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Fringe Benefits Tax Fringe Benefits Tax Does it apply to you
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Fringe Benefits Tax
Fringe Benefits Tax:
Does it apply to you?
INTRODUCTION .........................................................................................................................................2
WHAT IS FRINGE BENEFITS TAX? .......................................................................................................2
WHO PAYS FRINGE BENEFITS TAX? ...................................................................................................2
WHAT IS A FRINGE BENEFIT?...............................................................................................................2
EXAMPLES...................................................................................................................................................3
EXAMPLE 1 - BENEFIT PROVIDED IN RESPECT OF EMPLOYMENT ...................................................................3
EXAMPLE 2 - BENEFIT PROVIDED TO COMPANY DIRECTOR IN RESPECT OF EMPLOYMENT ............................3
EXAMPLE 3 - BENEFIT NOT PROVIDED IN RESPECT OF EMPLOYMENT ...........................................................3
CATEGORIES OF FRINGE BENEFITS...................................................................................................4
1. CAR FRINGE BENEFITS .............................................................................................................................4
2. LOAN FRINGE BENEFITS ...........................................................................................................................5
3. DEBT WAIVER FRINGE BENEFITS ..............................................................................................................5
4. EXPENSE PAYMENT FRINGE BENEFITS ......................................................................................................5
5. HOUSING FRINGE BENEFITS......................................................................................................................5
6. BOARD (MEAL) FRINGE BENEFITS ............................................................................................................6
7. AIRLINE TRANSPORT FRINGE BENEFITS ....................................................................................................6
8. LIVING AWAY FROM HOME ALLOWANCE FRINGE BENEFITS......................................................................6
9. ENTERTAINMENT PROVIDED BY A TAX-EXEMPT ORGANISATION ..............................................................6
10. MEAL ENTERTAINMENT FRINGE BENEFITS .............................................................................................6
11. CAR PARKING FRINGE BENEFITS ............................................................................................................7
12. PROPERTY FRINGE BENEFITS ..................................................................................................................7
13. RESIDUAL FRINGE BENEFITS ..................................................................................................................7
BENEFITS TO WHICH FBT DOES NOT APPLY...................................................................................8
ASSESSMENT OF FBT ...............................................................................................................................8
WHEN IS FBT PAYABLE? .........................................................................................................................8
RECORD KEEPING REQUIREMENTS...................................................................................................8
REGISTRATION FOR FBT ........................................................................................................................8
NEED MORE INFORMATION? ................................................................................................................9
APPENDIX A - ENTERTAINMENT SCHEDULE .................................................................................10
APPENDIX B - MOTOR VEHICLE FRINGE BENEFITS - OPERATING METHOD .......................11
APPENDIX C - MOTOR VEHICLE BENEFITS – STATUTORY FORMULA METHOD ..................12
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Fringe Benefits Tax
Introduction
Are you an employer? Do you provide fringe benefits to employees?
Are you an employee of your own business? If you operate your business through a
company or trust then you might be providing yourself with fringe benefits.
This leaflet contains an overview of the fringe benefits tax law. It may help you to resolve
some questions about whether you provide fringe benefits.
What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) is paid on those fringe benefits which are provided in place of,
or in addition to, the salary or wages of employees.
Who pays Fringe Benefits Tax?
FBT is payable by employers and is assessed on the value of the fringe benefits provided
to employees or their associates. The benefit does not have to be provided directly by the
employer in order for FBT to apply. FBT may still apply if the benefit is provided by an
associate of the employer or by a third party under an arrangement with the employer.
FBT is paid by employers, irrespective of whether they are sole traders, partnerships,
trusts, corporations, unincorporated associations or government bodies and irrespective of
whether or not they are liable to pay other taxes such as income tax or sales tax.
What is a fringe benefit?
Basically a fringe benefit is a benefit which is provided to an employee or an associate of
the employee (usually a family member) in respect of the employees employment.
For Fringe Benefits Tax purposes, an employee can be a current, future or former
employee.
The term benefit is broadly defined and includes any right (including any property right),
privilege, service or facility.
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Fringe Benefits Tax
So a benefit could be:
•the use of something, e.g. the use of a car, or of a house or of equipment; •ownership of
something, e.g.items of clothing; •enjoyment of a privilege or facility, e.g. a cheap loan;
or •provision of a service, e.g. use of skill or labour.
A benefit provided in respect of employment effectively means a benefit provided to
somebody (or that person's associates) because he or she is an employee.
As a rule of thumb, the following question may be of assistance in deciding if the benefit
is provided in respect of employment.
'Would the benefit have been provided if the recipient had not been an employee?'
