special tax topics 2017 · case study –minor fringe benefits tr 2007/12 –christmas parties...
TRANSCRIPT
2/02/2017
Copyright © 2016 Chartered Accountants Australia and New Zealand 1
Special Tax Topics 2017Fringe Tax Benefits (FBT), Technical Session
1 March 2017
© Chartered Accountants Australia + New Zealand 2017
Fringe Benefits Tax (FBT)
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Session Content
• Cars
• Expense payments
• Entertainment
• Exemptions and reductions of taxable value
• Structuring Salary packaging agreements
• FBT and Division 7A.
2
What we are discussing today
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Fringe Benefits Tax (FBT)
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Pop Quiz
• Why do we have FBT at all?
• What is a “benefit”?
• What is a “Fringe Benefit”?
• Who is an “employer”?
• Who is an “employee”?
• Who is an associate?
• What does “in respect of employment” mean?
• How id FBT calculated?
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Fringe Benefits Tax (FBT)
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• Motor vehicle designed to carry less
than one tonne and fewer than 9
passengers
• Does not include motor cycle or
similar vehicle
• Provision of m/c, trucks etc cannot be
car FB but may be residual FB.
Conditions for car fringe benefits
• “Car”
• “Held” by provider
• Private use.
Cars
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Fringe Benefits Tax (FBT)
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• “Held” means owned leased or
otherwise made available
• Does not include taxi travel or short-
term hire arrangements unless
intended to be effectively continual
under successive arrangements.
Conditions for car fringe benefits
• “Car”
• “Held” by provider
• Private use.
Cars
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Fringe Benefits Tax (FBT)
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• If actual or deemed private use on a
day – that day is a car fringe benefit day
• Actual private use is any use by employee or associate that is not their
employment duties
• Deemed availability for private use
‒ Garaged at or near private residence
‒ Not at employer’s premises and not doing your work
‒ Associate has custody and control or car.
Conditions for car fringe benefits
• “Car”
• “held” by provider
• Private use.
Cars
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Fringe Benefits Tax (FBT)
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• BV = Base Value
‒ Generally the GST-inclusive cost of owning the car – incl dealer delivery
charges, GST, Customs duty
‒ Does not include other costs –
Stamp duty, registration insurance or extended warranty
• Base Value assessed at “earliest
holding time” by employer or
associate.
Statutory fraction method
• TV = [0.2 x (BV x C/D)] – Employee
contribution.
Cars
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Fringe Benefits Tax (FBT)
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• C = Number of car FB days
• D = Number of days in FBT year.
Statutory fraction method
• TV = [0.2 x (BV x C/D)] – Employee
contribution.
Cars
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Fringe Benefits Tax (FBT)
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• Sales Rep1 has car, Base value =
$50,000
• Sales Rep1 gets promoted, gets new
car
• Sales Rep2 inherits car
• Sales Rep1’s car, market value =
$30,000.
• Inherited cars
• Re-leasing to different employee
• Interstate or overseas travel
• Car is used on a business trip.
$’000? Base value
Sales Rep2 Sales Rep1
$50,000 Base value
Cars
Traps with statutory fraction method rules
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Fringe Benefits Tax (FBT)
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• Employee1 leases car, Base value =
$50,000.
• RV on lease is $25,000
• Market value at end of lease is
$30,000
• Employee2 acquires car through new
lease of car at $25,000.
• Inherited cars
• Re-leasing to different employee
• Interstate or overseas travel
• Car is used on a business trip.
$’000? Base value
Employee2 Employee1
$50,000 Base value
Cars
Traps with statutory fraction method rules
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Fringe Benefits Tax (FBT)
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• Employee goes on a trip
• Car garaged at home; or
• Parked in LT park; and
• Employee has keys
• Car fringe benefit.
Traps with statutory fraction method rules
• Inherited cars
• Re-leasing to different employee
• Interstate or overseas travel
• Car is used on a business trip.
Cars
Airport
Car park
Overseas
Holiday
?
