FRINGE BENEFITS TAX by ert634

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									FRINGE BENEFITS TAX – A GUIDE FOR RMIT STAFF

Background
The Fringe Benefits Tax (FBT) regime came into effect on 1 April 1986 under the Fringe
Benefits Assessment Act 1986 (FBAA) . A fringe benefit is considered to be employee
remuneration other than salary and wages or other payments that are subject to income tax
(eg. termination payments, superannuation) .

FBT is generally payable where:
   1. A benefit is provided;
   2. The benefit is provided in respect of the employment of the employee;
   3. The benefit is provided to the (past or future) employee or an associate/relative of the
past/future employee of the University or a third party under an arrangement .

The FBT year runs 1 April to the following 31st March with instalments payments made
quarterly . RMIT accrues the FBT to cost centres on a monthly basis .


Individual fringe benefits amount

The taxable value of all the fringe benefits, except for excluded fringe benefits, that relate to
the year of tax must be allocated to the relevant employee(s) . This will represent the
employee’s individual fringe benefits amount . Any benefits provided to an associate of an
employee, in respect of that employee’s employment, the taxable value is not allocated to the
associate, but the employee in question .

Fringe Benefits are identifiable by different categories, which have their own specific rules for
calculating the taxable value . Note that if an employee makes a contribution to the cost of the
fringe benefit provided, the taxable value of that fringe benefit is reduced by that particular
payment . It is also important to note that an employee contribution may be made only from an
employee's after-tax income, and employee contributions in respect of a particular fringe
benefit may only be applied to reduce the taxable value of that particular benefit, and no other
fringe benefit .


Types of Benefits Provided

The following are the various types (categories) of fringe benefits an employer would generally
provide:

        1.    Car Fringe Benefits
        2.    Loans granted
        3.    Debt waiver
        4.    Expense payments
        5.    Housing – Units of accommodation provided
        6.    Employees receiving living away from home allowance (LAFHA)
        7.    Board
        8.    Property benefits
        9.    Meal entertainment
        10.   Income tax exempt body – Entertainment
        11.   Other benefits (residual)

Each fringe benefits type applies to a specific situation, and are applicable to a broad range of
industries (but not all) . This brief will examine a number of types that are common in the
current workplace .

Car Fringe Benefits
A car fringe benefit will arise on any day where a University car is used by an employee for
private purposes or is taken to be available for private purposes .

A car is available for private use when:

                    a). the car is garaged by the employee; and
                    b). the car is in the employee’s custody or control.

The University applies the ‘statutory formula’ method for calculating the taxable value of car
fringe benefits . An odometer reading is taken on 31 March for each car, each year, and
whenever a car is acquired or disposed (FSG undertake this process, full and timely
cooperation is expected) .

The taxable value of a car fringe benefit under the statutory formula method is basically
determined by applying the statutory percentage (which varies according to the distance
travelled within an FBT year) to the base value of the car, as per the following formula under
s.9(1) of the FBT Act:

Taxable Value: A x B x C/D - E

Where A         =        base value of the motor vehicle
      B         =        the statutory fraction
      C         =        # of days during the FBT Year the benefit was provided
      D         =        number of days in the FBT year
      E         =        the amount of the recipient’s payment (ie employee contributions)



The statutory percentages for the FBT year are:

Total Kilometres travelled during the year:        Statutory percentage
Less than 15,000                                            26%
15,000 to 24,999                                            20%
25,000 to 40,000                                            11%
Over 40,000                                                  7%




Unless a car is garaged on University premises or used for employment duties, it will be
regarded as available for private use . Unless records support otherwise, the University
assumes that the car was available for the full year .

A reduction in the taxable value is available if the employee has not been reimbursed for any
related car expenses (registration, insurance, repairs and maintenance or petrol), (see:
employee contribution) . Documentary evidence is required by the University ie a receipt,
invoice, but in the case of fuel and oil a declaration of the expense is sufficient .

Debt Waiver Fringe Benefits

If an employee owes a debt to the University, and the University releases the employee from
the obligation to repay the amount outstanding, the unpaid amount will constitute a debt
waiver fringe benefit .

Expense Payment Fringe Benefits

An expense payment fringe benefit arises where the University pays or reimburses expenses
incurred by an employee where the expense cannot be reduced under the otherwise
deductible rule .
For example: An employee is reimbursed by the University for study that is deductible to them
as an individual . The amount of the reimbursement can be deducted from the taxable value of
the FBT liability of the University under the otherwise deductible rule . However, if the study
was not deductible to the employee as an individual, then this amount is an expense payment
fringe benefit .

