Chapter 6: Fringe Benefits Tax

Transcription

1 Chapter 6: Fringe Benefits Tax Notes re calculations: - As per the FBT return form, Grossed up and Taxable amounts are presented in whole dollars, for example $3, and $3, both become $3, As per the ATO website new FBT car calculator the private use percentage used when calculating the Operating Cost method is rounded down, for example 54.4% and 54.8% both become 54%. 1. Fringe Benefits are employment benefits provided by the employer that are not paid in the form of salary, but form part of a salary package. These benefits can be part of, or in place of salaries and wages. A fringe benefit generally applies to non-cash benefits such as the private use of a company car or payment of entertainment expenses. 2. Tests needing to be satisfied in order for FBT to apply are: Is there a benefit? Is it provided during the year of tax? Is it provided by an employer or third party? Is it provided in respect of employment? Is it provided to an employee or associate? 3. The fringe benefit year runs from the 1st April to the 31st March. 4. ( a ) ( c ) ( d ) ( e ) ( f ) provided that it is for private travel. 5. With the introduction of the Fringe Benefits Tax Assessment Act, the employer who provides the benefit is liable to pay fringe benefits tax. This is totally separate from the income tax liability of the company % 7. Since 1 April 1994 the value of a fringe benefit must be grossed up before calculating the amount of FBT payable. The formula is as follows: Grossed up value = Taxable of Fringe Benefit x 1 (1 - FBT rate) This procedure is done because FBT is deductible. 81

2 Solutions 8. Grossed up value x FBT rate 9. Where GST is included in the employer's costs of providing a fringe benefit, and the employer is able to claim an input tax credit. The benefit is known as a Type 1 fringe benefit and the gross up factor is equal to Fringe benefits that are not Type 1 benefits are known as Type 2 fringe benefits. Benefits will be Type 2 where the cost to the employer of providing the benefit did not include GST or, where GST was charged, the employer was not eligible to claim an input tax credit in its BAS. The Type 2 fringe benefit gross up factor is equal to Statutory Formula Method Operating Cost Method ABC - E D A = B = C = D = E = C x (100% - BP) - R Base value of the vehicle. Note that this is the cost price at the earliest time the vehicle is held by the employer, or two-thirds of the cost price if the vehicle is held for more than 4 years. The cost price (GST incl.) includes the costs of acquisition together with the cost of any non-business accessories fitted to the car at purchase or when added. Statutory rate based on total kilometres travelled in the tax year (see table below). Number of days available for private use by the employee in the tax year. Number of days in the FBT year (usually 365 but 366 in leap years). Any employee contributions (petrol, repairs, etc.) Every year the employer has the option of choosing either method for each individual vehicle. If the employer makes no choice the Statutory Formula method is automatically used. If the Operating Cost method is chosen but the Statutory Formula method produces a lower amount payable then that lower amount is applied. 11. A benchmark interest rate is determined and set by the ATO to use when calculating FBT. 6.65% for the year ended 31 st March

3 12. The balance of Fringe Benefits Tax payable should be paid by 21st May. Depending on the amount of fringe benefits tax liability, the employer may have to pay it on a quarterly basis. This occurs when: Fringe benefits tax was paid last year. The FBT tax liability in the previous year is calculated to be $3,000 or above. The quarterly payments are made with the BAS and the balance due if any is due with the lodgement at 21 May. Multiple Choice Question Answer 13. c 14. b 15. d 16. a 17. Term Definition 1. b 2. i 3. a 4. h 5. e 6. g 7. d 8. c 83

4 Solutions Name of employee: Edge Auto Pty Ltd 5 Postal address: P.O. Box 356 Carlton Vic No of employees receiving benefits: Do you expect to lodge an FBT return: Yes 13 Type 1 2,495 x $ 5,151 Type 2 25,998 x $48,595 Type C $0 14 Fringe Benefits Taxable Amount $53, Amount of tax payable $24, Sub-total $24, Less Instalment Amount $24, Payment due $ Car using the statutory formula A 5 1,163 9,367 Car using the operating cost B ,495 Loans granted C Expense payments E 3,000 15,650 84

5 19. a. The taxable value of a fringe benefit may be increased by the otherwise deductible rule. b. The final Fringe Benefits Tax payment should be paid by 21 June. c. Fringe benefits received by employees are included on their payment summary. d. Prior to providing a motor vehicle benefit an employer must elect which method to use. e. A type 1 benefit is where GST is included in the employer's costs of providing a fringe benefit TRUE T T FALSE F F F f. Fringe benefits tax is paid by employers. T g. Fringe benefits tax is not payable if the benefit is provided by someone other than the employer. h. Fringe benefits are included as assessable income for the employee. i. A cash entertainment allowance is classified as a fringe benefit. F F F j. Fringe benefits tax is self assessed by the employer. T 85