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Fringe Benefits Tax (FBT)
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• Inherited car
• Re-leasing to different employee
• Interstate or overseas travel
• Car is used on a business trip.
• Employee goes on a trip
• Car is not at employee’s home;
• Car garaged at employer’s business
premises; and
• Employer enforces private use
prohibition
• No car fringe benefit.
Work
Overseas
Holiday
Cars
Traps with statutory fraction method rules
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Fringe Benefits Tax (FBT)
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• Employee on road trip
• Car is not at employee’s home; and
• Employee stays at motels
• Car fringe benefit.
• Inherited cars
• Re-leasing to different employee
• Interstate or overseas travel
• Car is used on a business trip.
Sydney
MotelBrisbane
Motel
Cairns
Motel
Cars
Traps with statutory fraction method rules
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Fringe Benefits Tax (FBT)
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• Employer pays 3rd party obligation incurred by employee; or
• Employer reimburses employee for obligation paid by employee to 3rd party.
Supplier
EmployerEmployee
Legal obligation to payPays direct
Reimburses
Expense Payment Fringe Benefits
Expense payment fringe benefit may arise:
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Fringe Benefits Tax (FBT)
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• External expense payment FB = the GST-inclusive amount paid by provider
• Internal expense payment FB = depends on type of benefit
Reductions in TV
• Otherwise deductible rule applies
Exemptions
• No private use declaration made by employer
• LAFH accommodation
• Car expenses where car FB applies.
Expense Payment Fringe Benefits
Expense payment fringe benefit TV:
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Fringe Benefits Tax (FBT)
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• What is ‘entertainment’?
• Why is the food & drink being provided?
• What food & drink is being provided?
• When is food & drink is being provided?
• Where is food & drink is being provided?
Entertainment
Basic concepts
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Fringe Benefits Tax (FBT)
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• What is ‘entertainment’?
• If not entertainment, could be other forms of FBT. May qualify as minor
benefits. Consider TR 2007/12.
Item Entertainment Reference
Gifts of bottles of wine or whiskey Unlikely to be entertainment TD 94/55
Theatre or movie tickets Yes TD 94/55
Gifts of electrical appliances Unlikely to be entertainment TD 94/55
Bouquets of flowers No
Entertainment
Basic concepts
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Fringe Benefits Tax (FBT)
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• Actual cost
• 50:50 split method
• 12 week register
Interaction with
income tax & GST.}
Entertainment
Calculation of taxable value
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Fringe Benefits Tax (FBT)
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• Actual cost method
• Expense payment
• Property
• Residual
How much of benefit attributable
to employees and associates?
Example
Accounting Co Pty Ltd has a theatre night for clients.
3 clients and spouses are invited, as well as 3 managers and their spouses
Clients and staff entertained at the opening night of ‘Jersey Boys’ . Tickets were $350 each, included the show, complimentary drinks and canapés.
Company uses actual method for FBT. In respect of staff and their spouses, property fringe benefit would apply. Taxable value based on cost of tickets.
}
Entertainment
Calculation of taxable value
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Fringe Benefits Tax (FBT)
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• Actual cost method
• Expense payment
• Property
• Residual
} Some benefits can be exempt
under either, S.41 or S.58P.
Case study – Minor fringe benefits
TR 2007/12 – Christmas parties
Employer holds Christmas party at a local restaurant. Employees' partners and children are able to attend.
Cost per person is less than $300.
Necessary to consider criteria listed in S.58P to determine if unreasonable to treat benefit as a fringe
benefit.
Christmas party is provided infrequently, but regularly. Regard must be had to other criteria in TR 2007/12.
ATO usually accepts the party is minor benefit
If exempt – no income tax deduction and no ITC.
Entertainment
Calculation of taxable value
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Fringe Benefits Tax (FBT)
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• Actual cost method
• Interaction with tax & GST.Expenditure
Amount attributable to
employeesAmount attributable to
others
Is this amount subject to
FBT?
