Fringe benefits tax is a tax paid on certain benefits you provide to your employees or your employees’ associates. FBT year runs from 1 April to 31 March.
What is a Fringe Benefit?
A fringe benefit is a benefit provided in respect of employment to an employee (or their associate) because they are an employee. An employee can be a current, future or former employee.
You provide a fringe benefit when you:
- Allow your employee to use a work car for private purposes.
- Have a salary package arrangement with your employees.
- Reimburse an expense incurred by your employee, such as school fees.
- Provide entertainment by way of food, drink or recreation.
- Provide employees with living away from home allowances.
Fringe Benefits less than $300 in value
A minor benefit is a benefit which has a taxable value of less than $300. This benefit is an exempt benefit.
Where you provide an employee with separate benefits that are in connection with each other (for example, a meal, a night’s accommodation and taxi travel) you need to look at each individual benefit provided to the employee to see if the taxable value of each benefit is less than $300.
Employer Contributions can reduce your FBT liability
You can reduce the amount of FBT you pay by:
- Using employee contributions – generally a cash payment by the employee to the employer or the person who provided the benefit, however, an employee can also make an employee contribution towards a car fringe benefit by paying for some of the operating costs (such as fuel) that the employer does not reimburse.
Car Fringe Benefit
To calculate a car fringe benefit, an employer must work out the taxable value of the benefit using either:
- Statutory formula method (based on the car’s cost price)
- Operating cost method (based on the costs of operating the car).
Statutory Formula Method
Use the following formula to calculate the taxable value of car fringe benefits under the statutory formula method:
Taxable value = (Base Value of Car x Statutory % x Days used for private use) = Employee Contribution
Days in FBT year
The move to one statutory rate of 20% will be phased in over four years. The statutory rate is based upon the number of kilometres travelled in an FBT year:
Total kms Statutory rate
travelled during
FBT year From 10 May 2011 From 1 Apr 2012 From 1 Apr 2013 From 1 Apr 2014
Less than 15,000 0.20 0.20 0.20 0.20
15,000 to 25,000 0.20 0.20 0.20 0.20
25,000 to 40,000 0.14 0.17 0.20 0.20
More than 40,000 0.10 0.13 0.17
Example:
An employer purchases a car for $30,000 (including GST) on 1 August 2011; however, it was only available for private use by the employee for 183 days from 1 October 2011. From 1 August 2011 to 31 March 2012 the car travelled 18,000 kilometres (the annualised kilometres for the full 2011-12 FBT year would be 27,109 (18,000/243 x 366), so the relevant statutory percentage is 14%). The employee pays fuel costs of $1,000 and provides the employer with the necessary declaration.
Taxable value = ($30,000 x 14% x 183) – $1,000 = $1,100
366
Operating Cost Method
Use the following formula to calculate the taxable value of car fringe benefits under the operating cost method:
Taxable value = (Total operating costs x % of private use) – Employee Contribution
Example:
A car purchased by an employer in January 2011 is used privately by an employee throughout the FBT year 1 April 2011 to 31 March 2012. The operating costs (including GST, as appropriate) for that period (fuel, insurance, registration, repairs and so on) total $5,000. The depreciated value at 1 April 20011 is $20,000, so that depreciation at 25% to 31 March 2012 would be $5,000 (that is, 25% of $20,000). The statutory interest rate is 9.00%, so that the interest component to 31 March 2009 would be $1,800 (that is, 9.00% of $20,000). The percentage of private use established under the procedures outlined above is 25%. The employee spent $1,000 on fuel and has provided the required declaration to the employer.
The taxable value of the car fringe benefit for the 2011-12 FBT year would be:
Taxable value = ($11,800 x 25%) – $1,000 = $1,950
Payment of home telephone and home internet services
Expense payment fringe benefits, such as telephone expenses
Expense payment fringe benefits arise when an employer reimburses an employee for an expense incurred by the employee, or when the employer pays a third party for expenses incurred by an employee.
If entities do not hold otherwise deductible declarations signed by employees, the total payment for home telephone and home internet services becomes a fringe benefit, even if part of the use was for work-related purposes. The only exception is where the entity reimburses specific work-related calls and, therefore, there is no requirement for a declaration as the benefit is an exclusive employee expense payment benefit.
Calculating taxable value of expense payment fringe benefits
The taxable value of expense payment fringe benefits is the amount of the reimbursement or payment, reduced by the component that the employee could claim as a once-only income tax deduction (the otherwise deductible component) and reduced by any contribution made by the employee. The otherwise deductible component does not relate to deductions that span several income years, such as depreciation.
When calculating the taxable value of an expense payment fringe benefit, employees can help by completing an otherwise deductible declaration prior to an expense being reimbursed or paid. This enables the taxable value of the benefit to be calculated, and the RFBA to be recorded, at the time of reimbursement rather than requiring otherwise deductible declarations to be collected at year end.