How to calculate fringe benefit tax

how to calculate fringe benefit tax

The Fringe Benefits Tax Calculator can be used to estimate either:

    the overall FBT liability of an employer the FBT attributable to a benefit or group of benefits provided to an individual employee.

The computations take into account the following:

    the taxable value of benefits provided to the employee the GST status of the benefits (Type 1 and Type 2)

Rebates for non-profit employers and exemptions for public benevolent institutions are not taken into account in the computations, but are explained below.

Calculating the employer's total liability

To calculate the employer's total liability, input the total taxable value of the Type 1 and Type 2 benefits provided by the employer to all employees, including both reportable fringe benefits and non-reportable ("excluded") fringe benefits. Do not "gross up" the values, as the calculator grosses-up the values for you. These taxable values are officially termed the employer's "Type 1 aggregate fringe benefits amount" and "Type 2 aggregate fringe benefits amount". (See "Taxable value of benefits (type 1 and type 2)" and "How are fringe benefits valued?" below for further assistance.)

Calculating FBT attributable to a specific employee or benefit

To calculate the FBT attributable to a specific employee or benefit, enter the taxable values of only the relevant benefits in the appropriate boxes (type 1 and/or type 2). Do not "gross up" the values, as the calculator grosses-up the values for you. (See "Taxable value of benefits (type 1 and type 2)" and "How are fringe benefits valued?" below for further assistance.)

Taxable value of benefits (type 1 and type 2)

You will need to enter the taxable value of the benefits as provided for in the FBT legislation (see "How are fringe benefits valued?" below). Do not enter the grossed-up value (called the "fringe benefits taxable amount ") which is approximately double the "taxable value". The calculator computes the grossed-up value for you.

You need to distinguish between "Type 1" and "Type 2" benefits. Type 1 benefits are benefits in respect of which the provider of the benefit is eligible to receive GST input tax credits. Type 2 benefits are benefits in respect of which the provider of the benefit is not eligible to receive GST input tax credits.

Type 2 benefits would include:

    benefits acquired before the GST took effect; benefits which are GST-free or input taxed (and therefore not eligible for GST input tax credits); benefits provided by an employer that is not registered for the GST and is therefore not eligible to receive input tax credits; or benefits which are not acquired by the employer ( eg they are created by the employer).

The gross-up factor used to calculate FBT liability is higher for Type 1 benefits, in order to offset GST input tax credits received by the benefit provider.

How are fringe benefits valued?

There are 13 categories of fringe benefits, with detailed rules for valuing each type of benefit:

    car benefits car parking benefits debt waiver benefits loan benefits expense payment benefits housing benefits living-away-from-home allowance benefits airline transport benefits board benefits entertainment benefits provided by tax-exempt bodies meal entertainment benefits property benefits not covered above residual benefits ( ie benefits not covered by any of the above).

The object of FBT essentially is to offset the tax advantage which an employee would otherwise gain from taking payment in kind rather than taxable salary, so in most cases a good starting point for a rough estimation of value is the retail market value of the benefit. However, some of the valuation rules, eg for car benefits and airline transport benefits, result in a relatively low valuation compared to retail market value. You will need to refer to published information such as the annual or mid-year CCH Australian Master Tax Guide (which is also available as a regularly updated on-line version by subscription) or Australian Taxation Office publications to determine the specific rules.

Rebates for non-profit institutions

A rebate of 48% is allowed against the FBT liabilities of specified non-profit institutions (" rebatable employers"), within the limits described below. In other words, on benefits not exceeding the limits, rebatable employers pay 48% less FBT than a general employer would pay.

Benefits provided to employees of hospitals carried on by non-profit societies and associations are exempt from FBT (rather than merely rebatable ) up to a limit of $17,000 of grossed up benefits (see Exemptions below). No rebate or exemption is provided on the excess over $17,000.

The rebatable benefits provided to non-hospital employees of non-profit societies and associations are limited to $30,000 of grossed-up benefits.

The limits are applied to each individual, not on an averaged basis. For this purpose, the grossed-up benefits attributable to each employee include the employee's share of "excluded" (non-reportable) fringe benefits, but not meal entertainment, car parking or entertainment facility leasing expenses.

To estimate the FBT for a non-hospital employee of a rebatable employer:

    calculate the FBT attributable to the employee (before rebate) using the calculator; deduct the rebate, being 48% of the tax, but not more than $6,696 ( ie 48% x $30,000 x .465).