Property Benefits

A property fringe benefit may arise when the University provides an employee with goods (ie
property), either free or at a discounted price .

Eg Travel
When the University pays the expenses of a spouse or children who accompany an employee
on work related travel, this will give rise to an FBT liability .


Meal Entertainment Benefits

Meal entertainment fringe benefits arise where the University provides the following:

        a. Entertainment by way of food or drink;
        b. Travel or accommodation connected with (a); or
        c. The reimbursement or payment of expenses incurred in providing (a) or (b).

Where an employee of the University engages in a meal with persons not employed by the
University, and the entire cost is paid by the University is classified as entertainment . The
resulting cost is to be apportioned between costs that are subject to FBT (cost of the
University’s employee’s portion) and those that are not subject to FBT (non-employee’s
portion) .

A meal taken by an employee whilst travelling on University business is not regarded as
entertainment .

Food and/or drink provided to an employee on the University’s premises, on a working day, is
an exempt property benefit . It does not matter whether the preparation of the food and drink
was not done on the University’s premises .

Food and/or drink provided on the University’s premises to associates of employees (eg.
Spouses/clients etc) is not exempt from FBT . Where food and/or drink is provided on the
same occasion to employees, their partners, and clients it may be necessary to apportion the
expenditure on a per head basis . FBT will be applicable to the meal is provided to the
employee and their partner .

Provided below are different scenarios where FBT may or may not apply;

                SITUATION                           FBT
Employee takes two clients to lunch at a Employee's portion
restaurant - cost $150                   $50 fringe benefit
                                         Client's portion
                                         No FBT
Employee has meal in restaurant while No FBT (otherwise
travelling on business trip              deductible rule)
Employee has meal in an ‘in-house        Exempt from FBT
canteen’
Employer provides sandwiches and juice Exempt from FBT
for working lunch in office (not
entertainment)
Staff Christmas Functions                Cost per employee
                                           Exempt benefit if <$100
                                           Cost per associate
                                           Taxable fringe benefit
Employer provides social function for      Exempt from FBT
employees in office
Employer provides social function for      Cost per employee
employees and associates in office         Exempt benefit
                                           Cost per associate
                                           Taxable fringe benefit
Employer reimburses employee for cost      Taxable fringe benefit
of private party
Employer provides employee and          Taxable fringe benefit
associates with theatre tickets
(Source: ATO Website “FBT – A guide to employers”)


Income Tax Exempt Body – Entertainment

RMIT is exempt from paying any income taxes under section 50-50 of the Income Tax
Assessment Act 1997 . RMIT can elect to classify all meal entertainment benefits as income tax
exempt body entertainment .

Other (Residual) Benefits

A residual benefit may arise when the University provides an employee with any right, privilege,
service or facility, or any other benefit that is not one of the specific types of fringe benefits
included in items 1 to 12 .


GST and fringe benefits

The main interaction between FBT and GST is through the FBT gross-up calculation . Fringe
Benefits are grossed-up at either of two different rates according to whether GST input tax
credits are available .

Where there is a benefit and GST is paid, (and are entitled to claim an input tax credit), a new
gross-up rate applies . The new gross-up rate recovers the input tax credit that the provider is
entitled to . The new gross up rate is 2.0647. This is referred to as being a Type 1 benefit .

Eg a $100 Entertainment (which is inclusive of GST) costs RMIT $100 x 2.0647 x 46.5% =
$96

Where there is a benefit and no GST is paid, (ie no entitlement to claim an input tax credit),
the former gross-up rate applies . This is referred to as being a Type 2 benefit .
Eg a $100 gift voucher (which is exclusive of GST) costs RMIT $100 x 1.8692 x 46.5% = $87

The FBT rate is 46.50%, it does not vary between Type 1 and Type 2 benefits .


FRINGE BENEFITS TAX – RECENT DEVELOPMENTS AND
EXEMPTIONS

Recent Developments and common audit adjustments

Employee Contributions

Where an employee pays an amount to an employer that is treated as an employee
contribution this reduces the taxable value of the benefit provided . Generally RMIT will return
the contribution as assessable income . Where applicable, the GST component will need to
be accounted for (1/11th) .