6 Solutions 20. Grossed up value (Type 1) = $12,000 x = $24,776 Grossed up value (Type 2) = $7,000 x = $ 13,084 Total grossed up value = $37,860 FBT liability = $37,860 x 46.5% = $17, ,000 x 365/151 = 33,841 kms 22. ( b ) 23. ( a ) Using statutory formula Total kilometres = 80,000 (> 40,000) - therefore statutory fraction = 0.07 A = $45,000 B = 0.07 C = 365 D = 365 E = $ 1,250 A B C - E = 45,000 x 0.07 x = $1, D 365 ( b ) Using operating cost Depreciation = $45,000 x 25% = $11,250 Deemed interest = $45,000 x 6.65% = $ 2,992 $ 14,242 C x (100% - BP) - R (1, , ,242) x (100% - [35/80 x 100] - 1,250 = (19,092 x 56%) - $1,250 = $9,441 Private use % rounded down to 56% 86

7 Taxable amount = $15,000x(6.65%- 3.5%) = $472 Grossed up value = $472 x = $882 FBT payable = $882 x 46.5% = $ July $5,000 $5,500 $7, October 5,000 5,500 7, February 5,000 5,500 7, April 7,000 13,500 3, May 2,000 8,000 (4,000) 22,000 30,000 26,000 87

8 Solutions 26. Vehicle 1: Using statutory formula Total kilometres = 28,000 - therefore statutory fraction = 0.11 A = $29,300 B = 0.11 C = 365 D = 365 E = $ 965 A B C - E = 29,300 x 0.11 x = $2,258 D 365 Using operating cost WDV at = $16,938 Depreciation = $16,938 x 0.25 = $4,234 Deemed interest = $16,938 x = $1,126 $5,360 C x (100% - BP) - R ( ,360 ) x (100% - [12650/28000 x 100] = (10,755 x 54%) - $965 = $4,842 Vehicle 2: Using statutory formula Annualised number of kilometres 31,000 x 365 = 41,296 km 274 Statutory fraction = 0.07 A = $32,500 B = 0.07 C = 274 D = 365 E = $ 0 A B C - E = 32,500 x 0.07 x = $1,708 D 365 Using operating cost Lease charges = $4,500 C x (100% - BP) - R = ( ,500) x (100% - [16,000/31,000 x 100] - 0 = ( 7,480 x 48%) 0 = $3,590 Harry s Hardware Pty. Ltd. should use the statutory formula method for both vehicles. 88

9 27. 4 Name of employee: JR Concrete Pty Ltd 5 Postal address: 196 Appin St. Samsony WA No of employees receiving benefits: Do you expect to lodge an FBT return: Yes 13 Type 1 12,025 x $24,828 Type 2 28,712 x $53,668 Type C $0 14 Fringe Benefits Taxable Amount $78, Amount of tax payable $36, Sub-total $36, Less Instalment Amount $19, Payment due $17, Car using the statutory formula A 2 1,860 7,482 Car using the operating cost B ,825 Loans granted C 1 1,580 Expense payments E 15,650 Car Parking 8,200 Debt Waiver 4,000 89

10 Solutions Name of employee: ATT Communications Pty Ltd 5 Postal address: 11 Thompson Ave. Adelaide SA No of employees receiving benefits: Do you expect to lodge an FBT return: Yes 13 Type 1 26,540 x $54,797 Type 2 52,810 x $98,712 Type C $0 14 Fringe Benefits Taxable Amount $153, Amount of tax payable $71, Sub-total $71, Less Instalment Amount $36, Payment due $35, Car using the statutory formula A 4 3,650 21,840 Car using the operating cost B 3 1,280 8,420 Loans granted C 2 7,900 Expense payments E 27,550 Meal Entertainment 4,700 Debt Waiver 7,400 Other Benefits 1,540 90

11 29. Solution: Operating Cost Method Jason Bright 1. C x (100% - BP) - R C = Actual costs ( , , ) Deemed costs Depreciation 7,530 ( 30,120 x *25% ) Interest 2,002 ( 30,120 x 6.65% ) 9,532 4,800 9,532 $14,332 14,332 x ( 100% - ((26,000/41,000 x 100 )) 0 = 14,332 x 36% = $5,159 * purchased 15 th March 2008 thus 25%. 2. 5,159 x = $10, FBT = 10,651 x.465 = $4, Solution: Statutory Formula Method 1. ABC E D = 46,000 x 0.07 x = $3, ,220 x = $6, FBT = 6,648 x.465 = $3,