Tax deductions
ITCs allow ed
No tax deductions
No ITCs allow ed
No
Yes
•Promotional events; or•Eligible seminars; or•In-house dining facility; or
NoYes
Entertainment
Calculation of taxable value
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Fringe Benefits Tax (FBT)
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• 50:50 split method
• Simple calculation process
• Add all food & drink expenses
• Multiply by 50%
• No exemptions under S.41 or S.58P. Expenditure
Amount not subject to FBTAmount subject to FBT
Tax deductions
ITCs allowed
No tax deductions
No ITCs allowed
50% 50%
Entertainment
Calculation of taxable value
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Fringe Benefits Tax (FBT)
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Factors include
• Infrequency and irregularity
• Total TV of benefit and similar benefits
• Total TV of benefit and associated
benefits
• Difficulty in calculating TV
• Circumstances in which it is provided
• See TR 2007/12
• Exemption cannot apply if for food or drink and 50:50 or register method
chosen.
Minor Benefits
• S.58P makes minor benefits exempt
from FBT
• Conditions
– TV of benefit must be < $300; and
– It must be unreasonable to treat the benefit as a FB
• Taking a series of factors into account.
Exemptions
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Fringe Benefits Tax (FBT)
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• Does not apply if benefits are
provided under a salary package
arrangement
• Does not apply to food and drink if
the employer uses the 50:50 method
or the register method.
Property Benefits
• S.41 makes exempt from FBT
property benefits -
– Provided on work premises of the
employer
– Consumed on the work premises
– On a work day
– By a “current employee”.
Exemptions
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Fringe Benefits Tax (FBT)
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• Only one of each item with
“substantially identical functions” per
FBT year; unless
‒ It is a replacement item; or
‒ It is a portable electronic device and
employer is a SBE.
Work related items• S.58X makes exempt from FBT
certain work related items if primarily
for use in employees employment -
– Portable electronic device
– An item of computer software
– An item of protective clothing
– A briefcase
– A tool of trade.
Exemptions
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Fringe Benefits Tax (FBT)
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• Examples
• 57– Certain benefits paid to
employees of religious institutions
• 58GA – Small business car
parking
• 58Q – Long service awards.
Other Exemptions
• Division 13 contains a number of
exemptions that apply in specific
circumstances
• See paper for full list.
Exemptions
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Fringe Benefits Tax (FBT)
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• Examples
‒ S.60A and 61 – Remote area
holiday transport
‒ 61C – Temp accommodation for
relocation
‒ 65A – Education of children of
overseas employees.
Other reductions
• Division 14 contains a number of
reductions in TV that apply in specific
circumstances
• See paper for full list.
Reductions in TV
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Fringe Benefits Tax (FBT)
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• Arrangements maintain “total cost of
employment” to employer by
charging against the remuneration
total:
‒ The cost of any benefit to the employer;
‒ Any FBT payable;
‒ The GST payable on any recipient contribution;
‒ Adding back ITC the employer gets;
‒ The residual salary and wages.
Definition
• Salary packaging or salary sacrifice
arrangements (SSA) are:
– Arrangement between employee and
employer where;
– Employee agrees to forgo salary in
exchange for;
– The employer providing benefits of a
similar cost.
Salary Packaging Arrangements
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Fringe Benefits Tax (FBT)
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ExampleKen is an employee of Happy Co and is currently paid $100,000. He wants to salary package a television worth $5,500. How much should his salary be reduced by (ignoring superannuation guarantee amounts) so that his TCE is still $100,000?AnswerWe need to ensure that the total cost of employing Ken remains $100,000, so from this amount we need to subtract the costs of providing the television. These are:
The cost of the television $5,500ITC ($500)FBT payable on the television $5,784($5,500 x 2.1463 x 49%)Total reduction in salary $10,784
So Ken’s salary package would be:Salary (i.e. $100,000 – 10,784) $89,216Television $5,500
Salary Packaging Arrangements
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Fringe Benefits Tax (FBT)
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• Lesson 1
‒ When entering a package arrangement
make it begin the next pay period that starts
after the signing date
• Lesson 2
‒ Discretionary bonus – enter into agreement
before employer makes decision to aw ard
bonus
‒ Performance bonus – enter into before
criteria (eg sales target) met
‒ Profit share bonus – enter into before profit
calculated and employee informed of
existence and amount of bonus.