FBT – Meals/Sustenance

If a meal is regarded as SUSTENANCE it is both tax deductible and free from FBT . This
refers to in-house meals not associated with any recreation or leisure pursuits – ie. A
business meeting .

Otherwise Deductible Rule

The otherwise deductible rule can only be used to reduce the taxable value of the benefit to
nil when the expenditure would have been 100% deductible to the employee, otherwise the
taxable value can only be reduced by the business use percentage .


EXEMPT FRINGE BENEFITS

The following business items have been excluded from FBT provided they are used primarily for
business purposes:

- Briefcases, trade and professional subscriptions, electronic diaries/ calculators, corporate
credit card fees,
- Protective work clothing,
- Airport lounge memberships, and
- Laptop / portable computers, business software .

The exemption for laptop / portable computers is limited to one computer per employee per year
where the employee gains ownership of the computer (or is reimbursed) . The computer must
be primarily used for business .

Car and mobile phones are not subject to FBT if it is primarily used for business purposes;

Taxi travel from 1 April 1997 will be exempt from FBT for single trips beginning or ending at the
employee’s place of work, regardless of the time the trip commenced, the departure point or
destination of the trip and whether or not the trip was direct;

Taxi travel for sick employees for travel home or to any other place necessary or appropriate for
the employee to go ie doctor, hospital, relative;

Other exempt benefits include:

- Relocation expenses (other than cash incentives);
- Workers compensations benefits;
- In-house health care facilities;
- Medical treatment, ie travel, meals and accommodation en route to obtain medical treatment
where the employee is performing duties at an overseas University;
- Compassionate travel benefits to visit or attend the funeral of a close relative (generally
spouse, parent, parent –in-law, child);
- Medical examination, ie benefits including associated travel costs, for work related medical
examinations or medical screening;
- Counselling, ie costs related to the performance of the employees duties of the preparation of
the employee for retirement;
- Australian Traineeship System;
- Education costs of employees whose usual place of residence is in a particular country but
who is required to live outside that country to perform their employment duties;
- Childcare facilities provided to employee’s children on the premises of the University .

Compliance and Penalty Tax
The University is liable for penalty tax of up to 200% of the tax payable if it provides false and
misleading information . If the University if charged, the penalty tax will be expensed to the
relevant profit/ cost centre who provided the original information .


Reportable Fringe Benefits - Reporting benefit values on
group certificates or payment summaries

Where an employee's individual fringe benefits amount, in relation to an employer, is $1,000
or less the employer is not required to report an amount on the employee's group certificate
or payment summary .

Where the total fringe benefits amount for an employee, from the employer, is less than or
equal to $1,000, the employer is not required to report an amount on the employee's group
certificate or payment summary , for 2008 this amount will increase to $2,000.

Where the total fringe benefits amount for an employee, from the employer, is greater than
$1,000, then the grossed-up (type 2 –1.8692) value of that amount must be shown on the
employee's group certificate or payment summary . This amount is known as a reportable
fringe benefits amount .

The new type 1 gross-up formulae will not be used to calculate the employee’s reportable fringe
benefits amount .

Example
The total value of benefits provided to the employee is $1,000 . If the rate of tax is 46.5%, then
the value of reportable fringe benefits is calculated as follows:
                     $1,000
                     (1 – 0.465)
                    =$1,000
                     0.535
                    =$1,869(in whole dollars)

The reportable fringe benefit amount appearing on an employee’s group certificate or
payment summary will reflect the benefits provided in the FBT period that would have passed
. For example, the value relating to benefits provided during the period 1 April 2000 to 31
March 2001 shall be shown on the employee's payment summary for the financial year 1 July
2000 to 30 June 2001 .

Reportable Fringe Benefits - Consequences

The amount appearing as a reportable fringe benefit is not included in the employee’s
assessable income . Reportable Fringe Benefits are included in a number of income tests
relating to a number of government benefits and obligations, such as:
    • child support payments;
    • higher education contributions scheme (HECS) repayments;
    • Medicare levy surcharge;
    • superannuation surcharge;
    • termination payments surcharge;
    • personal superannuation deductions;
    • rebate for personal superannuation contributions;
    • rebate for contributions to a spouse's superannuation;
    • Family Tax Benefit;
    • Child Care Benefit; and
    • Parental income test for Youth Allowance

The income tests for the Family Tax Benefit and the Child Care Benefit and the parental
income test for the Youth Allowance, will however, only include the non grossed-up value of
the fringe benefits . This amount can be calculated by multiplying the reportable fringe
benefits total by 0.515 .