12 Solutions Solution: Operating Cost Method Mark Skaife ( Lease ) C x (100% - BP) - R C = Actual costs ( 6, , , ) = 10,870 Lease costs: $6,800 10,870 x ( 100% - ((8,000/24,000 x 100 )) 520 = ( 10,870 x 66% ) 520 = $6,654 Taxable value ( No deemed costs for leases ) 2. 6,654 X = $13,738 Grossed up value 3. FBT = 13,738 x.465 = $6, Solution: Statutory Formula Method 1. ABC E D = 62,000 x 0.11 x ( Annualised kilometres = 26,149 ) 365 = $5, ,739 x $11, FBT = 11,849 x.465 $5,

13 Solution: Operating Cost Method Craig Lowndes 1. C x (100% - BP) - R C = Actual costs ( , ) Deemed costs Depreciation 5,287 ( 21,149 x *25% ) Interest 1,406 ( 21,149 x 6.65% ) 6,693 = 4,640 6,693 $11,333 11,333 x ( 100% - ((18,000/38,000 x 100 )) 810 = (11,333 x 52%) 810 = $5,083 * purchased 23 May 2008 thus 25%. 2. 5,083 x = $10, FBT = 10,494 x.465 = $4, Solution: Statutory Formula Method 1. ABC E D = 31,000 x 0.11 x = $2, ,600 x = $5, FBT = 5,368 x.465 = $2,

14 Solutions Solution: Operating Cost Method Larry Perkins ( Lease ) C x (100% - BP) - R C = Actual costs ( 5, , , ) = 9,740 ( Lease costs: $5,200) 9,740 x ( 100% - ((21,000/29,000 x 100 )) = 9,740 x 27% = $2,629 ( No deemed costs for leases ) 2. 2,629 X = $5, FBT = 5,428 x.465 = $2, Solution: Statutory Formula Method 1. ABC E D = 54,000 x 0.07 x Annualised Kilometres = 29,000 x 365/182 = 58,159 km, therefore statutory rate =.07 = $1, ,884 x $3, FBT = 3,889 x.465 $1,

15 Solution: Operating Cost Method John Bowe ( Lease ) C x (100% - BP) - R C = Actual costs ( 5, , , ) = 10,370 ( Lease costs $5,700 ) 10,370x ( 100% - ((16,000/33,000 x 100 )) 1240 = ( 10,370 x 51% ) -1,240 = $4,048 ( No deemed costs for leases ) 2. 4,048 X = $8, FBT = 8,357 x.465 = $3,886 Solution: Statutory Formula Method 1. ABC E D = 58,000 x 0.11 x = $4, ,982 x $10, FBT = 10,286 x.465 $4,

16 Solutions Solution: Operating Cost Method Mark Webber 1. C x (100% - BP) - R C = Actual costs ( , ,050 ) Deemed costs Depreciation 6,128 ( 32,656 x *25% ) x 274/365 Interest 1,630 ( 32,656 x 6.65% ) x 274/365 7,758 = 4,370 7,758 $12,128 12,128 x ( 100% - ((22,000/27,000 x 100 )) 180 = ( 12,128 x 18% ) -180 = $2,003 * purchased 1 st July 2009 thus 25%. 2. 2,003 x = $4, FBT = 4,135 x.465 = $1, Solution: Statutory Formula Method 1. ABC E D = 38,000 x 0.11 x = $2, ,957 x = $6, FBT = 6,105 x.465 = $2, Recommendations: Driver Bright Skaife Lowndes Perkins Bowe Webber Most Tax Efficient Method Statutory Formula Method Statutory Formula Method Statutory Formula Method Statutory Formula Method Operating Cost Method Operating Cost Method 96

17 SOLUTIONS TO SUPPLEMENTARY QUESTIONS 1. ( a ) Yes benefit provided by employer to employee. ( b ) Yes benefit provided by employer to future employee. ( c ) Yes benefit provided by 3 rd party (arranged by employer) to employee. 2. ( a ) No benefit taken by proprietor, not employee ( b ) No benefit provided as possible inducement, not in respect of employment. ( c ) Yes benefit provided by employer to associate of employee (daughter) ( d ) Yes benefit provided by employer to past employee 3. ( a ) No benefit provided as possible inducement, not in respect of employment. ( b ) Yes it is not necessary for there to be other forms of remuneration. Each benefit is considered independent of other remuneration. ( c ) Yes an employee of an exempt body is still subject to the same provisions. ( d ) No no employer/employee relationship exists. ( e ) No no employer/employee relationship exists. The stereo may be assessed as a non-cash business benefit. 97

