POSITIVE LIMBS OF FRINGE BENEFITS

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1 FRINGE BENEFITS (Chapter 22) FBT is imposed on employers (in the hand of the employee it s NANE income, that s why we don t take it into account for tax loss calculations) Assessed under the Fringe Benefit Tax Assessment Act 1986 (FBTAA) Imposed under Fringe Benefit Tax Act 1986 (FBTA) FBT currently 46.5% under FBTA (will change to 47% in 14/15 FBT year). FBT covers a wide range of non-salary benefits provided in respect of employment. There are 13 types of fringe benefits, all valued differently. Under s23l ITAA36 FBT for employees is NANE income. For exempt benefits its exempt income. It includes benefits from: - Employer - Third party under arrangement with employer - Associate of employer - Third party under arrangement with associate of employer. POSITIVE LIMBS OF FRINGE BENEFITS (pg ) Fringe benefit arises where: 1. A benefit is provided during a year of tax (1 st April 31 st March) 2. By an employer, an associate of the employer, or a third party under an arrangement with the employer or associate of the employer. 3. To an employee or an associate of the employee 4. In respect of the employment (nexus) of the employee Employer and employee include current, former or future employers and employees s136(1) Associate widely defined to cover relatives and certain related entities s136(1) In respect of employment look at examples pg. 517 NEGATIVE LIMBS OF FRINGE BENEFITS (EXCLUDES) (pg ) Excludes: 1. Salary or Wages and Allowances which are assessed in the hand of the employee. 2. Superannuation Contributions 3. Benefits under Employee Share Schemes 4. Exempt Benefits. E.g. (list on top of pg. 519) o Exempt load benefits o Exempt car expense payment benefits o Benefits with a taxable value less than $300 o Tools and certain equipment used primarily in the employee s employment 1

2 CATEGORIES OF FRINGE BENEFITS FBTAA recognises 13 different categories of benefits Car Benefits (s 7)* Debt Waiver Benefit (s 14)* Loan Benefit (s 16)* Expense Payment Benefit (s 20)* Property Benefit (s 40)* Ownership has been transferred Residual Fringe Benefit (s 45)* Not in any other category Meal Entertainment Benefit (s 37AC) Housing Benefit (s 25) Living-away-from-home allowance (s 30) Airline transport benefit (s 136) Board Benefit (s 35) Tax-Exempt Body entertainment benefit (s 38) Car parking Benefits (s 39A) Important to correctly identify the category of benefit, as different rules apply to calculate the taxable value. CALCULATING TAXABLE VALUES OF FRINGE BENEFITS (pg ) Concessional treatment sometimes applied to in-house benefits (not when there is a salary sacrifice arrangement) Unreimbursed recipient contribution reduces the taxable value of the fringe benefit Otherwise Deductable Rule reduces the taxable value of the fringe benefits Subtract reduction amounts from the taxable value after taxable value calculated. Two items that reduce FB taxable value Where the cost of an item is used for taxable value of fringe benefit, use GST-Inclusive cost. In-House Benefits the benefits the provider would provide in the ordinary course of business to outsiders (i.e. members of the public). Must consider arms-length rate/value. External Benefits those other kinds of benefits. E.g. provision of a plasma TV by a law firm to its employees. OTHERWISE DEDUCTABLE RULE (GD RD) Reduces the taxable amount value by the deduction that employee would have otherwise received if he or she had incurred the expenditure to acquire the benefit. Only operates where a deduction to the employee would have been a once only deduction. Normally calculated amount of once only deduction employee would have been entitled to (GD) subtract Actual deduction available (e.g. if only 40% is work related) (RD) Only applies to some fringe benefits: 1. Loan Fringe Benefit 2. Expense Fringe Benefit Must deny deductions to the extent of any private component of the fringe benefit 2