Examples
Example 1 - benefit provided in respect of employment
An industrial award required an employer to reimburse an employee for the rental cost of
the employee's home telephone. The employer made the reimbursement, but only because
of the award provisions.
If the person who was reimbursed had not been an employee then the reimbursement
would not have been made. The reimbursement is therefore a benefit which was provided
in respect of employment and consequently it is a fringe benefit.
Example 2 - benefit provided to company director in respect of employment
An electrician operates his business through a family company. He and his wife are the
only directors and shareholders of the company. The business employs 5 electricians.
While he manages the business, his wife looks after the books and the payroll. They use
two cars for a mixture of business and private purposes. Both cars are owned by the
company.
The electrician and his wife are employees of their own company and therefore the use of
the cars gives rise to fringe benefits.
Example 3 - benefit not provided in respect of employment
An adult son or daughter is employed in the family business. A birthday present is given
to this person by his / her parents. The gift is given by reason of the family relationship
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Fringe Benefits Tax
and would have been given even if the child had not been employed in the family
business.
Although the recipient of the gift is an employee, the gift was not provided in respect of
employment and therefore it is not a fringe benefit.
Categories of fringe benefits
1. Car fringe benefits
2. Loan fringe benefits
3. Debt waiver fringe benefits
4. Expense payment fringe benefits
5. Housing fringe benefits
6. Board (meal) fringe benefits
7. Airline transport fringe benefits
8. Living away from home allowance fringe benefits
9. Entertainment provided by a tax-exempt organisation
10. Meal entertainment fringe benefits
11. Car parking fringe benefits
12. Property fringe benefits
13. Residual fringe benefits
FBT law identifies various categories of fringe benefits and there are specific valuation
rules for each category. To simplify the descriptions, the following overviews of these
categories refer only to employer and employee. However, they are equally applicable
where the benefit is provided by a third party under an arrangement with the employer,
and/or where the benefit is provided to a third party under an arrangement with the
employee.
1. Car fringe benefits
A car fringe benefit generally arises when a car which is owned or leased by an employer
is made available for the private use of an employee. If the employer's car is garaged at
an employee's house, then it is treated as having been made available for private use.
For FBT purposes a "car" is a sedan, station wagon, panel van, utility, or any other goods
carrying vehicle with a carrying capacity of less than one tonne or any other passenger
carrying vehicle which is designed to carry fewer than nine passengers (e.g. a four wheel
drive). If the vehicle provided does not meet the definition of a car then the benefit may
be a Residual Fringe Benefit. (Refer to No 13 below.)
A car benefit can be calculated in two manners
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Fringe Benefits Tax
1) The Statutory Formula Method (no log book required)
This method applies a statutory fraction, determined by the total number of
kilometres travelled during the FBT year, to the cost of the vehicle.
This method is not the best method for cars with a high purchase cost.
2) The Operating Cost Method
This method requires you to keep a log book for 12 weeks to determine the
private percentage of kilometres travelled during that 12 week period. This
percentage can be used for the next 5 years
This percentage is the applied to the total running costs of the vehicle during the
FBT year.
This method is best used when there is little private use of the motor vehicle.
If this benefit applies to you please complete Appendix B if you have a log book and
Appendix C if you don’t have a log book.
2. Loan fringe benefits
A loan fringe benefit may arise when an employer gives a loan to an employee interest
free, or at an interest rate that is less than the statutory interest rate.
3. Debt waiver fringe benefits
If an employee owes a debt to an employer, and the employer releases the employee from
the obligation to repay the debt, the unpaid amount may be a debt waiver fringe benefit.
4. Expense payment fringe benefits
If an employer pays for, or reimburses an expense incurred by an employee an expense
payment fringe benefit may arise.
5. Housing fringe benefits
A housing fringe benefit may arise when an employer provides accommodation to an
employee rent free or at a reduced rent if that accommodation is the employee's usual
place of residence.
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6. Board (meal) fringe benefits
When an employer provides an employee with accommodation and there is an
entitlement to at least two meals per day, the meals may be a board fringe benefit.
7. Airline transport fringe benefits
An airline transport fringe benefit may arise when an employee of an airline or travel
agent is provided with free or discounted air travel on a stand-by basis.
8. Living away from home allowance fringe benefits
If an employer pays an allowance to an employee to cover additional expenses incurred
because the employee is temporarily required to live away from his or her usual place of
residence in order to perform duties of employment, a living away from home allowance
fringe benefit may arise.
9. Entertainment provided by a tax-exempt organisation
A tax-exempt body entertainment fringe benefit may arise when an employer, who is
wholly or partially exempt from income tax, provides an employee with entertainment by
way of food, drink or recreation. Accommodation or travel provided in connection with
such entertainment is deemed to be entertainment, too.