18 Solutions 4. Type 1 Benefits $ $ Car benefit - Saab Turbo 3,800 x ,845 Type 2 Benefits Low Interest Loan 690 Car benefit Volkswagen (pre GST) 12,700 Debt Waiver Benefit 5,200 Expenses benefit School Fees (GST free) 8,730 27,320 x ,066 58,911 X 46.5% Fringe Benefits Tax Payable $27, Type 1 Benefits $ $ Car benefit Holden Commodore 7,200 GST inclusive Food 3,800 Expense payment holiday 4,300 15,300 x ,589 Type 2 Benefits Slushee Drinks Dispenser 1,400 GST Free Food 2,900 4,300 x ,037 39,626 X 46.5% Fringe Benefits Tax Payable $18, Type 1 Benefits $ $ Packaged Liquor 7,200 Car benefit Ford Focus 6,300 Expense payment private travel 3,800 17,300 x ,719 Type 2 Benefits Expense benefit parking fines 4,300 Residual benefit poster 5,000 9,300 x ,383 53,102 x 46.5% Fringe Benefits Tax Payable $24,

19 7. Value of Benefit = $33,000 x 11% = $3, Annualised kms = 9,500 x 365/182 = 19,052km Statutory Fraction = 20% Value of Benefit = ($21,000 x 20% x 182/365 ) - $900 = $1, Business use 5,780/6,250 = 93% Private use 100% - 93% = 7% (Rounded down) Operating costs Running costs 5,600 Deemed Interest (63,000 x 6.65%) 4,189 Deemed Depreciation (63,000 x 25%) 15,750 $25,539 Value of Benefit = 25,539 x 7% = $1,787 Note: benchmark rate is 6.65%. 10. Business use 1,200/4,950 = 25% Private use 100% - 25% = 75% (Rounded down) Operating costs Running costs (3, ,900) 6,000 Deemed Interest (13,266 x 6.65%) 882 Deemed Depreciation (13,266 x 25%) 3,316 $10,198 Running costs included ALL amounts incurred, irrespective of who pays for them. Value of Benefit = (10,198 x 75%) 2,900 = $4,748 99

20 Solutions 11. Lexus Statutory Formula Method (95,000 x 2/3 x 20%) 1,400 = $ 11,266 Lexus Operating Cost Method Private use 55% Operating Costs Running Costs 8,300 Interest (6.65% x 23,752) 1,579 Dep n (22.5% x 23,752) 5,344 $15,223 Value = (55% x 15,223) 1,400 = $ 6,972 Holden Statutory Formula Method Annualised Kms 24,560 x 365/335 = 26,759km (34,000 x 11% x 335/365) = $ 3,432 Holden Operating Cost Method Private use 100% - 93% = 7% Operating Costs Running Costs 7,900 Interest (6.65% x 34,000 x 335/365) 2,075 Dep n (25% x 34,000 x 335/365) 7,801 17,776 Value = (7% x 17,776) = $ 1,244 Ford Utility No benefit - exempt vehicle Type 1 Benefits Holden Operating Cost Method 1,244 x = 2,568 Type 2 Benefits Lexus Operating Cost Method 6,972 x = 13,032 15,600 x 46.5% Fringe Benefits Tax Payable $ 7, * The Lexus is a type 2 benefit as it was purchased pre GST. 100

21 12. Statutory Formula (26,000 x 2/3 x 20%) 1,150 = $2,317 Operating Cost Business use 3,800/5,340 = 72% Private use 100% % = 28% (Rounded down) Operating Costs Running costs (4, ,150) 5,250 Interest (6.65% x 9,380) 623 Depreciation (18.75% x 9,380) 1,758 7,631 Value = (28% x 7,631) 1,150 $ 986 The operating cost method results in a lower taxable value ($986). 13. Statutory Formula (37,000 x 11% x 243/365) = $2,709 Annual Kms = 18,500 x 365/243 = 27,788km Operating Cost Business use 3,210/6,470 = 50% Private use 100% % = 50% Operating Costs Registration & Insurance (8/12 x 3,600) 2,400 Petrol 2,800 Servicing 620 Lease Payments ( 750 x 8 months ) 6,000 $11,820 Note- registration & insurance is matched to its period of service. - tolls are not included in running costs for FBT. - repairs from a car crash are not included as running costs. - fines are not included. Value = 11,820 x 50% = 5,910 The statutory formula method results in a lower taxable value ($2,709). 14. Value of Benefit = 40,000 x (6.65% - 3%) = $ 1,