3 3. Property Fringe Benefit 4. Residual Fringe Benefit 5. Airline Fringe Benefit 6. Board Fringe Benefit Has own substantiation rules for employers using the Otherwise Deductable Rule (declarations, evidence). Where ODR provided jointly to employee and employee associate, ODR only reduces taxable value of the employee s share of the benefit. CAR FRINGE BENEFITS (pg textbook) Car benefit arises where a car owned by the provider is available for private use (not use exclusively in the course of gaining assessable income or garage not at work) of the employee or associate. Its exempt benefit if taxi, panel van or utility truck and mainly work related use, or car is unregistered. Must use the formula that provides the lowest value. There are two methods you can choose to use under s 136 (1) FBTAA (1) Statutory Formula Method Use to calculate the taxable value for Car FB for FBT years beginning on or after 1 April 2011 [s 9(1).] Reduced by sum of employee contribution including fuel, registration, insurance and maintenance cost (documentary evidence required) Base Value is the cost price (if owned by provider) or leased car value (if cars leased by provider) in an arms-length transaction. Can include acquisition or delivery cost, transfer cost, stamp duty and non-business expenditure like air-conditioning at or about the time of acquisition. Where the car has been held by the provider for more than four years multiply the Base Value or lease price by two-thirds (2/3) to reflect the decline of the cars value. (2) Cost Basis Method (pg. 529) C = Operating cost of the car (including deemed depreciation and interest, fuel, maintenance, registration, insurance and any other related cost during the holding period) R = Employee Contribution (sum of fuel, registration, insurance, maintenance cost and any other costs incurred) 3

4 BP = Business Percentage (employer s reasonable estimate of kilometres which the car travels during the period, log book an odometer readings must be maintained). **Example of both methods pg. 530** DEBT WAIVER FRINGE BENEFIT (pg. 530) Debt waiver benefit arises where a person waivers the obligation of another person to pay or repay a debt. These waiver benefits could include interest on a loan (s 14) Taxable value of the debt waiver is the amount of the payment or repayment that has been waived (s 15FBTAA). LOAN FRINGE BENEFIT (s 136 FBTAA) (pg. 531) Loan can be loan money, advance money, the provision of credit, or any other financial accommodation. Taxable Value of the FB is generally the amount the notional amount of interest exceeds the actual amount of interest s 18 FBTAA Notional amount is the interest rate that would have accrued at the statutory interest rate for the year of tax (pg. 532 textbook has rates and example) Statutory Rate Rate given to the Employee (lower) - (GD RD) Special Rules apply: o Pre 1 st July 1986 fixed interest loans o Pre 3 rd April 1986 variable interest housing loans Operates subject to otherwise deductable rule (example pg. 533 shows only partial use for work) Exemptions are provided in certain circumstances (bottom pg. 531) EXPENSE PAYMENT BENEFIT (s 136(1)) (pg. 533) Where a person pays for or reimburses expenditure incurred by another person (s 20) Allowance is not a reimbursement (generally taxed under income tax rules). Taxable Value depends on: For both its 75% of benefit (x0.75) In-house Property expense payment benefit, use valuation rule in s 42 (bottom of pg. 253 ETL) In-house Residual expense payment benefit, use valuation rule in s 48 s 49 (pg. 254 ETL) External Expense payment benefit, taxable value is simply the amount of expenditure or reimbursement by provider, reduced by recipient s contribution. 4

5 Operates subject to otherwise deductable rule Normally use lowest cost, e.g. if price is normally $2 000 to $3 000, use $2 000 for calculation. PROPERTY FRINGE BENEFIT (s 136 (1)) (pg ) Where the employer provides property to another person. Includes tangible and intangible property. Exempt when consumed by the employee on a work day, on the employer s business premises. Taxable Value will depend on whether the benefit is: In-house property benefit, taxable value should be 75% (clarify with pg. 546 textbook) External property benefit is the cost price, GST-inclusive amount of benefit (at armslength ). Operates subject to otherwise deductable rule (if once-only deduction) Normally use lowest cost as discusses in earlier. RESIDUAL FRINGE BENEFIT (pg ) Benefits not covered by any other category. Exempt residual benefits (s 47), list pg. 548 of text book Period means FB provided for over one day, Non-Period FB provided over less than one day. Benefits must always be an arms-length purchase for employer. Taxable Value will depend on whether benefit is: (pg. 549 & 550 have description) In-House Non-period residual fringe benefit In-House Period residual fringe benefit External Non-Period residual fringe benefit External Period residual fringe benefit Operates subject to otherwise Deductable rule If not under salary package arrangement then 75% of taxable value less any employee contribution Taxable value is amount of expenditure less any employee contribution FRINGE BENEFITS TAXABLE AMOUNT FORMULA Type 1 Aggregate FB: benefit supplied that the employer would have received input tax credits for G.S.T Type 2 Aggregate FB: benefit supplied that is not registered for G.S.T or is acquired by the provider as G.S.T-free or Input-Taxed supplies. 5