TOPIC 4 – Fringe Benefits Tax

(“The Antifun tax”)

TOPIC 2
First Assignment
Now posted.
Due 3rd December
2021
Your employer offers to
pay you a
remuneration package
of $300000.
Apart from a cash
salary, what else could
an employer provide
you with?
SALARY SACRIFICE
Assume that you want to put an extra $20000
into superannuation and you are on a salary of
$100000
No salary sacrifice With salary sacrifice
Gross salary $100000 $100000

Less: super salary sacrifice 0 (20000)

Salary that is taxed $100000 80000
Tax on salary (26497) (17147)
Net salary 73503 62853
Less super paid (20000) 0
Net cash available 53503 62853
FBT IS THE TAX THAT TRIES
TO TAX THESE OTHER
METHODS.
FRINGE BENEFITS TAX – THE BASICS
FBT applies to benefits provided after 1 July 1986 (FBTAA86)

FBT Year – 1 April to 31 March

FBT Return due by 21 May after the end of the FBT Year (extension available if
lodged through a registered agent)

Self-assessment with substantial penalties for underpayment

FBT is paid by the employer

FBT is a deductible expense of the employer

The employee does not pay tax on benefits that are subject to FBT (s23L ITAA36)

Annual tax, paid in instalments – June, September & December (with other BAS
payments); balance on lodgement of FBT Return in May when the return is lodged.

Topic 4
FRINGE BENEFITS TAX

• ‘Benefit’ includes any right, privilege, service or facility, a contract

of insurance or the lending of money
Definitions • provided to an ‘employee’ or associate - employee definition
contained s136(1) FBTAA86 (a person who received salary or wages,
commission, bonuses or allowances or directors fees); An
in s136 associate does not need to be a natural person.
• provided by ‘employer’ or associate - employer definition s136(1)
FBTAA86 FBTAA86
• Provided in respect of the employment of the employee

• MT2016 - excludes family relationships: must be in relation to

employment activities. Benefits provided to family members in
relation to their employment will be caught.
• Includes past, present & future employees s148 FBTAA86
• FCT v Indooroopilly Children Services (Qld) P/L (2007) – the benefit
must be capable of being allocated to a particular employee.

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FRINGE BENEFITS TAX
Payments that are subject to PAYG withholding
under Subdiv 12B TAA53 (incl. salary & wages) are
not fringe benefits

FBT covers things that S15-2 ITAA97 covers other benefits that are not
can’t be ordinary income ordinary income (salary & wages) under s6-5 and

No double taxation:
are not ‘fringe benefits’
because they are not
convertible into cash – the
rule established in Superannuation benefits are excluded from the
Tennant v Smith (1892). definition of a fringe benefit under s136(1) FBTAA86
But some cash payments
will be fringe benefits Benefits that are ‘fringe benefits’, including exempt
(e.g., reimbursements, benefits, will be exempt from income tax in the
hands of the employee under s23L(1) ITAA36
loans)
Reimbursed car expenses that are exempt from FBT
under s22 FBTAA86 are included in assessable
income (S15-70 ITAA97)
Topic 4
FBT ADMINISTRATION

Tax due and

Commissioner payable when
can require Deemed Default return due –
Employers any person to assessment assessment if balance owing
furnish return lodge a return when return no return must be paid
to ATO for a lodged – s72 lodged – s73 at the time of
particular year FBTAA86 FBTAA86 lodgement of
– s69 FBTAA86 the FBT
Return

Topic 4
CATEGORIES OF BENEFITS
Car fringe benefits –
Div 2 (s7-s12)

Expense Payment
Debt waiver fringe benefits
FRINGE BENEFITS - Div 3 Benefit:
• Invoiced to the
employee & paid by
the employer
Loan fringe benefits – • Paid by the employee
Div 4 (s16–s19) and reimbursed by
the employer

Expense payment fringe

benefits - Div 5 (s20-24)

