Fringe benefits tax Loading NTAA software...a

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1 Contents Topic Page No. Loading NTAA software...a Using the software... b 2002 FBT Return Form Preparer & CQM... b Salary Sacrifice Calculator or CGT Register Calculator...c Questions...c A guide to the 2002 FBT Return Preparer...e 1. Adding or accessing an employer... e 2. Main menu... f 3. Add a benefit... g 4. Adding an employee... j 5. Modifying or reviewing benefits...k 6. Reportable fringe benefits... m Navigating the 2002 FBT Quality Control Disk Software...o FBT Update Changes to the 2002 FBT Return... 1 A. Employer s Calculation Block Item B. Aggregate non-rebatable amount Item C. Reportable fringe benefits amount Item D. Deferred FBT instalments Item New FBT instalment dates for deferred BAS payers... 3 E. Due date for lodgment of 2002 FBT Return New gross-up rules for new vehicles purchased on or after 23 May New GST input tax credit rules for the purchase of new cars... 4 How is the purchase date of the car determined? Final ATO rulings on GST and FBT... 7 A. How the GST affects the taxable value of fringe benefits provided in the 2002 FBT year... 7 B. What you must know about employee contributions under the GST... 9 Annual set-off documentation that is required under MT 2050 guidelines...12 Letter from employee to employer...12 Letter from employer to employee...13 C. How to identify "type 1" and "type 2" benefits in the 2002 FBT year to apply the correct gross-up rate...14 National Tax & Accountants Association Ltd: February March 2002 i

2 Identifying type 1 fringe benefits gross-up rate...14 Identifying type 2 fringe benefits gross-up rate...16 D. New rules on how to calculate an employer's FBT liability for the 2002 FBT year...18 PBI Capping Worksheet for 2002 FBT year...23 Hospital Capping Worksheet for 2002 FBT year...24 Rebatable Capping Worksheet for 2002 FBT year Reportable fringe benefits simplified arrangements...26 Reporting incidental recreation benefits Latest changes on FBT exemptions...28 Removal of FBT exemption for associate superannuation contributions Latest ATO views on FBT issues...29 A. Minor benefit exemption based on GST-inclusive amount...29 B. FBT issues where entertainment not actually provided...29 C. Employee contributions incorrectly entered on business tax returns Expanded definition of employee under new court case FBT problems...31 Background...31 Crisis Couriers decision Tax reform and its impact on providing fringe benefits...34 Executive summary...34 Recognising employee contributions...35 Claiming revenue deductions for cost of providing fringe benefits under Tax Reform...35 Prepayments...36 Claiming depreciation on assets used to provide fringe benefits under tax reform...37 STS employers...38 Non-STS employers Providing fringe benefits under the new contractors' measures...40 Executive summary...40 Fringe benefits that are no longer deducible and still subject to FBT...40 What fringe benefits should a PSE continue to provide?...41 (a) Car fringe benefits...42 (b) Superannuation contributions...42 (c) "Otherwise deductible" benefits...43 (d) Exempt benefits Other new developments...46 Meal entertainment elections in a GST group...46 Reporting benefits to foreign employees...46 ii National Tax & Accountants Association Ltd: February March 2002

3 FBT status of religious practitioners New FBT Rulings and Guidelines Benchmark interest rate for 2002 FBT year...48 Reasonable food component applying from 1 April Non-remote housing indexation factors...49 Car parking threshold of $5.79 from 1 April Taxable value for motor vehicle other than a car...50 Reimbursed car expenses...50 Record-keeping exemption arrangements threshold FBT audits in FBT non-longer FBT/GST interaction...53 Car fringe benefits the biggest cost, the biggest risk...55 Executive summary...55 When do the car fringe benefit rules apply?...55 Circumstances where car fringe benefit rules don t apply...56 Calculating the taxable value of a car fringe benefit the complete guide Statutory formula method...57 Base value calculation worksheet for 2002 FBT year Car acquired on or after 1 July Base value calculation worksheet for 2002 FBT year Car acquired before 1 July \ Base value checklist for 2002 FBT year...63 Consolidated case studies car fringe benefits provided under the Statutory formula method Operating cost (or Log book) method...81 Operating cost (Log book) method consolidated checklist for 2002 FBT year...87 Consolidated case study car fringe benefit provided under the Log book method...89 Applying the correct gross-up rate to car fringe benefits (type 1 or type 2)...92 NTAA Car Fringe Benefit Employee Kit Precedent letter to employee paying running costs...97 Precedent letter to employer with attached FBT details...99 Base value report (2002 FBT year) Statutory formula declaration (2002 FBT year) Summary car expense report (2002 FBT year) Petrol expense estimate worksheet (2002 FBT year) Petrol expense declaration (2002 FBT year) Small car expense diary (2002 FBT year) National Tax & Accountants Association Ltd: February March 2002 iii

