Fringe Benefits Tax
Types of Fringe Benefits, including Exempt and Reportable Benefits.
Car Fringe Benefit
Cars are by far the most common fringe benefit. The benefit arises when the employer makes a car it leases or owns available for private use of an employee. A car is taken to be available for private use by an employee when:
- the car is actually used for private purposes.
- the car is available for private purposes.
- the car is garaged at the employee's place of residence, regardless of whether they have permission to use it privately.
As a general rule, travel to and from work is private use of a vehicle. Where the place of employment and residence are the same, the car is taken to be available for the private use of the employee. Private use of a motor vehicle that is not a car (e.g. eligible utility vehicles carrying a load of 1 tonne or more, or more than 8 passengers) may give rise to a residual fringe benefit.
There are two methods available for calculating the taxable value of a car fringe benefit;
- Statutory Formula Method
- Operating Cost Method
We recommend that you provide us with details to calculate the taxable value under both the above methods; this will enable us to choose the method which gives you the best result for FBT purposes.
The statutory formula method calculates the taxable value of the benefit based on a flat statutory rate of 20% on the base value of the vehicle (subject to transitional rules).
The operating cost method uses the log book percentage against the costs of operating the car to calculate the taxable value.
The record keeping for the operating cost method is much more involved than the statutory formula method but quite often this method achieves a lower FBT result.
After calculations have been completed, the taxable value of the fringe benefit may be reduced to nil through employee reimbursements or contributions. In the case of employee shareholders, this is usually performed by way of a journal entry against their loan accounts. Even though we may not physically lodge an FBT return in many cases, we still need all of the information to calculate the appropriate journal entry. There may also be cash contributions (e.g. employee pays for petrol), that will reduce the FBT payable.
FBT Exempt Motor Vehicles
An exemption may apply to the following vehicles;
- Non cars- vehicles that are designed to carry a load of 1 tonne or more, or more than 8 passengers.
- Cars – taxi, panel van, utility truck or any other road vehicle that, while designed to carry a load of less than 1 tonne, is not designed for the principal purpose of carrying passengers.
For the exemption to apply, the employee's private use of the above vehicles must be limited to:
- Travel between home and work
- Travel that is incidental to travel in the course of duties of employment
- Non-work related use that is minor, infrequent and irregular (for example, occasional use of the vehicle to remove domestic rubbish)
It is advised to get declarations from the employee stating that there is no private use of the vehicle.
Expense Payment Fringe Benefit
An expense payment benefit may arise where an employer reimburses an employee for expenses they incur or pays a third party for expenses incurred by an employee. These can be expenses incurred for business or private purposes.
In most cases, where the employee would have been allowed a "once only" tax deduction for the expense if the employer had not paid or reimbursed it, then the taxable value is reduced to the extent it is deductible.(Otherwise deductible rule)
Note: Any item for which depreciation will be claimed is excluded from being a once only deduction.
Loan Fringe Benefit
A loan fringe benefit arises where an employer makes a loan to an employee and charges no interest or a low rate of interest.
Debt Waiver Fringe Benefit
A taxable benefit arises where an employer releases an employee from a debt. The taxable value is the amount waived.
Housing Fringe Benefit
A housing fringe benefit arises if an employer provides an employee with accommodation rent free, or at a reduced rate and the accommodation is the employee's usual place of residence.
Living Away From Home Allowance (LAFHA) Fringe Benefit
A living away from home allowance benefit arises where an employer pays an employee an allowance to compensate for additional expenses or disadvantages suffered because the employee was required to live away from their usual place of residence for employment purposes.
Property Fringe Benefit
A property benefit arises when an employee is provided with property, free or at discount, by an employer. Property includes goods (for example clothing), real property such as land and buildings and other property such as shares.
This is one of the most complex areas of Tax Law. The provision of entertainment means the provision of entertainment by way of food, drink or recreation. Depending on the type of entertainment provided and the circumstances in which the benefit was provided, the entertainment could be one of a number of types of fringe benefits.
The ATO has provided a table to give a simplified summary of the FBT and income tax results as shown below.
|Employee takes two clients to lunch at a restaurant - cost $150||Employee's portion $50 tax deductible
Client's portion $100 non-deductible
|Employee's portion $50 fringe benefit
Client's portion No FBT
|Employee has meal in restaurant while travelling on business trip||Tax deductible||No FBT ('otherwise deductible' rule)|
|Employee has meal in an 'in-house canteen'||Tax deductible||Exempt from FBT|
|Employer provides sandwiches and juice for working lunch in office (not entertainment)||Tax deductible||Exempt from FBT|
|Employer provides substantial lunch with wine for employees in office but not in 'canteen'||Tax deductible||Exempt from FBT|
|Employer provides social function for employees in office||Tax deductible||Exempt from FBT|
|Employer provides social function for employees and associates in office||Cost per employee Non-deductible
Cost per associate Tax deductible
|Cost per employee Exempt benefit
Cost per associate Taxable fringe benefit
|Employer reimburses employee for cost of private party||Amount reimbursed is tax deductible||Taxable fringe benefit|
|Employer provides employee and associates with theatre tickets||Tax deductible||Taxable fringe benefit|
Christmas parties fall into the category of entertainment benefits and as such will incur FBT unless specifically exempt or determined to be a minor benefit. If a Christmas party is not held on your premises and the cost per employee is less than $300 per head, it is classed as a minor benefit and no FBT is payable. The function is, however, classed as 'entertainment' and as such no GST or tax deduction will be claimable.
Gifts to employees may be provided at the same time as the Christmas party without being included in the $300 minor benefit cost allowed for the party. So long as the gifts are less than $300 and are not classified as 'entertainment' (Eg: Concert tickets) then no FBT is payable and GST and a tax deduction can be claimed on these items.
Residual Fringe Benefit
Any fringe benefit that is not subject to any of the other categories is called a residual fringe benefit. Examples of residual fringe benefits are free or discounted services, such as travel or advice from a solicitor and an employees' private use of an employers' motor vehicle that is not a car for FBT purposes (e.g. hire taxis, trucks, motor cycles and a one tonne ute).
The FBT legislation has various exemptions relating to every category of fringe benefits. The vehicle exemption was mentioned earlier. Other exemptions include the following:
- Minor benefits – less than $300 in value
- Remote area – providing accommodation for an employee in a remote area
- Relocation expenses
- Eligible work related items, for example a portable electronic device.
Reportable Fringe Benefits
If the taxable value of a fringe benefit for an employee is more than $2,000 in an FBT year, an employer must record the grossed-up value on the PAYG payment summary for the employee for the income year it is received in.
To reduce the taxable value of a fringe benefit, employees can contribute cash amounts to the benefit provided or pay a third party for some of the costs involved with the benefit, for example, paying the operating costs of a car, like fuel.