Meal Entertainment fringe

benefits - Div 9A (s37AA;
s37AF)
Property fringe benefits -
Div 11 (s40-s44)
Residual fringe benefits -
Topic 4 Div 12 (s45-s52)
Residual Benefit:
• Expense is incurred
and paid by the
employer
• Benefits that don’t
clearly fall into one of
the other categories
EXCLUSIONS & EXCEPTIONS
Salary & wages (assessable under
fringe benefit:
Excluded from the definition of a
s6-5 ITAA97)
Contributions by employers to
complying superannuation funds &
retirement savings accounts
Rights to acquire shares and the
acquisition of shares or rights under
employee share schemes
An employment termination
payment
Topic 4
Exempt benefits (exempt under s58A to s58F Employee interviews
Key Miscellaneous Exemptions – Div
Other exemptions:
13 FBTAA86
specific sections of the legislation) & relocation
Capital receipts relating to: s58H Newspaper & Periodicals
• legally enforceable contracts in restraint of s58LA Compassionate Travel
trade
• personal injury s58K, L & M Work Related Medical
Any payments deemed to be a s58P Minor Benefits
dividend under ITAA36 ( e.g. Excess s58X Certain Work Related Items
remuneration) including any
payments that are deemed to be a s58Y Memberships & Subscriptions
dividend under Div 7A ITAA36 (e.g. s58Z Single-trip Taxi Travel
Loans by private companies to
shareholders or associates)
Benefits considered present
entitlements to income or capital
that would be included in a
beneficiary’s assessable income
(under a trust arrangement)
CALCULATION OF FBT
PAYABLE
Multi-step process:
• Identify the benefits provided to each employee
• Is the benefit excluded from the definition of a fringe benefit?
• Identify the category of the fringe benefit (& which section/s it will
be taxed under)
• Is there a full or partial exemption or concession available?

• Find the GST inclusive cost of the benefit

• Apply rules to calculate taxable value
Calculate the taxable • Reduce the Taxable Value by taking into account:
value: • The In-house reduction
• The recipient’s contribution
• The ‘otherwise deductible’ rule

Gross-up the Taxable • Is it a Type 1 or Type 2 benefit?

Value: • Gross up the taxable value

Calculate FBT • Apply the FBT rate to the grossed-up taxable value
Topic 4
Payable:
RATES FOR FRINGE BENEFITS TAX

For the purposes of this course all benefits will be

provided for the FBT year ended 31 March 2021

• FBT Year ended 31/3/2021 = 47%

TAX RATE: • (Top marginal tax rate for individuals)

• FBT Year ended 31/3/21 = 4.80%

DEEMED • (Used for deemed interest on MVs & Loan Fringe
INTEREST RATE: Benefits)

Note: these rates regularly change from one year

Topic 4
to the next
CALCULATION REQUIRES GROSSING UP: Based
on type of fringe benefit

Type 1 Type 2
benefits: GST benefits: NO
in the purchase Aggregate Aggregate
GST in the
price and fringe benefits fringe benefits
purchase price
employer is amount x gross amount x gross
or employer
entitled to a up rate up rate.
not entitled to
GST credit a GST credit

Gross up rate =
FBT Year ended Gross up rate = FBT Year ended
(1-FBT rate) x
31/3/2021 = [ 1 / (1 - FBT 31/3/2021 =
(1+GST rate ) x
2.0802 rate)] 1.8868
FBT rate

Topic 4
 REVIEW QUESTION

During the 2021 FBT year an employer provides its Australian employees with the following
fringe benefits:
• Employee A—stereo with taxable value $,2000, overseas holiday with taxable value $7,000
• Employee B—children’s school fees $3,000.
*Assume the employer & all suppliers are registered for GST.

HOW MUCH FBT IS PAYABLE?

TOPIC 4
 REVIEW QUESTION

Gross up of Type 1 amounts:

$2,000 x 2.0802 = $4,160

EMPLOYEE A: Gross up of Type 2 amounts:

Type 1 fringe benefits amount: $2,000 (stereo)
$7,000 x 1.8868 = $13,207
Type 2 fringe benefits amount: $7,000 (overseas
$3,000 x 1.8868 = $5,660
holiday)

Total = $4,160 + $13,207 + $5,660 =

EMPLOYEE B:
$23,027
Type 2 fringe benefits amount: $3,000 (school fees)

FRINGE BENEFITS TAX ON GROSSED-UP

TAXABLE AMOUNTS:

$23,027 x 47% = $10,822.69

TOPIC 4
CAR FRINGE BENEFITS

Employer’s Car defined in

car is made s136(1)FBTAA 1986
available
for private Owned or leased (‘held’)
use of an by the employer
employee
Provided in respect of
employment
Used or available for private use (garaged
at or near employee’s home overnight)
Not exempt car under s8
FBTAA 1986
Taxable value s9-s12 Statutory Formula Method
FBTAA 1986 Operating Cost Method
Topic 4
CAR BENEFITS: STATUTORY
FORMULA

S9(1) FBTAA86 - Statutory formula

[0.2 x Base Value of the car x Days benefit provided/Days in year of tax] -
Recipient’s payment