22 Solutions 15. Value of Benefit Primary Loan: 15,000 x6.65% = $ Value of Benefit = 12,000 x (6.65% - 4%) x 121/365 = $ 105 As the benefit is ongoing, it cannot be classed as minor and infrequent. 17. Commodore Statutory Formula (32,000 x 11%) 500 $3,020 Commodore Operating Cost Business Use 22,000/26,000 = 85% Private Use 100% 84.62% = 15% (Rounded down) Operating costs Running exps 2,000 Interest (6.65% x 32,000) 2,128 Dep n (25% x 32,000) 8,000 12,128 Value = (15% x 12,128) 500 = $1,319 Mobile Phone Exempt Loan Benefit 50,000 x (6.65% - 3%) x 150/365 = $750 Lunch Each benefit = $75, therefore minor and infrequent. Weekend Trip $1,500 Falcon statutory formula (2/3 x 24,000) x 7% $1,120 Golf Club Membership Outside of current FBT year (1 June 2011) Falcon operating cost Business Use 19,000/42,000 = 46% Private Use 100% 46% = 54% (Rounded down) Operating costs Running exps 3,000 Interest (6.65% x 6,700) 445 Depn (22.5% x 6,700) 1,508 4,953 Value = (54% x 4,953) = $2,

23 ( a ) Type 1 benefits Commodore Operating Cost 1,319 Weekend Trip 1,500 2,819 x $5,820 Type 2 benefits Loan benefit 750 Falcon Statutory Formula 1,120 1,870 x $3,495 9,315 x 46.5% FBT Payable $4, ( b ) $4, $4,000 = $ payable to ATO 103

24 Solutions 18. Yacht Club Membership $3,200 Renault Statutory Formula (60,000 x 7% x 274/365) 2,800 = $ 352 Renault Operating Costs Running Costs (2, ,100) = 5,900 Deemed Depn (25% x 60,000 x 274/365) 11,260 Deemed Interest (6.65% x 60,000 x 274/365) 2,995 20,155 (20,155 x 70%) 2,800 $11,308 Medical Bills $2,500 Train ticket $1,000 Loan 30,000 x 6.65% x 183/365 1,000 20,000 x 6.65% x 92/ $1,335 Type 1 Benefits Renault 352 Yacht Club 3,200 Train ticket 1,000 4,552 x ,398 Type 2 Benefits Medical Bills 2,500 Loan Benefit 1,335 3,835 x ,168 16,566 x 46.5% FBT Payable $7,

25 19. Gym Membership $2,200 Magna Statutory Formula (2/3 x 31,700 x 11% x 365/365) 3,100 = $0 School Fees $9,000 Concert Tickets $ 380 (note - the 4 tickets would represent 1 benefit) Loan 40,000 x 6.65% x 92/ ,000 x 6.65% x 58/ $1,039 Type 1 Benefits Gym 2,200 Concert tickets 380 2,580 x ,326 Type 2 Benefits School Fees 9,000 Loan Benefit 1,039 10,039 x ,764 24,090 x 46.5% FBT Payable $11,

26 Solutions 20. Hyundai No valid logbook - So use the Statutory Formula method. (38,000 x 0.20 x 162*/365) - 1,700 $1,673 * Days avail for priv use = ( ) 20 = 162 Loan 12,000 x (6.65% - 2%) x 365/365 $558 Toyota No odometer readings kept; therefore we must use the operating cost method. Running costs 3, ,800 5,400 Interest 10,000 x 6.65% 665 Depreciation 10,000 x 25% 2,500 8,565 (40% x 8,565)-1,800 $1,626 Movie Tickets 30 x 48 $1,440 Holiday $12,000 Car Parking 3 Benefits ( parking spaces ) Daily Rate Average cost (15+19)/2 = $17/day Market Value (4,000/228) = $17.54/day Commercial Parking (330/20) = $16.50/day Statutory Formula Method Using the lowest daily rate. Benefit = ( 3 x 228 x x 3/3 ) = $11,

27 Type 1 Benefits Hyundai 1,673 Toyota 1,626 Movie Tickets 1,440 Holiday 12,000 Car Parking 11,286 28,025 x ,863 Type 2 Benefits Loan 558 x ,043 58,906 x 46.5% FBT payable $27, Less Instalments paid 9, FBT Due $18,