4 Undocumentable car expense diary (2002 FBT year) Entertainment Simplifying the minefield for employers Executive summary What is entertainment? Meal entertainment Recreation Why is it important for employers to identify what is, and what is not, entertainment? FBT consequences Income tax (deduction) consequences GST (input tax credit) and FBT gross-up consequences Common circumstances where entertainment and non-entertainment occurs Reviewing the common entertainment and non-entertainment categories Light refreshments provided on business premises Business lunches Food or drink consumed by travelling employees Overnight conferences Food and drink provided at CPD seminars Corporate box facilities Gifts to employees, clients, suppliers, etc Social functions (eg, Christmas parties/similar functions) Entertainment provided by a tax-exempt body Reportable fringe benefits Introduction How do reportable fringe benefits affect employees? Which benefits are reported on 2002 income year payment summaries? How are benefits provided by FBT-exempt employers treated? Which fringe benefits are reportable? How is an employee's RFBA calculated? Tax planning and reportable fringe benefits NTAA FBT Return Preparer Reportable fringe benefits Worksheet A Car benefit under Statutory formula method Jake Worksheet B Car benefit under Statutory formula method Martha/Edwina Worksheet C FBT Return calculation worksheet Worksheet D Employer reconciliation Worksheet E Reportable fringe benefits report Worksheet F Excluded fringe benefits report Worksheet G Benefits up to $1,000 report iv National Tax & Accountants Association Ltd: February March 2002

5 Worksheet H Individual reportable fringe benefits report Jake Worksheet I Individual reportable fringe benefits report Martha Worksheet J Individual reportable fringe benefits report Edwina National Tax & Accountants Association Ltd: February March 2002 v

6 The complete guide to salary packaging under Tax Reform Executive summary When is salary packaging effective for tax purposes? Effective salary sacrifice arrangements Ineffective salary sacrifice arrangements Salary packaging bonuses Effective packaging of non-performance (discretionary) bonuses What percentage of salary can an employee salary package? Minimum award restrictions Do salary sacrifice agreements need to be on writing? Clauses that should be contained in the agreement Sample salary sacrifice agreement Benefits of salary packaging benefits Exempt fringe benefits Packaging exempt benefits and claiming depreciation Benefits of salary packaging cars A. Employees packaging cars with income below $60, B. Employees packaging cars with income more than $60, Employee contribution case study Benefits of using novated leases Employer benefits a novated car leasing arrangement Employee benefits of novated car leasing arrangements How to terminate a novated car lease arrangement Benefits of salary packaging car parking Salary packaging for employees of PBIs and not-for-profits Executive summary Packaging for public and private hospital employees Salary packaging for employees of PBIs and FBT-rebatable employers Pay-roll tax savings through salary packaging Salary packaging checklist Credit card reimbursements traps for the unwary Executive summary Why is it important to identify a reimbursement as a type 1 or type 2 benefit? Classifying reimbursements type 1 or type Type 1 reimbursements Type 2 reimbursements Simplifying credit card reimbursements vi National Tax & Accountants Association Ltd: February March 2002

7 Traps in reimbursing outstanding balance of credit card How to deal with cash advances Business travel expenses Documentation under "otherwise deductible" rule Obtaining a valid tax invoice Travel, LAFH and relocation Executive summary "Travel" versus "Living away from home" "Living away from home" versus "Relocating" Designing a salary package with LAFH or relocation benefits Concessional LAFH benefits Concessional relocation benefits LAFH and relocation benefits checklist Notes pages National Tax & Accountants Association Ltd: February March 2002 vii