Definitions
 ‘Benefit’ : A benefit includes any right, privilege, service or facility . These benefits are
categorised into specific benefits, eg entertainment fringe benefit . Any benefit not covered by a
category is included as a residual fringe benefit .

‘Employee/ Associate’: Generally a person is an employee if any cash remuneration paid to
him/her is treated as salary and wages for PAYE purposes .

‘Taxable Value’: Each type of benefit has specific valuation rules for calculating the amount on
which to apply the FBT rate . The value is ‘grossed up’, but may be reduced by the ‘otherwise
deductible’ rule .

‘Grossed Up’: The amount of the expenditure liable for FBT is grossed up by multiplying it with
a value based on the FBT rate for the year . Gross up amounts will vary depending on what type
of benefit (Type 1 or Type 2) is provided .

‘Otherwise Deductible’ rule: If the employee had not been reimbursed for the expense and the
expense could have been a tax deduction for the employee, then this amount may be deducted
from the ‘taxable value’ calculated for the fringe benefit by the University .

FREQUENTLY ASKED QUESTIONS (FAQ’S)
The following FAQ’s relate to scenarios that commonly occur within RMIT University .

Entertainment Scenario: Staff Members Dining

Q. If a staff member takes another staff member to lunch to discuss a business plan, and the
lunch is paid for on a RMIT credit card, does RMIT have to pay FBT ?
A. Yes . As an employee entertaining by way of food and drink, even though discussing
business, FBT is payable . The deciding factor is the off premises, with or without alcohol,
according to the ATO, this gives it more the form of entertainment than business .

Breakfast, lunch or dinner is not the issue .
The presence or lack of alcohol is not the issue .
The deciding factor is the benefit given to the employee by their employer .

Q. A staff member attends a workshop and lunch is provided, is FBT payable ?
A. If lunch is included within the structure of a course, then the answer is no, as long as there
is no alcohol .

Q. What if alcohol is provided with the lunch, does this make any difference ?
A. Yes . It is regarded as entertainment with the presence of alcohol .


Entertainment Scenario: Student and Staff

The Alumni are holding a ball, which is attended by students . The relevant department
agrees to fund the student’s tickets and the partner’s tickets are self funded .

Q. Is FBT payable on the student tickets ?
A. No . Only employee incurred remuneration attracts FBT .

Q. Do the tickets for the administration staff, who organised the ball, incur FBT ?
A. Yes . No matter how noble they have been, as employees they are in effect receiving a
benefit therefore, FBT has to be paid .
Q. What if this Ball was only attended by staff ?
A. Still FBT, no difference really .

Q. Does the presence of alcohol make a difference to the answer ?
A. Not in this case . This event is “FBTable” with or without alcohol as it is 100%
entertainment - no business .

Q. At the end of a long, hard week, the Manager provides staff drinks in the office . Does this
incur FBT ?
A. Held in the office, this does NOT incur FBT under a special exemption in the Act . But, if
the Manager took you all to the pub and bought you those drinks then there would be FBT
payable . You could view this as the Act differentiating between staff morale and
entertainment .

Q. What about farewell or congratulatory lunch or morning tea ? On or off premises . With or
without alcohol ?
A. On premises no alcohol - no FBT
   On premises with alcohol - no FBT - morale objective .
   Off premises with or without alcohol - both attract FBT, this is entertainment .

Q. Is a staff Christmas party subject to FBT ?
A. A Christmas party may be a minor benefit and exempt if the cost of the party is less than
$300 per employee and certain conditions are met . The cost for an employee includes the
cost for any employee's associates also attending the party .
A Christmas party provided to current employees on the employer's business premises on a
working day may also be an exempt benefit . The cost of associates attending the Christmas
party is not exempt .
Neither of these exemptions apply if the employer uses the meal entertainment provisions
and calculates the taxable value under the 50:50 split or the 12-week register methods . They
do not apply to income tax-exempt employers either .
(Source: ”Non-Profit Organisations - Fringe Benefits Tax” - ATO website)


Honorary Positions

At RMIT we are fortunate to enjoy the services of professionals in honorary positions on
Council and many Boards and Committees .

Q. Does FBT apply to them ?
A. If a Council member, for example, is only attending the monthly Board meeting and not
performing any executive duties that RMIT staff would normally undertake then FBT is NOT
applicable .

