Fringe Benefit Tax ATO

 

FBT applicable where an organisation provides benefits to its employees instead of salary.

The first part of the process in deciding whether FBT applies is to decide

1.       whether there is a fringe benefit.

Once we have determined that fringe benefits have been provided and

2.       what types of fringes benefits they are?

we need to determine the

3.       amount of FBT payable.

This process consists of three steps.

The steps focus on

1.determining the taxable value,

2. calculating the taxable amount by grossing up the taxable value,

3. then multiplying the taxable amount by the FBT rate.

 

1.       The first step for the calculation of FBT payable is to

 

Step for the Calculating of FBT payable

 

1.       Determine the taxable value of the fringe benefits given to employees.

The taxable value, as the name suggests, aims to capture the dollar value of the benefit given to the employee.

There are several categories of fringe benefits, and different ones have different way of calculating the taxable value.

In some cases, the calculation is simple.

For example,

I.                    a debt waiver fringe benefit, which applies when an existing loan to the employee has been forgiven is the value of the debt forgiven.

II.                  For an expense payment fringe benefit, it is generally the GST inclusive expense paid for or reimbursed by the employer.

 

However, for other types of fringe benefits, the calculations are more complex.

For instance, Motor vehicle fringe benefit,

There are two formulas that the employer can choose from; being the

1.       statutory formula method and

2.       operating cost method.

 

1.       Statutory formula method

The statutory formula method is a broad formula that does not take into account most of the actual expenses incurred by the employer.

 

2.       operating cost method

Whereas the operating cost method uses a formula that does take into account the details of the actual expenses.

 

Note that the taxable value of a fringe benefit can be reduced by the employee's after-tax contribution.

It can also be reduced due to the operation of the 'otherwise deductible' rule.

 

An employee's after-tax contribution to the employer that partially pays the cost of paying for the fringe benefit will reduce the taxable value

of the fringe benefit provided.

This makes sense because to the degree, the employee has contributed to the cost of the benefit.

The value of the benefit provided by the employer is reduced.

 

The taxable value of the fringe benefit can also be reduced in some cases by the 'otherwise deductible' rule.

 

In summary, the 'otherwise deductible' rule involves asking the hypothetical question. If the employee had paid for this benefit without reimbursement, would they have received a once off deduction for it?

To the extent, the answer is yes. The 'otherwise deductible' rule reduces the taxable value of the benefit.

 

For example,

an employer reimburses an employee for the cost of their mobile phone usage. Assume that the mobile phone is 100% used for work expenses.

This is an expense payment fringe benefit. But had the employee paid for this themselves, they would have received a full deduction. And so, the taxable value of the benefit is reduced to nil.

 

Once the taxable values of fringe benefits have been determined, the next step is to calculate the taxable amount of fringe benefits for any given employee.

 

This involves grossing up and aggregating the taxable values of each fringe benefit. Any given fringe benefit will be grossed up by either a

a.       Type one amount or

b.       Type two amount.

Which of the two gross operators used will depend on whether the employer can claim a GST input tax credit on the benefit?

 

So, for instance,

A non-GST registered employer will only have “Type two benefits”.

For a GST registered employer, the benefit will be a “Type one benefit” if they can claim an input tax credit on the benefit.

 

For example,

If they pay for the employee's electricity bill, this would be type one benefit because Electricity bill have GST in it.

But if they pay for the employee's water bill, it will be type two because water bills are not subject to GST.

 

Why, Type one gross up rate is higher when compare with Type two?

Because the GST registered employer gets a benefit in the form of an input tax credit. So as to equalise this, there is a higher gross up rate so that a greater amount of FBT is payable.

 

The third step in calculating the FBT payable

FBT payable= Fringe Benefits Taxable Amount  X FBT Rate.

(To calculate the FBT payable is to multiply the fringe benefits taxable amount calculated in the previous step by the FBT rate).

 

The rate is set to match the top rate paid by individuals inclusive of Medicare levy.

 

Example

Let's take an example of a building company, BLD Proprietary Limited, which is registered for GST. BLD Pty Ltd gives one of its employees called Anisha.

 

BLD Proprietary Limited reimburses private school fees of Anisha’s daughter.

It also leases a new car and pays for all of its expenses.

Anisha can use this car for private purposes, and Anisha makes a payment to BLD Pty Ltd from her after-tax salary as a contribution to the cost of running the car.

 

Step one would be calculating the taxable value of each of the benefits given to Anisha.

The reimbursement of private school fees would be an expense payment fringe benefit.

And the taxable value is the amount paid. For the car fringe benefit, assume the employer chooses to use the statutory method for the taxable value calculation.

The formula provides the calculation for the taxable value of the car fringe benefit, including Anisha's after-tax contribution.

 

Step two would be to calculate the taxable amount by grossing up the relevant taxable values.

The car fringe benefit would be a type one fringe benefit, and the private school fees would be type two, as private school fees are not subject to GST.

 

The total taxable amount is the sum of the type one taxable amount and the type two taxable amount.

 

Step three would then involve calculating the amount of FBT payable.

This involves multiplying the taxable amount by the FBT rate, which determines the company's FBT liability?

 

To recap, there are three steps in determining the calculation of FBT payable.

These steps focus on determining the taxable value, calculating the taxable amount by grossing up the taxable value, then multiplying the taxable amount by the FBT rate.