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...1 1. Changes to the 2002 FBT Return... 1 A. Employer s Calculation Block Item 23... 1 B. Aggregate non-rebatable amount Item 17... 2 C. Reportable fringe benefits amount Item 11... 2 D. Deferred FBT instalments Item 20... 2 New FBT instalment dates for deferred BAS payers... 3 E. Due date for lodgment of 2002 FBT Return... 3 2. New gross-up rules for new vehicles purchased on or after 23 May 2001... 4 New GST input tax credit rules for the purchase of new cars... 4 How is the purchase date of the car determined?... 5 3. 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
Identifying type 1 fringe benefits 2.1292 gross-up rate...14 Identifying type 2 fringe benefits 1.9417 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...25 4. Reportable fringe benefits simplified arrangements...26 Reporting incidental recreation benefits...26 5. Latest changes on FBT exemptions...28 Removal of FBT exemption for associate superannuation contributions...28 6. 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...30 7. Expanded definition of employee under new court case FBT problems...31 Background...31 Crisis Couriers decision...31 8. 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...38 9. 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...44 10. 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
FBT status of religious practitioners...46 11. New FBT Rulings and Guidelines... 48 Benchmark interest rate for 2002 FBT year...48 Reasonable food component applying from 1 April 2001...48 Non-remote housing indexation factors...49 Car parking threshold of $5.79 from 1 April 2001...49 Taxable value for motor vehicle other than a car...50 Reimbursed car expenses...50 Record-keeping exemption arrangements threshold...51 12. FBT audits in 2002... 52 1. FBT non-longer...52 2. 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...57 1. Statutory formula method...57 Base value calculation worksheet for 2002 FBT year Car acquired on or after 1 July 2000...58 Base value calculation worksheet for 2002 FBT year Car acquired before 1 July 2000... 59\ Base value checklist for 2002 FBT year...63 Consolidated case studies car fringe benefits provided under the Statutory formula method...75 2. 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... 96 Precedent letter to employee paying running costs...97 Precedent letter to employer with attached FBT details...99 Base value report (2002 FBT year)...100 Statutory formula declaration (2002 FBT year)...101 Summary car expense report (2002 FBT year)...102 Petrol expense estimate worksheet (2002 FBT year)...103 Petrol expense declaration (2002 FBT year)...104 Small car expense diary (2002 FBT year)...105 National Tax & Accountants Association Ltd: February March 2002 iii
Undocumentable car expense diary (2002 FBT year)...106 Entertainment Simplifying the minefield for employers...107 Executive summary...107 What is entertainment?...107 1. Meal entertainment...108 2. Recreation...108 Why is it important for employers to identify what is, and what is not, entertainment?...109 1. FBT consequences...109 2. Income tax (deduction) consequences...111 3. GST (input tax credit) and FBT gross-up consequences...111 Common circumstances where entertainment and non-entertainment occurs...112 Reviewing the common entertainment and non-entertainment categories...117 1. Light refreshments provided on business premises...117 2. Business lunches...118 3. Food or drink consumed by travelling employees...118 4. Overnight conferences...121 5. Food and drink provided at CPD seminars...123 6. Corporate box facilities...124 7. Gifts to employees, clients, suppliers, etc....126 8. Social functions (eg, Christmas parties/similar functions)...129 9. Entertainment provided by a tax-exempt body...133 Reportable fringe benefits...135 Introduction...135 How do reportable fringe benefits affect employees?...135 Which benefits are reported on 2002 income year payment summaries?...136 How are benefits provided by FBT-exempt employers treated?...136 Which fringe benefits are reportable?...136 How is an employee's RFBA calculated?...137 Tax planning and reportable fringe benefits...138 NTAA FBT Return Preparer Reportable fringe benefits...140 Worksheet A Car benefit under Statutory formula method Jake...141 Worksheet B Car benefit under Statutory formula method Martha/Edwina...142 Worksheet C FBT Return calculation worksheet...143 Worksheet D Employer reconciliation...144 Worksheet E Reportable fringe benefits report...144 Worksheet F Excluded fringe benefits report...144 Worksheet G Benefits up to $1,000 report...145 iv National Tax & Accountants Association Ltd: February March 2002
Worksheet H Individual reportable fringe benefits report Jake...145 Worksheet I Individual reportable fringe benefits report Martha...146 Worksheet J Individual reportable fringe benefits report Edwina...146 National Tax & Accountants Association Ltd: February March 2002 v
The complete guide to salary packaging under Tax Reform...147 Executive summary...147 1. When is salary packaging effective for tax purposes?...148 Effective salary sacrifice arrangements...149 Ineffective salary sacrifice arrangements...149 Salary packaging bonuses...150 Effective packaging of non-performance (discretionary) bonuses...151 2. What percentage of salary can an employee salary package?...152 Minimum award restrictions...152 3. Do salary sacrifice agreements need to be on writing?...153 Clauses that should be contained in the agreement...153 Sample salary sacrifice agreement...154 4. Benefits of salary packaging benefits...155 Exempt fringe benefits...155 Packaging exempt benefits and claiming depreciation...157 5. Benefits of salary packaging cars...160 A. Employees packaging cars with income below $60,000...160 B. Employees packaging cars with income more than $60,000...166 Employee contribution case study...161 6. Benefits of using novated leases...172 Employer benefits a novated car leasing arrangement...172 Employee benefits of novated car leasing arrangements...172 How to terminate a novated car lease arrangement...173 7. Benefits of salary packaging car parking...174 8. Salary packaging for employees of PBIs and not-for-profits...176 Executive summary...176 Packaging for public and private hospital employees...177 Salary packaging for employees of PBIs and FBT-rebatable employers...178 9. Pay-roll tax savings through salary packaging...181 10. Salary packaging checklist...184 Credit card reimbursements traps for the unwary... 186 Executive summary...186 Why is it important to identify a reimbursement as a type 1 or type 2 benefit?...186 Classifying reimbursements type 1 or type 2...188 Type 1 reimbursements...189 Type 2 reimbursements...190 Simplifying credit card reimbursements...191 vi National Tax & Accountants Association Ltd: February March 2002
Traps in reimbursing outstanding balance of credit card...192 How to deal with cash advances...193 Business travel expenses...194 1. Documentation under "otherwise deductible" rule...195 2. Obtaining a valid tax invoice...209 Travel, LAFH and relocation...198 Executive summary...198 "Travel" versus "Living away from home"...198 "Living away from home" versus "Relocating"...199 Designing a salary package with LAFH or relocation benefits...200 Concessional LAFH benefits...201 Concessional relocation benefits...202 LAFH and relocation benefits checklist...203 Notes pages...210 National Tax & Accountants Association Ltd: February March 2002 vii