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Fringe Benefits Tax

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Introduction

Fringe Benefits is a 'payment' to an employee, but in a different form to salary or wages. Benefits include rights, privileges or services.

FBT year• The FBT year runs from 1 April to 31 March.

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What is FBT ?

• Fringe benefits tax (FBT) is a tax payable by employers who provide fringe benefits to their employees or to associates of their employees (typically family members).

• This is separate from Income Tax.

• Even if your organization is exempt from income tax, it may still have to pay FBT.

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Tax Rate & Example FBT is paid by the employer at a rate of

46.5% • Marginal income tax rate (45%) • Plus the Medicare Levy (1.5%)

• Example –If the FBT is $50,000Rate of Tax 46.5% $50,000 x 46.5%

Total Tax = $23250

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Motor Vehicle FBT – Employer Contribution

• Usually, we pass a credit entry to income and debit to drawings, to add back the expenses – As the FBT is quite high (46.5%), and the company or trust doesn’t want to pay such high amount .

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Types Fringe Benefits • Car fringe benefit.

• Loan fringe benefit.

• Expense payment fringe benefit.

• Living away from home allowance fringe benefit.

• Housing fringe benefit.

• Airline transport fringe benefit.

• Entertainment.

• Board fringe benefit.

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Exempt from FBT

• Remote area housing.

• Living Away From Home Allowances.

• Employee relocation expenses.

• Laptop computers, PDA’s and portable printers.

• Superannuation (retirement/private pension contributions).

• Work-related items.

• Minor benefits (less than $300 in value) incurred infrequently and irregularly.

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Exempt Conditions for Car Fringe Benefits

There are circumstances in which private use of a car may be exempt from FBT.

• An employee’s private use of a taxi, panel van, utility or other commercial vehicle (that is, one not designed principally to carry passengers) is exempt if the employee’s private use of such a vehicle is limited to :-

• Travel between home and work.

• Travel that is incidental to travel in the course of duties of employment.

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Cont….

• Non-work-related use that is minor, infrequent and irregular (For Example Occasional use of the vehicle).

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How to calculate the taxable value of a car fringe benefit ?

There are two methods for calculating Fringe Benefits Tax.

• Statutory formula method (Based on the car’s cost price).

• Operating cost method (Based on the costs of operating the

car).

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The car fringe benefit is a percentage of the car’s cost price and is calculated using the following formula.

Formula :- Taxable value =(A x B x C) - E

D Where:

A = The base value of the car B = The statutory percentage 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 E = The employee contribution

The statutory formula method

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A - When calculating the base value for each car:

• Check that you have included non-business accessories, GST and dealer delivery charges .

• Exclude registration and stamp duty.

• Ascertain the number of kilometers traveled by the car during the FBT year, and annualize kilometers if the car was not held for the full year.

• Establish the number of days the car was available for the private use of employees, paying special attention to cars bought or sold during the FBT year.

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Cont….

Reducing the base value after four yearsCar fringe benefit is a percentage of the car’s value.

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B - Statutory percentage

The statutory percentage depends on the total kilometers the car travels, as follows

Total kilometers traveled during the FBT year

Statutorypercentage

Less than 15,000

26

15,000 to 24,999

20

25,000 to 40,000

11

Over 40,000 7

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C- Number of days used or available for private use of

employee

• The statutory formula method is based on the number of days during the FBT year when the car is available for the employee’s private use or is actually used by the employee for private use.

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Cont….

A car is considered to be available for private use, even though the employee may not have actually used the car privately on the day.

• It is garaged at or near the employee’s home or other place of residence.

• It is not kept at work and the employee (Or their associate)

is allowed to use it for private purposes.

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D- Number of days in the FBT year

• The number of day in the FBT year will be either 365 or 366 days

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E- Employee Contribution An employee contribution may be an

amount paid:

• Directly to you by an employee for use of the car. The employee contribution must be made from the employee’s after tax income and be included in your assessable income

• By the employee to a third party for some of the car’s operating costs, (for example, fuel). These contributions are not included in your assessable income.

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The Operating Cost Method

Car fringe benefit is a percentage of the total costs of operating the car during the FBT year.

Formula :-

Taxable Value = (A x B) – C Where ;

A = The total operating costs. B = The percentage of private use. C = The employee contribution.

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A- Total Operating Costs

For this particular purpose, the operating costs of a car include.

• Actual Costs

• Deemed costs (that is, certain costs that are considered to have been incurred even if they have not Example : Depreciation).