Employee’s payment of employer’s fringe benefits tax liability

Employees may have to pay towards, or reimburse the employer for, fringe benefits tax if:

• employee payments are made in respect of an employer’s fringe benefits tax

or

• the employee salary sacrifices.

The employer’s taxable wages for payroll tax purposes can change depending on the type of employee payment being made.

Employee payments

Taxable wages will not change where an employee receives a fringe benefit and is required to make payments towards, or reimburse the employer for, the associated fringe benefits tax.

As these payments are subject to the direction of the employee, and the employee is still legally entitled to the wages, they are treated as wages for payroll tax purposes. It does not matter if the employee has made the payment as a lump sum or had the payments periodically deducted from their wages.

The taxable wages figure will be equal to:

• the wages paid or payable, with no reduction for the employee payments

plus

• the grossed up value, with no reduction for the employee payments.

Employee salary sacrifice

Taxable wages will be reduced by the amount of the salary sacrifice where an employee receives a fringe benefit and agrees to a salary sacrifice in order to compensate the employer for the associated fringe benefits tax.

A salary sacrifice is not considered an employee contribution, because in making a salary sacrifice the employee extinguishes a claim to future wages. Therefore, the employee cannot contribute something that never existed.

The taxable wages figure will be equal to:

• the wages paid or payable, being those wages reduced by the salary sacrifice

plus

• the grossed up value, with no reduction for the salary sacrifice.