If a strata employs a caretaker and provides free or discounted accommodation, they may be liable for Fringe Benefits Tax (FBT). This article breaks down how FBT works in a strata context—along with a worked example and key dates to be aware of.
Understanding the Basics
Fringe Benefits Tax (FBT) is an occasional issue that arises for strata companies that employ on-site caretakers. These arrangements often involve the provision of free or discounted rent—sometimes by paying rent to a lot owner in the scheme, and other times by granting access to a unit owned by the strata company itself. While it may seem like an efficient way to incentivise caretakers and ensure their availability, these arrangements can trigger FBT obligations—and the associated tax bill is often far higher than anticipated.
In practice, FBT most commonly arises in strata when an on-site caretaker is provided with rent-free or discounted accommodation, or where additional private expenses—like utilities or strata levies—are paid on their behalf. These benefits, when given in the context of an employment relationship, are considered fringe benefits and may give rise to an FBT obligation for the strata company.
How FBT Is Calculated?
The Australian Taxation Office (ATO) grosses up fringe benefits (ie: adds back an estimate of tax) to reflect the pre-tax earnings an employee would have needed to buy the benefit themselves after paying tax. They then apply a 47% tax rate (the top marginal rate) to that amount, effectively assuming that every employee is a high income earner. The employer is then charged (not the employee). It’s designed to make sure benefits given outside of salary are taxed fairly, and in the ATO's favor.
Fringe benefits (eg: free or discounted rent) are assessed for FBT at their market value — that is, what would be paid in the open market for a similar arrangement. This will often be the same as what is paid but covers other situations such as provision of a commonly owned unit where no cash is exchanged to a third party. This known as the 'taxable value'.
Once the taxable value is determined, it must be grossed up. The gross-up factor depends on whether GST is claimable on the benefit:
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Type 1 Gross-up (if GST credit is available): 2.0802
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Type 2 Gross-up (if no GST credit available): 1.8868
This grossed-up amount is then taxed at 47%, which reflects the top marginal tax rate. The ATO’s logic is based on what an employee would have had to earn pre-tax to receive that benefit in cash.
Example: Accommodation Benefit
Let’s assume a caretaker receives accommodation valued at $650 per week. The annual value is:
650 x 52 = $33,800
Using the Type 2 gross-up rate of 1.8868 (as GST can’t usually be claimed on residential rent):
$33,800 x 1.8868 = $63,772
FBT payable: $63,772 x 47% = $29,973
This is the amount the strata company would be liable to pay.
Key Dates and Timing
FBT years run from 1 April to 31 March. Lodgements and payments are due:
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21 May (if self-lodging)
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25 June (if lodging through a tax agent)
If FBT was paid in a prior year, the ATO may issue PAYG instalments for the next year, which act as credits against future FBT liabilities.
Can Strata Companies Claim a Deduction for FBT Paid?
Generally, FBT is tax-deductible under section 8-1 of the Income Tax Assessment Act 1997—but only if it's incurred in producing assessable income. Since the main source of income that a strata generates from the use of a caretaker is levy income (which is not assessable), they are unlikely to qualify for a tax deduction.
Why This Matters Now
We are currently within the FBT lodgement window, so now is a good time to check if any of your managements have any FBT exposure. If any employ a caretaker and provide them with non-cash benefits, it's worth reviewing the arrangement with your accountant.
Note: FBT only applies to employee arrangements. Arrangements where contractors or volunteer caretakers are provided with ongoing non-cash benefits are not captured as these arrangements are subject to the PAYG Withholding requirements... a matter beyond the scope of this article.
Quick Takes:
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FBT is assessed on the employer and is based on how much tax an employee would have needed to earn to pay for the benefit themselves.
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Accommodation benefits can result in significant FBT liabilities. These are based on market value.
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Most strata companies can't claim FBT as a tax deduction.
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FBT only applies to employees, not contractors.
If you require assistance in regards to fringe benefits tax and your strata company, please reach out to our admin team.
Links:
- Expensive FBT Risks in Strata
The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above. Please contact our office for more information.
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