This article was contributed by the ADF Financial Services Consumer Centre.

The purpose of this short article is to explain to ADF members and their families the background and purpose of Fringe Benefits Tax (FBT). It also refers readers to authoritative links (such as the Australian Taxation Office), enabling readers to educate themselves on FBT. Importantly, the article encourages readers to consider seeking professional advice in relation to their personal circumstances and includes a link to educational material about how to go about identifying a suitable adviser.

Fringe Benefits Tax commenced in Australia in 1986. Its introduction was a response to the growing practice of avoiding income tax by including non-cash “fringe benefits” (which were then substantially tax free) in the remuneration packages of employees, especially those on higher incomes. Its policy objective was to improve fairness and equity in the system by ensuring that income in whatever form (salary or fringe benefits) is subject to tax.

Outlining the simple objective of the FBT system and explaining in practice the complexities of its implementation are quite different things. Nevertheless, what we can say with certainty is that in Defence, as with any other employer in Australia, some (but not all) of a long list of non-cash fringe benefits may be subject to FBT.

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In summary, a “fringe benefit” is something extra you get from your employer in addition to your salary, or in return for foregoing some of your salary under a so-called “salary sacrifice” arrangement. The benefit can be for the ADF member, their partner or their children. The purpose of fringe benefits in an ADF context is to include a range of non-cash items in ADF remuneration packages that specifically reflect the unique nature of military service.

It’s important to understand that the FBT system is separate from the Income Tax system. FBT is calculated on the taxable value of a fringe benefit which is generally the cost to your employer of providing the benefit to you.

How might FBT affect ADF members and families

A typical fringe benefit that will be familiar to ADF members is a novated lease on a motor vehicle. Use of this benefit in a “salary sacrifice” arrangement might place you into a lower income tax bracket, resulting in a saving if you’re a higher income earner, although it will be important to make sure that you are actually saving tax and not just leasing/renting an expensive car that you can’t really afford.  FBT would generally apply to these novated lease arrangements (although there are some exemptions for electric vehicles).

The same point of principle applies to using salary sacrifice to make concessional superannuation contributions. These are generally exempt from FBT and will result in tax savings for some contributors.

Items an ADF member would need to do their job, such as an employer-provided mobile phone or occupational/specific clothing, are not generally taxed as fringe benefits. 

However, if you pay for any of these items out of your own pocket, you might be able to claim a tax deduction. Here’s a link to the ATO’s list of ADF members’ work related tax deductions. It’s important to remember that you can’t claim a tax deduction for a work expense if you’re later reimbursed for it.

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For current serving ADF members, if the total taxable value of the fringe benefits provided to you and/or your family in a FBT year (1st April to 31st March) exceeds $2,000, you’ll have a reportable fringe benefits amount (RFBA) noted in your end of financial year Income Statement (formerly called a Group Certificate). Some benefits available to your recognised family members which may attract FBT include the ADF Family Health Program, reverse reunion travel, and the Partner Employment Assistance Scheme.

While a RFBA isn’t deemed to be taxable income, depending on your personal circumstances, it will be used to determine whether you and your family are entitled to, or liable for, a number of benefits and obligations. 

These may include:

• Family Tax Benefits
• Child Care Subsidy 
• Medicare levy surcharge
• private health insurance rebate 
• child support payments 
• superannuation co-contributions, 
• Higher Education Loan Program (HELP)
• tax offsets and 
• Financial Supplement repayments.

Where can I find out more?

You can learn more about RFBA on the Australian Taxation Office website. We also recommend this comprehensive article on FBT. While it’s written by the ATO for employers, it’s useful for employees who are interested in gaining a deeper understanding of the subject.

There is also an excellent commentary on the application of FBT in the ADF in the ADF Pay and Conditions Manual (PACMAN).

Last but not least, is a reminder to consider seeking professional advice if you’re uncertain about your tax position, including on FBT. The first port of call is a tax agent/accountant. The article on this subject by the ADF Financial Services Consumer Centre should help you to source a suitable adviser.

DISCLAIMER

This article has been written for education purposes only and the information it contains must not be treated as general or personal financial advice. You should consider the specific needs of you and your family, and think about consulting a qualified accountant or a licensed financial adviser of your choice prior to making personal financial decisions.