1. FRINGE BENEFITS TAX FBTAA Fringe Benefits Assessment Act 1986
FBTAA ratings Act sets rates at 49%
FBT year April 1st to 31st March
No lodgement required if employer has less than $3,000 FBT in the previous year
Basic Features
Taxes Employer (not employee)/ (1 employer)
Values Benefits (at a flat rate of 49%)
FBT year 1 April – 31 March

2. FBT rate for the year ending 31 March 2016 to 31 March 2018
FBT year
FBT rate
Ending 31 March 2018
47%
Ending 31 March 2016 and 31 March 2017
49%

3. Reasons For Separate Legislative Provisions
FRINGE BENEFITS TAX
Reasons For Separate Legislative Provisions
Supplements narrow concept of ordinary income
Recall Tennant v Smith (1892)
This case considered the issue of ordinary income and whether or not rent free accommodation provided to an employee was income according to ordinary concepts and decided it was not since it could not be converted to cash.

4. Statutory Income Original Fringe Benefits Tax
Section 26(e) [now 15-2]- used to tax employees
Problems associated with this section
Tracking benefits – too many people to track
Valuing benefits – different valuations for different types of benefit

5. Types of fringe benefit
Car
Debt waiver
Loan
Expense payment
Housing
Living-away-from-home allowance
Airline transport
Board
Meal entertainment
Tax exempt body entertainment
Car parking
Property
Residual
Foundations of Taxation Law
© CCH Australia Limited

6. Foundations of Taxation Law
FRINGE BENEFIT
“Fringe benefit” defined in s 136(1) FBTAA. Arises where:
A benefit is provided during a year of tax
By an employer, an associate of the employer, or a third party under an arrangement with the employer or associate of the employer
To an employee or an associate of the employee
In respect of the employment of the employee
Foundations of Taxation Law
© CCH Australia Limited

7. Provision of Fringe Benefit
Employer Employee
Or Or
Associate Provides benefit Associate to
Arranger Third Party

8. Benefits exempt from FBT
Remote area housing
Living away from home allowances (partly exempt)
Employee relocation expenses
Superannuation (retirement/private pension contributions)
Minor benefits (less than $300 in value) incurred infrequently and irregularly
Work-related items:
protective clothing
tools of trade
briefcases
mobile phones / walkie talkie
laptops and similar portable digital assistants, including software, portable printers, calculators, electronic diaries.

9. VALUATION OF BENEFITS MOTOR VEHICLE / CAR BENEFIT (S.136(1))
-arises where a car is provided or is made available for the employees private use.
The provider must be the employer, an associate of the employer or a 3rd party who has a relevant arrangement with the Employer (s.7)
Private use means it is not exclusively used in the course of gaining or producing assessable income.
Valuation Methods
Statutory Formula
Cost Basis

10. Car means :
The following types of vehicles, including four-wheel drive vehicles, are cars:
motor cars, station wagons, panel vans and utilities, but not panel vans and utilities designed to carry a load of one tonne or more
any other goods-carrying vehicle with a carrying capacity of less than one tonne
any other passenger-carrying vehicle designed to carry fewer than nine passengers.

11. Private use means :
A car has generally been made available for private use when any of the following apply:
employee actually uses it for private purposes (travel to and from work is private use)
Employee is allowed to use it for private purposes and it is not at the employer's premises
it is garaged at or near employee’s home, even if he doesn't have permission to use it privately.

12. Statutory formula Taxable value = (A x B x C) - E D Where:
A = the base value of the car (i.e cost price of car)
B = the statutory percentage (derived from the annualised kilometres)(0.2)
C = the number of days in the FBT year when the car was used or available for private use of employees
D = the number of days in the FBT year (365 / 366)
E = the employee contribution (if any)

13. Car Benefit - Statutory formula
CALCULATION
Statutory allowance
Base Value = $20,000
Private Use = 365 days
FBT Year
Employee Contribution nil
.2 x 20,000 x
365
Fringe Benefit value = $4,000

14. $4,000 x 2.1463 = $8,585.20 x 49% = $4,206.75 is the tax on the car
is the gross up amount for 2016/17
$8, the grossed up amount
49% the FBT tax rate for 2016/17
$4, the tax to be paid by the employer
is the gross up amount for 2017/18
47% is the FBT rate for 2017/18

15. Statutory Formula 2016/17 Car $40,000 Km 18,000 Business use 20%
Costs $5,000
Driver paid $2,000 herself
ABC - E = .2 x $40,000 x $2,000 D
= $8,000 - $2,000 = $6,000 x = $12, x 49% = $6, FBT

16. Car Benefit – Cost Basis
Operating Costs
Petrol, Repairs, maintenance, tyres
Registration and Insurance
Depreciation (where vehicle owned by provider)
Lease Charges (where vehicle leased by provider)
Business Percentage
Estimated by keeping a log book for 12 weeks showing business travel. Odometer reading is required for commencement and end of period.