Effective Arrangements
• An effective arrangement is
– An arrangement entered into before
S&W are “earned” so that the employee is sacrificing “future” S&W
not year earned
– An ineffective arrangement attempts
to convert S&W already earned into benefits
– Time of derivation is therefore critical in some cases.
Salary Packaging Arrangements
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Fringe Benefits Tax (FBT)
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• Lesson 3
‒ Packages are effective when on leave, but you cannot salary
sacrifice leave entitlements
• Lesson 4
‒ Be careful with termination
payments (unused leave, LSL etc) –ATO does not think you can
effectively sacrifice termination payments (See Turner’s case).
Effective Arrangements
• An effective arrangement is
‒ An arrangement entered into
before S&W are “earned” so that the employee is sacrificing “future”
S&W not year earned
‒ An ineffective arrangement
attempts to convert S&W already earned into benefits
‒ Time of derivation is therefore critical in some cases.
Salary Packaging Arrangements
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Fringe Benefits Tax (FBT)
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Example
• FBT loan fringe benefits exist
• Div 7A also applies
• Div 7A takes precedence over FBT. Because of this:
– No FBT, if loan is a deemed dividend
– No FBT, if loan is excluded by written agreement.
Ace Auto Services Pty Ltd
$200k @ 0%, no agreement –deemed dividend
Shareholder/Employee
May 2013 June 2013 June 2014March 2014
Loan Div 7A FBT MYR
No FBT
Div 7A applies
FBT and Division 7A
Related party employees
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Fringe Benefits Tax (FBT)
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Example
• FBT loan fringe benefits exist
• Div 7A also applies
• Div 7A takes precedence over FBT. Because of this:
– No FBT, if loan is a deemed dividend
– No FBT, if loan is excluded by written agreement.
Ace Auto Services Pty Ltd
$200k @ 5.65%, written agreement – no deemed dividend
Shareholder/Employee
May 2013 June 2013 June 2014March 2014
Loan Div 7A FBT MYR
No FBT
Div 7A applies
FBT and Division 7A
Related party employees
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Fringe Benefits Tax (FBT)
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Example
• Payments and private use of assets
• Special rule - Div 7A excluded if payment (including private use of assets)
provided to s/h in capacity of employee
• Special rule – no deemed dividend for private use of assets if it would be a
minor benefit
• FBT takes precedence over Division 7A.
Ace Auto Services Pty Ltd
$200k @ 5.65%, written agreement – no deemed dividend
Shareholder/Employee
May 2013 June 2013 June 2014March 2014
Loan Div 7A FBT MYR
No FBT
Div 7A applies
FBT and Division 7A
Related party employees
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Fringe Benefits Tax (FBT)
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• Rates and thresholds updated like each year
• PCG 2016/10 “Fleet Cars: simplified approach for calculating car fringe
benefits”
– 20+ tool of trade cars
– Log books for 75% then average
• Failing to lodge FBT returns: 75% penalties affirmed
– Re GSLL & Ors and FCT [2016] AATA 954
• PCG 2016/14 “Discount to the valuation of housing fringe benefits provided by retirement village operators
– 10% discount.
FBT Update
What is new?
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Fringe Benefits Tax (FBT)
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Don’t miss upcoming…
These LiveOne sessions are a lso available as OnDemand Recordings
Date Topic
LIVE SESSIONS
Thursday 2 March 2017 Special Tax Topics 2017 – Fringe Tax Benefits (FBT), Case Study
Thursday 9 March 2017 Foundations of SMSFs – Superannuation Essentials, Understanding SMSFs
Wednesday 15 March 2017 Essential Tax Update 2017 - March
Tuesday 21 March 2017 Essential SMSF Updates 2017 - March
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