FBT & GST Flashcards
What is FBT tax year
1 April to 31 March
Define FBT
Fringe Benefits Tax Assessment Act 1986
The tax is paid on the grossed up tax value of the fringe benefit granted by an employer to an employee. The grossed up tax value is the amount of income that the employee would need to earn to pay for the Fringe Benefit assuming that they are paying income tax at 45% plus the Medicare levy at 2%. There are two grossing up rates depending on whether the fringe benefit includes the Goods Services Tax which is a Type 1 grossing up rate, 2.0802 or excludes GST which is a Type 2 grossing up rate, 1.8868.
Exclusions from FBT
FBTAA s.136(1) Definition specifically excludes:
- salaries and wages (including allowances)
- Superannuation contributions
- Eligible termination payments
Fringe benefits examples
Benefits include rights, privileges or services.
Examples:
-use of employer owned car for private purposes
-Provides an employee with a cheap loan
-pays an employee’s gym membership
-Provides entertainment by giving free tickets to concerts
-Reimburses personal expenses incurred by an employee e.g. school fees
FBT Payable (calculation)
Calculating the taxable amount:
1. Calculate the taxable value of each fringe benefit provided
2. “Grossed-up” taxable value of fringe benefits by type 1 or type 2 factor
3. Calculate the fringe benefits tax on “grossed-up” amount
The grossed-up amount is the income an employee would need to earn to be able to pay for the FBT after paying 47% tax
Type 1: 2.0802 (GST-inclusive benefits)
Type 2: 1.8868 (GST-exclusive benefits
Fringe benefit tax - taxable benefit (scenario)
salary package $80,000
free holiday by employer $20,000
Assessable income to employee $60,000
Taxable value $20,000
Taxable $20,000 x 1.8868 = $37,736
FBT liability $37,736 x 47% = $17,736
The employee would have to earn $37,736 when taxed at 47% to pay $20,000 for the holiday
Key Fringe Benefits
Car benefits s.7 Loan benefits s.16 Expense payment s.20 Meal Entertainment s.41 Property Benefit s.40 Residual Benefit s.45
Car Fringe Benefits s.7
Car Fringe benefits
Arises on any day, if:
-in respect of employment:
-a car is held by an employer (or associate) and
-is available for private use of the employee or associate
Two valuation methods:
- Statutory formula s.9
- Cost basis s.10
Statutory formula method: assumes that the car is used 80% for business and 20% for personal use
Value of the car x 0.20 x months using the car/12 less any payments by the employee
$40,000 x 0.20 x 6/12 = $4,000
Loan Fringe Benefits s.16
Advance of money, provision of credit, repayment of an account to employee or associate of employee s.16
Taxable value s.18
- notional interest less actual interest accrued
- Bench mark interest rate for year ending 31 March 2015 is 5.96%
Where employee uses funds for income producing purposes s.19
-Where loan is for 100% income producing purposes there is no taxable value for FBT as interest - if paid - would be wholly tax deductible - “otherwise deductible” rule applies s.19
Loan Fringe Benefits s.16 (examples)
Example 1.
Private use
-employee provided with loan from employer of $50,000 at an interest rate of %5
-Loan used to pay for home improvements
-taxable value $50,000 x (5.95% - 5%) = $475
Investment
- Loan is used to purchase shares
- otherwise deductible applies and no FBT payable
Example 2.
Employee is provided with a loan from employer of $100,000 at an interest rate of 4% on 1 Oct
$60,000 used for private use purpose, $40,000 to purchase income producing investments
Fringe Benefits Tax Component
Taxable value: $60,000 x (5.95% - 4%) = $1,170 x 6/12 = $585
Investment Component
The other $40,000 comes under the Otherwise Deductible rule
It is not subject to FBT plus the employee can claim a tax deduction
Employee’s tax deduction $40,000 x 4% x 6/12 = $800
Expense payments fringe benefit
- Employer pays or reimburse actual employee expenses that are employment related
- taxable value generally amount paid or reimbursed s.23
- Taxable value reduced by an employee’s contributions
Note: Amounts received as an allowance regardless of expenditure are assessed as income received by the employee s.20
Meal Entertainments s37A (s.41)
- Light meals and morning teas provided at work are unlikely to be considered to be entertainment
- Meal provided at a restaurant or hotel are more likely to be considered to be entertainment
- Meal entertainment for clients is not subject to FBT
Property Fringe Benefit s.40
- Employer provides property to the employee s.136(1)
- Exempt from FBT where provided as part of employment and is consumed by employee on business premises
- includes meals if consumed on business premises
External Benefits
- Employer specifically purchases property to give to employee
- Taxable value is cost to the employer less an employee payments
In-house Property benefits
Internal benefits
Employer provides property to an employee that is dealt with in the ordinary course of business
The tax value is:
-Where the employer is a manufacturer or processor:
>Only sell wholesale - Wholesale selling price
>Sell Wholesale & retail - 75% of retail selling price
-Where employer is a retailer:
>The arm’s length acquisition price of the property or if property had lost value, the discounted price the employee would have paid in a normal purchase s.42(1)(b)
Less any payments made by the employee
Residual Fringe Benefit s.45
-General services provided by the employer
In House
-A law firm providing advice to employees - in house benefit s.48
>Taxable value = 75% of Lowest price to public
-External benefit
> Taxable value = amount paid by the provider of the benefit
>E.g. employer giving free concert tickets
