Advanced Income Tax Law Chapter 17 Fringe Benefits

Advanced Income Tax Law Chapter 17 Fringe Benefits Tax © National Core Accounting Publications 1

Overview Fringe Benefits Tax (FBT) was introduced in 1986 with the creation of the Fringe Benefits Tax Assessment Act 1986. FBT is payable by employers and is designed to tax the wide range of benefits provided by an employer, or on their behalf, to employees or their associates. © National Core Accounting Publications 2

Overview § Fringe benefits tax is payable by the employer. § The FBT year runs from 1 April to 31 March of the following year. § Fringe benefits tax returns must be prepared and lodged by 21 May following the end of the FBT year. © National Core Accounting Publications 3

Overview What is a fringe benefit? § benefit includes any right, privilege, service or facility provided under an arrangement in relation to the performance of work. § fringe benefit includes a benefit provided to an employee or associate by their employer, an associate of the employer or third party. § these specifically exclude salary and wages, superannuation contributions to a complying fund & exempt benefits. © National Core Accounting Publications 4

Determining Whether FBT Applies © National Core Accounting Publications 5

Calculation of FBT There are four steps to be followed in calculating FBT: 1. Identify the fringe benefit type. 2. Calculate the taxable value of the fringe benefit. 3. Gross up the taxable value of the fringe benefit. 4. Multiply the FBT rate (49% for FBT year ended 31 March 2016) by the grossed-up taxable value of the fringe benefit. © National Core Accounting Publications 6

Calculation of FBT Grossing up the taxable value of the fringe benefit depends upon the type of fringe benefit. Type 1 Fringe benefit i. e. where GST input tax credit claimable by employer. © National Core Accounting Publications 7

Calculation of FBT Type 1 Fringe benefit The type 1 gross-up factor is: 2. 1463 © National Core Accounting Publications 8

Calculation of FBT Type 2 Fringe benefit i. e. where GST input tax credit not claimable by employer, or where the cost to the employer of providing the benefit does not include GST. The type 2 gross up factor is: 1. 9608 © National Core Accounting Publications 9

Reportable Fringe Benefits (RFB’s) Reportable Fringe Benefits are reported on a taxpayer’s Payment Summary, but are not assessable income. However, RFB’s are relevant for determining a taxpayer’s Medicare Levy Surcharge, HELP repayments, Child Support, Mature Age Worker tax offset, and Superannuation Surcharge. © National Core Accounting Publications 10

Reportable Fringe Benefits (RFB’s) Individual fringe benefits of $2, 000 or less are not reportable. © National Core Accounting Publications 11

Types of Fringe Benefits Car fringe benefits There are two methods which can be used to find the taxable value of a car benefit provided to an employee. These are: • Statutory Formula method • Operating Cost method © National Core Accounting Publications 12

Car Fringe Benefits Statutory Formula method The Statutory Formula method operates on a pervehicle basis by applying a statutory percentage to the cost price of the vehicle. The percentage is based on the number of kilometres travelled during the tax year. © National Core Accounting Publications 13

Car Fringe Benefits Statutory Formula method The availability of the vehicle for private use by the employee and any running cost paid by the employee are also taken into account. This method is the default method of valuation. © National Core Accounting Publications 14

Car Fringe Benefits Statutory Formula method The statutory formula is: ABC D - E A = base value of the vehicle B = statutory rate based on total kms travelled in the tax year C = no. of days available for private use in the tax year D = no. of days in the FBT year E = any employee contributions © National Core Accounting Publications 15

Car Fringe Benefits Statutory Formula method The Statutory rates applying for contracts from 1 April 2014 are: Total Annualised Kilometres Statutory Rate 0 to 14, 999 0. 20 15, 000 to 24, 999 0. 20 25, 000 to 40, 000 0. 20 More than 40, 000 0. 20 © National Core Accounting Publications 16

Car fringe benefits - Statutory Formula Method A car to be used for private purposes was purchased by an employer on 1 November 2015 for $40, 000 including GST. The recipient contributed $2, 000 towards running costs. During the period 1 November 2015 to 31 March 2016 the car was driven 6, 000 kms. Required: Calculate the statutory rate and taxable value of the car benefit using the Statutory Formula method. Solution: Annualised kms 6, 000 x 366/152 = 14, 447 kms Therefore, the statutory rate is 20% or 0. 20. The taxable value of the car fringe benefit is: (40, 000 x 0. 20 x 152/366) – 2, 000 = $ 3, 322 © National Core Accounting Publications 17

