Chapter 6 Fringe Benefits Tax FBT Copyright 2003

OVERVIEW OF FBT • For FBT to apply, there must be an employer/employee relationship. • Fringe benefits tax is a separate tax paid by employers on the taxable value of any defined fringe benefits provided to employees or their relatives. • Any fringe benefits provided are in addition to wages paid to employees. • Fringe benefits tax is paid by employers, not employees. • Fringe benefits tax is an annual tax. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 2

Payment of FBT • An FBT year begins on 1 April and ends on the next 31 March. • Relevant employers must self-assess their FBT payable by lodging an annual FBT return with the Australian Tax Office (ATO) by 21 May each year. • Employers pay their FBT payable either by quarterly instalments or as a single lump sum, depending on the size of the annual FBT payable. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 3

Calculation of FBT • The FBT payable for any FBT year is determined by calculating the grossed-up taxable value of all fringe benefits provided to employees (or their relatives). • A flat FBT rate applies to the total grossed-up taxable value of fringe benefits provided. • The current FBT rate is 48. 5 per cent. • Any FBT payable is tax deductible to employers for income tax purposes. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 4

DEFINING FRINGE BENEFITS For FBT purposes, a fringe benefit is a benefit provided to an employee (or a relative) in respect of employment. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 5

TAXABLE VALUE OF FRINGE BENEFITS To determine any FBT payable, employers must first calculate the taxable value of the benefit. Three of the most common fringe benefits • Car fringe benefits • Loan fringe benefits • Expense payment fringe benefits. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 6

Car Fringe Benefits • A car fringe benefit occurs where a vehicle owned or leased by the employer is used or • Made available to an employee (or a relative) for private purposes. Examples of private use: • Shopping journeys • Holiday travel • Travel between home and work. If a vehicle is kept at or near the employee's place of residence, it will also be deemed to be available for private use and subject to FBT. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 7

Vehicles Covered • • • Sedans. Station wagons. Mini buses. Panel vans. Utilities. Or, any other vehicle designed to carry less than one tonne or fewer than nine passengers. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 8

Vehicles Exempt from FBT Only if they are used by an employee and only for travelling to and from work and where other private use is minor. These vehicles include: • • Taxis. Panel vans and commercial vehicles. Motor cycles. Unregistered vehicles. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 9

Methods of Valuing Car Benefits The statutory formula method The operating cost method Employers can use either method for any vehicle each FBT year. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 10

THE STATUTORY FORMULA METHOD • A statutory formula can be applied to calculate the taxable value of each vehicle benefit. • Where the car was used for only part of the year, the kilometres travelled is annualised. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 11

THE OPERATING COST METHOD The operating cost method uses specific costs to value each vehicle. Employers who choose this method must keep a log book for each relevant vehicle for any consecutive twelve-week period during the year and subsequently every five years. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 12

LOAN FRINGE BENEFITS • • If an employer provides an employee with a very low-interest or interest-free loan for private purposes, a taxable fringe benefit arises. Loans include advances of money or the provision of credit, but not loans of property. The taxable value of a loan fringe benefit is the amount by which the CPI statutory interest calculated on the loan exceeds the amount of interest that has actually been charged on it for the FBT year. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 13

EXPENSE PAYMENT FRINGE BENEFITS An expense-payment fringe benefit arises when an employer pays (or reimburses) the private expenses of an employee. Private expenses of an employee include: • • • Telephone accounts Children's school fees Private health insurance Mortgage repayments Rates Holiday travel costs. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 14

Taxable Value of Expense Payment Fringe Benefit Amount of private expense paid or reimbursed by employer ($) Less Amount of any employee contribution received ($) Less Amount of employer’s payment intended to cover the business-use portion of the employee’s bill paid ($) Equals Taxable value of expense payment fringe benefit ($) Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 15

CALCULATING FBT PAYABLE Because FBT is based on a self-assessment system, employers must calculate their FBT payable (if any) for each FBT year. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 16

Calculation Steps 1. Identify each taxable fringe benefit provided to employees during the FBT year. 2. Calculate the taxable value of each fringe benefit. 3. Total the taxable values of each fringe benefit to calculate the aggregate taxable value. 4. Apply the gross-up factor to the total taxable value to work out the grossed-up taxable amount (there are different gross-up factors for Type 1 and Type 2 fringe benefits). 5. Apply the FBT rate (%) to the grossed-up taxable amount to calculate the annual FBT payable. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 17

Other Administrative Requirements Employers must disclose, on payment summaries issued to employees: • The grossed-up taxable value of most fringe benefits they provide to employees. • But only where the value of the benefit exceeds $1000. • These are called Reportable Fringe Benefits. For FBT purposes, employers must keep records explaining how they calculated their FBT liability for five years after the date of the relevant transactions. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 18