The Council of Small Business Australia (COSBOA) is calling on the government to remove fringe benefits tax (FBT) on childcare and health services for small business employees, saying existing exemptions only favour the big end of town.
The calls come just weeks before the fringe benefits tax is set to be increased from 47% to 49% on April 1.
Under existing tax rules, employers are exempt from FBT on incentives such as crèches and gyms if they are found on site.
COSBOA chief executive Peter Strong told SmartCompany the exemptions clearly favour large-scale employers, leaving small businesses at a disadvantage.
“You can’t put a crèche in your panel beating shop, so we have to pay 47% if we want to offer childcare to employees. It’s a disincentive,” says Strong.
But Crowe Horwath partner David Lilja tells SmartCompany every employing entity is open to being taxed under the FBT rules, with no specific threshold that discriminates between large and small-scale employers.
“A large employer obviously has the scale of staff and facilities that a mum and dad small business won’t have,” says Lilja.
“But the tax is no different for large cooperates. If they offer a gym membership down the road, they also have to pay FBT.”
Lilja says the main disincentive of FBT is the tax rate, which taxes employers for any fringe benefits offered to staff at the top marginal tax rate of 47%.
“Most staff are not paid at that top rate, so there is clearly a disincentive to provide benefits,” he says.
According to the Australian Tax Office, FBT is charged at the top tax rate to ensure the same tax liability as if the benefit was provided as salary to an employee on the top rate.
Strong says the tax was originally designed by the Keating government to “stop people rorting the system” but it has since “created unintended consequences”.
“I think we clearly need a review of the tax,” says Strong.
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COSBOA has come out in support of Fitness Australia, the national health and fitness industry association, which has launched a recent campaign to remove FBT for small businesses to push more employers into funding gym memberships for staff.
Fitness Australia and COSBOA have both pointed to a report released by Deloitte, which shows the removal of FBT would have negligible effect on the federal budget.
“If they can’t at least remove FBT for all business, they should at least remove it for small business,” says Strong.
“There should not be an FBT on necessary and essential services like childcare and healthcare.”