17. Cost Basis Taxable value = (C x (100%-BP)) – R
C = operating cost (i.e expenses such as petrol, maintenance, regn, insurance etc)
BP = business percentage (percentage of biz use during holding period based on km travelled)
R = recipient’s payment (any unreimbursed expenses incurred by recipient)

18. Operating Cost Cost base = (C x (100% - BP)) - R taxable value
$5,000 costs of fuel etc
$10,000 deemed depreciation of the car (25% of cost)
$2,580 deemed interest 5.65%
ABC = $40,000x.5.65x = $2,260 D
= ($5,000) + $10,000 + $2,260 x (100% -80%) - $2,000
= $17,260 x 80% - $2,000 = $11,808 x = $12, FBT

19. Loan Fringe Benefit (S.136(1))
Arises when one person makes a “loan” to another person s.16(1)
Loan = advance of money, provision of credit or any form of financial accommodation which in substance effects a loan of money
A loan is deemed to arise when an amount a person is obliged to pay on a particular date is not paid on that date (s.16(2))

20. The taxable value of a loan fringe benefit is the loan amount multiplied by the difference between the rate of interest charged by the employer and the statutory rate of interest.
(Loan x Statutory rate) – (Loan x Employer’s Interest rate)

21. Loan Statutory Rate
2014/ %
2015/ %
2016/ %

22. Example Loan Amount = $60,000 Date 1 April 2016
Interest Rate charged 3%
Statutory Rate 5.65% (2016/17 year)
[$60,000 x 5.65%] – [$60,000 x 3%]
$3,390 - $1,800
Fringe Benefit value = $1,590 x = $3, x 49% = $1, FBT

23. Other Benefits
Expense Payment
An expense payment fringe benefit may arise in either of two ways:
where the employer reimburses an employee for expenses they incur
where the employer pays a third party for expenses incurred by his employee.
Roads Traffic Authority of New South Wales v FCT (1993)
Reimbursement means payment of actual (exact) cost
Distinguish from allowance
An allowance is not reimbursement as it is a payment of a predetermined amount to cover estimated cost. Falls within the def of “salary / wages”

24. The taxable value of an expense payment FB depends on whether it is “in house” or “external”
In House Expense payment FB
In house property expense :expense relates to acquisition of property (goods) of a kind provided by E’yer or his associate in his ordinary course of biz
In house residual expense : expense relates to acquisition of other benefits (eg. Services) of a kind provided by E’yer or his associate in his ordinary course of biz

25. In house expense payment
An in-house expense payment fringe benefit arises where the expenditure reimbursed or paid for by the Employer was incurred by the employee (or family member) in purchasing goods or services that the Employer (or an associate) sell to customers or clients in the ordinary course of his business.

26. EXAMPLE
An employer, who is a manufacturer, markets her products through independent retailers.
The employees of that employer purchase those products from the retailers at full retail price, but subsequently receive a reimbursement from the employer for part of the purchase price.
The reimbursement is an in-house expense payment fringe benefit

27. External expense payment FB
Taxable value is the amount of expenditure that is paid or reimbursed by the Employer minus employee (recipient’s) contribution : section 23

28. The ‘Otherwise Deductible’ Rule
A benefit is ‘Otherwise Deductible’ if the employee would have been entitled to claim an income tax deduction if the employer had not paid for the expense.
To determine if the employee would have been entitled to claim an income tax deduction, the expense must be incurred in the course of producing assessable income.

29. Otherwise Deductible Rule
Reduces the taxable value of a benefit by “notional deduction”
Notional deduction = GD - RD
GD = the amount of the once-only deduction employee would have been entitled to if he (instead of his employer) incurred the expense
RD = the amount of the once-only deduction which the employee is now actually entitled to in respect of his actual expenditure
Pls see example in Chapter of Barcokzy

30. CALCULATING FBT
Fringe Benefits are split into Type 1 and Type 2 benefits.
Type 1 – (GST Expense) fringe benefits are benefits an employer provides an employee whereby the employer is entitled to a GST credit for the provision of the benefit.
Type 2 – (GST Free Expense) fringe benefits are benefits an employer provides an employee whereby the employer is not entitled to a GST credit for the provision of the benefit.

31. Example of Type 1 Example
Brian is employed by a Public Benevolent Institution. Brian enters into salary sacrifice arrangement with his employer in which $2,200 is paid to his phone and internet account and $3,300 is paid towards his electricity and gas account per FBT year. This is a total salary sacrifice amount of $5,500 per FBT year.
Since both expenses provided have GST in the price Brian’s employer is entitled to claim a input tax credit (presuming the valid tax invoices and paid receipts have been kept)

32. Example of Type 2 Example
Luke is employed by a Public Ambulance Service. Luke enters into salary sacrifice arrangement with his employer in which $9,000 is paid to his Home mortgage account per FBT year.
Since the mortgage payments are GST Free Luke’s employer is not entitled to claim an input tax credit on the expense.

33. Calculating FBT Determine Type of Aggregate Fringe Benefit Amount
Gross Up - When working out FBT liability the Employer must gross-up the taxable value of benefits provided to reflect the gross salary employees would have earned.
Calculate tax

34. GROSS UP The current type 1 gross up rate is 2.1463
Please see example in Chapter of Barkoczy. Please be mindful of changed rates.

35. GROSS UP Assume 50% tax rate Assume $10,000 fringe benefit
If $10,000 taken as value, salary sacrifice = $15,000 ($10,000 + $5,000 tax)
How much would employee need to earn (if they paid tax on amount) to be left with $10,000 cash?
Answer is $20,000 (i.e. 20,000 less 50% = 10,000)
Gross up rules ensure salary sacrifice is $20,000 NOT $15,000. Thus no tax advantage in taking a fringe benefit

36. Gross up rates Year Type 1 (GST) Type 2 (no GST) 2014/15 47% 2.0802
2014/15 47%
2.0802
1.8868
2015/16
2016/17 49%
2.1463
1.9608
2017/ %

37. Benefit on Motor Vehicle
FBT PAYABLE
Benefit on Motor Vehicle
Value = $4,000.
No GST
$4,000 x = $7,843 x 49%
Tax = $3,843
GST on Vehicle
$4,000 x = $8,585 x 49%
Tax = $4,207

38. CONSEQUENCES Consequences of Providing Fringe benefits For Employer
Cost of benefit and FBT tax deductible
Special rules for non profit organizations
Section 65J rebate
For Employee
Salary Sacrifice