Note: The provision of entertainment by an employer who is not exempt from income tax
may give rise to a taxable fringe benefit, however there is not a specific category of
entertainment benefit for these employers. Depending on the way in which the
entertainment is provided the benefit may be an expense payment, airline transport,
property, residual, or meal entertainment fringe benefit.
10. Meal entertainment fringe benefits
Where an employer provides an employee with entertainment by way of food or drink
(meal entertainment) a fringe benefit may arise. An employer may elect to value such
entertainment as a meal entertainment fringe benefit. If an employer does not make this
election then the fringe benefit will be valued as an expense payment, airline transport,
property, residual or tax-exempt body entertainment fringe benefit, depending on how the
benefit was provided and by whom.
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If you have this benefit please complete the form in Appendix A. If you have the
breakup of the expenses between client and staff complete column 5 and 6. If not 50% of
the expenditure will be taxable.
11. Car parking fringe benefits
If an employer provides car parking facilities to an employee and:
•there is a commercial car parking station within one kilometre of where the car is
parked; and
•that commercial car parking station charges a fee for all day parking which is more than
the car parking threshold ;
then a car parking fringe benefit may arise.
12. Property fringe benefits
A property fringe benefit may arise when an employer provides an employee with
property, either free or at a discount.
Property includes:
•all goods, e.g. items of clothing or a cylinder of heating gas; •real property, e.g. land
and/or buildings; and •other property, e.g. shares.
13. Residual fringe benefits
A residual fringe benefit may arise when an employer provides an employee with any
right, privilege, service or facility, etc, which is not one of the specific types of fringe
benefit already mentioned.
Some examples of residual fringe benefits are:
•use of employer's property, e.g. video camera or television; •provision of a service, e.g.
advice given by a solicitor; and •private use of a motor vehicle which us not a "car" for
FBT purposes.
Note that reference was only made to employer in the above brief notes but in all cases
the benefit could have otherwise been provided by either an associate of the employer or
a third party under an arrangement with the employer. Similarly, where reference has
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been made only to 'employee' as the recipient of the benefit it would also include an
associate of the employee.
Benefits to which FBT does not apply
• Payments of salary or wages.
• Approved employee share acquisition schemes.
• Employer contributions to complying superannuation funds.
• Eligible termination payments (e.g. a 'company' car given or sold to an employee
on termination).
• Benefits provided by Public Benevolent Institutions to their employees
• Benefits provided by Religious Institutions to their religious practitioners in
certain circumstances
Assessment of FBT
Employers must assess their own liability for FBT on an annual basis. A return covering
the FBT year, which is from 1 April to 31 March, should be lodged by 28 April each year
(returns lodged through a tax agent may have a different lodgment date).
The rate of tax for the year ending 31 March 2006 is 48.5%.
When is FBT payable?
FBT generally is payable in four instalments on the 28th day of July, October, January
and April. If you have not previously paid FBT you make only one payment for the year,
usually on 28 April.
Record keeping requirements
FBT payers are required to keep records that identify and explain all transactions and acts
that are relevant to establishing their FBT liability.
Registration for FBT
We recommend that you register for FBT as soon as you begin providing fringe benefits.
You will not need to make your first payment until you lodge your first FBT return the
following April. If you are registered we will send you personalised return form
stationery and additional information to assist you to lodge your return.
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Need more information?
If you need more information about FBT ask to speak to one of our tax managers on
99065511.
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COMPANY NAME: ..............................................................
APPENDIX A - ENTERTAINMENT SCHEDULE
1st of April to 31st of March
1 2 3 4 5 6
Date Type of Entertainment provided Amount 50:50 split Employee Client
Portion Portion
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COMPANY NAME: ..............................................................
APPENDIX B - MOTOR VEHICLE FRINGE BENEFITS - OPERATING METHOD
VEHICLE: VEHICLE: VEHICLE: VEHICLE:
Type of Vehicle:
Name of Driver:
Business Use as per log book: ......................% .....................% ......................% .....................%
Expenses: (1st of April to 31st of March)
Fuel
Insurance
Registration
Repairs & Maintenance
Lease Payments
Interest Paid
Other
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COMPANY NAME: ..............................................................
APPENDIX C - MOTOR VEHICLE FRINGE BENEFITS – STATUTORY FORMULA METHOD
NAME OF NEW DATE OF ODOMETER READING ODEMETER DISTANCE DAYS IN COST
YEAR CAR
DRIVER VEHICLE(S) PURCHASE WHEN PURCHASED READING TRAVELLED AVAILABLE
31 MARCH FOR USE
OR WHEN SOLD
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