S9(2) FBTAA86: Base value is the GST inclusive cost of the vehicle;
S9(2)(a)(i)(A) FBTAA86: Reduced by 1/3 where the commencement of the
year of tax is later than the fourth anniversary of the earliest holding time.
Topic 4
OPERATING COST METHOD

S10(2)FBTAA86 - Operating cost formula

(C * (100% - BP)) - R

• C - operating cost of car during holding period (fuel, oil, repairs & maintenance, insurance,
registration, PLUS deemed depreciation & deemed interest OR lessee charges) S10(3) FBTAA86
• BP - business percentage use for holding period based on log book information
• R - recipients contribution

If this method is to apply the employer must make an election under s10(1)
FBTAA 1986

Even though an election to use the operating cost method might otherwise be
made under s10(1), the statutory formula method must be used if it produces
Topic 4 the lower taxable value: s10(5) FBTAA86.
Christine Newport 2017
OPERATING COSTS

S10(3) FBTAA86 include:

• Fuel, repairs & maintenance (including auto club
fees and car washes);
• registration & insurance;
• for leased cars, the lease charges paid; OR
• deemed depreciation and deemed interest where
car is owned or under hire purchase.

Exclude:
• Road & bridge tolls;
• car parking expenses;
• actual interest on hire purchase/loans; and
• repairs paid for by an insurance company.

Topic 4
 OPERATING COSTS
Deemed Depreciation Where:
(s11(1A) FBTAA86): • A is the GST inclusive cost price or the ‘depreciated value’
of the car if the car is already owned at the beginning of the
FBT year. Depreciation rules for income tax purposes (rates
• Formula: ABC/D & car limits) do not apply.
• (Use DV rules)
• B is the depreciation rate – 25% for cars purchased after 10
May 2006.
• C is the number of days the car was held during the year
• D is the number of days in the year.

Deemed Interest (s11(1B) Where:

FBTAA86): : • A is the GST inclusive cost price or the ‘depreciated value’
of the car if the car is already owned at the beginning of the
FBT year. Depreciation rules for income tax purposes (rates
• Formula: ABC/D & car limits) do not apply.
• (Use DV rules)
• B is the statutory interest rate (5.25% for 2017/8)
• C is the number of days the car was held during the year
• D is the number of days in the year.

Topic 4 SEE TEXT & AMTG FOR CALCULATION EXAMPLES

EXAMPLE

You provide your employee with a Ferrari costing you $300000 plus
GST on 1 April 2021. The car is used by the employee mainly for
personal use and no log book is maintained.

The FBT amount that you would pay is

$330000*0.2*365/365 = $66000
Grossed up, this is 2.0802 * 66000 = $137293*47% tax

= $64527 in FBT!!!
LOAN FRINGE BENEFIT (S16
FBTAA86)

NON-EXEMPT BENFITS:
Some loan benefits are exempt Principle x (deemed interest rate –
TAXABLE VALUE CALCULATION
(S17 FBTAA86) actual interest rate)
(S18(1) FBTAA86)

Otherwise deductible amount

requires 3 steps:
S19(1) FBTAA86 - If proceeds are used • Gross deduction allowable (GD) = Principle x
for income producing purposes the deemed interest rate x percentage used for
REDUCED TAXABLE VALUE = Taxable
OTHERWISE DEDUCTIBLE RULE will income producing purposes
Value – Notional Deduction • Recipients deduction (RD) = Principle x actual
apply to reduce the TV on the
interest rate x percentage used for income
employee’s share of the loan: producing purposes
• Notional deduction ND = GD – RD

Topic 4
SEE TEXT & MTG FOR CALCULATION EXAMPLES
REPORTING OF FRINGE
BENEFITS FOR EMPLOYEES
Some benefits are excluded - s5E(3)
FBTAA86.

Total shown, not just the amount

Grossed up value of over $2,000
fringe benefits with
a taxable value > Always use gross up factor for Type
$2,000 shown on 2 benefits for reporting, even if the
employer is entitled to a GST credit
payment
summaries
(S135P FBTAA86) Not assessable to employee

Used in determining thresholds &

liabilities for certain purposes e.g.
income tested tax concessions and
income tested surcharges
Topic 4
HAVE YOU DONE THE WORK?

LET’S GO OVER LAST WEEKS

ACTIVITY QUESTIONS

TOPIC 2
 FOR NEXT WEEK

• Complete textbook reading

• Complete tutorial questions from
this week’s material
• Have queries on the first assignment
ready