If the member undertakes executive duties for RMIT then benefits provided would be subject
to FBT .

Travel and Entertainment Scenario

Q. If an employee has a meal when on University business overseas, does this incur FBT ?
A. If dining alone and without alcohol – No FBT as this is sustenance .
A. If dining alone but with alcohol – No FBT as this is sustenance .

Is there something about ‘usual amount of drink’ as a test ?
NO . There is nothing in the Act or in RMIT policy about this ‘test’ .

Q. If dining with a guest resident Overseas ?
A. Yes – FBT is payable with or without alcohol . This is seen as convivial, entertaining .

Q. Is this so with/without alcohol ?
A. Yes, alcohol makes no difference .

Travel Scenario

Q. Does the University have to pay FBT if the University pays for a family member to
accompany an employee on a work related trip ?
A. Yes . This is regarded as a benefit so therefore incurs FBT .

Car Scenario

Q. If an employee has the use of a motor vehicle for the evening, is the University liable for
FBT ?
A. As the employee has the full custody of the vehicle overnight, parking it/controlling the
vehicle (e.g. at home), FBT is applicable as the car is being used for private purposes .

EXCEPTION: If the vehicle is taken home overnight as a matter of convenience to use for
business the following day there is no FBT . E.g. if you are a city based employee and take
home a vehicle to allow you to go directly to a Bundoora business meeting the following
morning .

Expense Payment Scenario - Lap Top Computer

Q. The Head of Department decides to purchase two laptops for use by the staff to work at
home for the department, is FBT payable ?
A. No FBT payable . Laptop computers are exempt from FBT provided they are used
primarily for business purposes .

Expense Payment Scenario - Mobile Phones

Q. If we give an employee a mobile phone for work related use, but the employee uses it for
private calls, do we have to pay FBT ?
A. If the primary use of the phone is for conducting business, it is not subject to FBT .

Expense Payment Scenario - Taxis

Q. An employee becomes ill at work and we decide to send them home in a taxi . Do we have
to pay FBT ?
A. No . The cost of sending sick employees home or to where necessary (eg. Doctor) does
not incur FBT .

Q. A valued staff member has to attend the funeral of a close relative, and we arrange for a
taxi, do we have to pay FBT ?
 A. No . This is exempt .

Q. A staff member has to catch a taxi from the office to a business meeting ?
A. No FBT is payable on single trips which begin or end at the employees place of work .
This would also include a trip from the hotel to the place of work whilst on an
overseas/interstate trip .

Q. Does a taxi trip between work and home attract FBT ?
A. Yes, this does attract FBT - UNLESS it is under circumstances required by that employee’s
Award .

Expense Payment Scenario - Membership

To ensure a staff member complies with standards and the professional code of conduct, the
head of department makes it a condition of the position to be held by a person with
membership in a professional body .
Q. If the department pays for Professional Association joining fees, does FBT have to be paid
?
A. No – as this expense would be otherwise deductible by the employee on their personal
income tax .

Q. What if it isn’t mandatory for the employee to be a member of this body, but they wish to
be and the HOD agrees to pay the joining fee/annual subscription . Is the FBT situation
different ?
A. No – as this expense would be otherwise deductible by the employee on their personal
income tax .

Q. What if the HOD pays for a staff member’s non-professional membership, e.g. gym
membership ?
A. Yes – FBT will be applicable .

For additional FAQ’s please refer to the following URL found on the ATO Website
(www.ato.org.au):

http://www.ato.gov.au/nonprofit/pathway.asp?pc=001/004/012


Sources of Assistance
This paper has been devised to briefly explain how Fringe Benefits Tax (FBT) applies to the
University and when a liability for FBT arises .

Ongoing queries or concerns on FBT are best addressed to:

Natalia Hawkins, Associate Director – Financial Operations, FS on Ext. 53651

Web Sites

FS Web Site
http://www.rmit.edu.au/departments/fsg/
Corporate Card Expense Acquittal Form (Or see Appendix 2 this document)

Travel Policy
http://www.rmit.edu.au/departments/cals/travel/entertainment.html
http://www.rmit.edu.au/travel
http://www.rmit.edu.au/travel/forms/index.html

HRMG
http://www.rmit.edu.au/departments/hr/manual/index.html
http://www.rmit.edu.au/departments/hr/manual/310.html

								
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