits of $424,530 for the 2024 annual return for payroll tax.
Why accuracy is important
It is important that you correctly declare fringe benefits in your returns. Errors may result in the underpayment of payroll tax, which is also known as a tax default.
Interest will be imposed on any underpayments. Your business may also be liable for penalty tax. Read the interest and penalty tax page for more details.
Always maintain relevant records and working papers showing how your taxable fringe benefit values were calculated. Records and working papers must be:
- retained for at least 5 years
- sufficient for a payroll tax liability to be properly assessed
- in English, or a form easily translated to English, and
- readily available to us if requested, for example as part of a payroll tax audit.
Voluntary disclosure
Contact us to make a voluntary disclosure if you have not declared all liable amounts in your monthly and/or annual returns, including previous financial years.
Voluntary disclosures attract a reduced level of penalty tax compared to cases where we identify an underpayment. Interest will still be imposed.
Non-compliance identified through our data matching activities will result in penalty tax and interest charges, in addition to any underpayments detected.
Common errors with fringe benefits
Payroll tax audits often uncover errors with the calculation and declaration of fringe benefits. These include:
- Failing to declare the actual value of fringe benefits.
- Declaring reportable fringe benefit amounts instead of the value of the aggregate Type 1 and Type 2 grossed up amounts.
- Including incorrect amounts from the FBT return as taxable wages.
- For employers in multiple states, mistakenly including and treating some tax exempt fringe benefits as liable.
- Mistakenly deducting meal entertainment fringe benefits for employees from the value of fringe benefits declared to the Australian Taxation Office (ATO).
- Using the apportionment method to declare the value of fringe benefits instead of using actual amounts declared to the ATO when these are available.
- Deducting car parking fringe benefits from the value of fringe benefits declared to the ATO. Since car parking fringe benefits are exempt from payroll tax in Queensland (QLD), employers (usually those based in QLD) may also mistakenly treat them as exempt in NSW.
- Tax exempt bodies including entertainment fringe benefits in the calculation of liable wages.