Car Fringe Benefits Operating Cost Formula method The employer may elect to use the Operating Costs basis of valuation. This election may be made each year for each vehicle but is only available if a valid logbook and odometer records are maintained. © National Core Accounting Publications 18

Car Fringe Benefits Operating Cost Formula method This method uses the total operating costs of the vehicle during the year. These include: 1. Running expenses - petrol, oil, repairs, services, insurance. 2. Deemed costs for depreciation (22. 5% diminishing value for vehicles purchased before 1 July 2002, 18. 75% on or after this date to 9 May 2006, and 25% on or after 10 May 2006) and imputed interest (5. 65% 1 April 2015 - 31 March 2016). © National Core Accounting Publications 19

Car Fringe Benefits Operating Cost Formula method Depreciation is calculated using the following formula: ABC D A = the depreciated or base value of the vehicle B = the rate of depreciation C = the number of days in which the vehicle was held by the benefit provider D = number of days in the year © National Core Accounting Publications 20

Car Fringe Benefits Operating Cost Formula method For FBT purposes, operating costs are calculated using the following formula: C x (100% - BP) - R C = total operating costs including running expenses, deemed interest, depreciation BP = business use % R = contributions made by employees © National Core Accounting Publications 21

Car Fringe Benefits Operating Cost Formula method On 1 January 2016 a car was purchased for $36, 000 (i. e. during the current FBT year). Required: Calculate the deemed cost for depreciation. Solution: 36, 000 x 0. 25 x *91 = $ 2, 238 (rounded) 366 * 91 days from 1 January 2016 to 31 March 2016. © National Core Accounting Publications 22

Loan Fringe Benefits Loan fringe benefits arise when an employer makes a loan to an employee at a low interest rate or interest-free. The employer must calculate the taxable value of the benefit by using the ‘benchmark’ rate prescribed by the ATO - rate is 5. 65% for the FBT year ending 31 March 2016. The taxable value of a loan benefit is the difference between the interest due on the loan at the benchmark rate and the rate provided by the employer. © National Core Accounting Publications 23

Loan Fringe Benefits A loan of $20, 000 is provided to an employee on 1 April 2015 at an annual interest rate of 3. 75%. Required: Calculate the taxable value of the loan fringe benefit for the year ended 31 March 2016. Solution: The taxable value is: $20, 000 x (5. 65% – 3. 75%) x 366/366 = $ 380 © National Core Accounting Publications 24

Other Types of Fringe Benefits • • • Debt waiver Expense payment Housing Board Property Entertainment Airline transport Living away from home allowance Car parking Entertainment provided by a tax exempt organisation © National Core Accounting Publications 25

Residual Fringe Benefits Where a payment that is not covered by another provision is paid on behalf of a recipient, it represents a residual fringe benefit. A residual fringe benefit may arise when am employer provides an employee with any right, such as a privilege, service or facility, which is not one of the specific types of fringe benefits previously mentioned. © National Core Accounting Publications 26

Exempt Fringe Benefits § The provision of taxis, panel vans, utility trucks and non-passenger vehicles designed to carry loads of ≤ 1 tonne. § The provision of minor, infrequent benefits (i. e. costing less than $300). § Mobile phones used primarily for work, laptop computers, protective clothing, calculators, work related software, tools of trade. § Trade or professional journal subscriptions, subs to corporate credit cards, subs to airport lounge membership. § Taxi travel from work to home or a medical practice as a result of sickness. © National Core Accounting Publications 27

Non-profit Organisations FBT concessions apply to certain benefits provided by the following organisations: • Public benevolent institutions (other than hospitals) and health promotion charities • Public and non-profit hospitals and public ambulance services • Rebatable employers • Religious institutions • Non-profit companies © National Core Accounting Publications 28

Non-profit Organisations Public benevolent institutions and health promotion charities are allowed to provide FBT-free benefits to their employees up to a maximum capped threshold of $30, 000 of the grossed-up taxable value of fringe benefits for each employee. For public hospitals, non-profit hospitals and public ambulances services the level of the concessional FBT treatment is at a maximum capped threshold of $17, 667 of the grossed-up taxable value of fringe benefits provided to each employee for the 2016 FBT year. © National Core Accounting Publications 29

Non-profit Organisations Albury Public Hospital provides a $12, 000 type 2 fringe benefit to an employee nurse. Required: Calculate the employer’s aggregate non-exempt amount and FBT payable. Solution: The aggregate non-exempt amount is: 12, 000 x 1. 9608 less Capping threshold Therefore, FBT payable is: 5, 862 x 49% = $ 23, 529 17, 667 5, 862 $ 2, 872. 38 © National Core Accounting Publications 30