Exemptions for public benevolent institutions and some hospitals

Fringe benefits provided to employees of public benevolent institutions ( PBIs ) are exempt from FBT up to certain limits. The exemption also extends to employees of public hospitals not connected with the Commonwealth, a State or a Territory; to employees of hospitals carried on by non-profit societies and associations; and to government employees whose duties are exclusively in or in connection with a public hospital PBI.

The exemption for hospital employees is limited to $17,000 of grossed-up benefits.

Employees of public ambulance services are also covered by this exemption.

The exemption for a non-hospital employee of a PBI is $30,000 of grossed-up benefits.

The limits are applied to each individual, not on an averaged basis. For this purpose, the grossed-up benefits attributable to each employee include the employee's share of "excluded" (non-reportable) fringe benefits, but not meal entertainment, car parking or entertainment facility leasing expenses.

To estimate the FBT for an employee of a public benevolent institution:

1. calculate the FBT attributable to the employee (before exemption) using the calculator;

2. deduct the value of the exemption, being 100% of the tax, but limited to $7,905 ( ie $17,000 x 0.465) for a public hospital employee, or $13,950 ( ie $30,000 x .465) for a non-hospital PBI employee.

Reportable fringe benefits

The grossed-up value of the fringe benefits provided to an employee and the employee’s associates must be shown on the employee’s group certificate for the income year ending on the subsequent 30 June. It is not necessary to report employee totals that do not exceed $2,000.

Reportable fringe benefits can affect the employee’s Medicare levy surcharge liability and Higher Education Contribution Scheme (HECS) repayments, as well as eligibility for income-tested rebates and government benefits.

The grossed-up value of fringe benefits is the amount the calculator displays as "Fringe Benefits Taxable Amount(s)".

Some fringe benefits, including car parking and meal entertainment benefits are not reportable fringe benefits. These are referred to as "excluded benefits".

Financial planning considerations

Employees on lower salaries

If an employee has a lower marginal tax rate than 46.5%, the FBT on a fringe benefit may be greater than the employee would incur if the benefit were purchased from after-tax salary.

However, in valuing a fringe benefit provided by an employer, any payment contributed by the employee is deducted. If an employee contributes an amount equal to the FBT taxable value of a concessionally -valued benefit such as a car, no FBT will be payable, even though the commercial value of the benefit exceeds the amount paid. This means that even employees on lower level salaries can gain from such arrangements.

Exempt benefits

Exempt employment

Fringe benefits provided to employees of public benevolent institutions are exempt from FBT, within prescribed limits. It is very tax effective to provide fringe benefits to such employees, within the prescribed limits. (See "Exemptions for public benevolent institutions" above.)

FBT rebates for non-profit employers

Because of the FBT rebate available to certain non-profit employers, it is generally tax effective to provide fringe benefits to employees of such entities. Limits have now been imposed on the annual amount of rebatable fringe benefits which an employee can receive. (See "Rebates for non-profit institutions" above.)

Aggregate fringe benefits amount. The aggregate fringe benefits amount is the total value of all fringe benefits provided by an employer for the year (before "gross-up", as described below).

FBT rate. The rate of FBT is 46.5 %   for 2008/09. However, it is applied to the "fringe benefits taxable amount " (sometimes referred to as the "grossed-up taxable value"), not the basic "taxable value ".

Fringe benefits taxable amount . The fringe benefits taxable amount attributable to a particular fringe benefit is the taxable value of the benefit grossed up to equate it to a pre-tax salary equivalent (assuming the highest marginal rate of tax, including Medicare levy).

The fringe benefits taxable amount attributable to a particular fringe benefit is:

· the taxable value times 2.0647 (rounded) for Type 1 benefits ( ie those on which GST credits are available to the provider)

· the taxable value times 1.8692 (rounded) for Type 2 benefits ( ie those on which GST has not been paid, or GST credits are not available to the provider).

GST rate. The rate of goods and services tax payable under the GST legislation, currently 10%.

Taxable value. Conceptually, the taxable value of a fringe benefit is the value of a benefit to the employee. However, there are detailed valuation rules depending on the type of benefit. Some of these rules, eg for car benefits and airline transport benefits result in a relatively low valuation compared to retail market value. The term "taxable value" is a little confusing, because the tax rate is actually applied to the "fringe benefits taxable amount ", which is approximately double the "taxable value".

This calculator and related information are for general guidance only and does not take into consideration the individual circumstances of any particular employee. For more information or specific advice, contact your Financial Adviser, Tax Accountant or Human Resources adviser.

Financial Planning, Tax Accounting and Human Resources professionals may wish to refer to the following CCH print or electronic publications:

    Australian Master Tax Guide (book published twice a year) Premium Master Tax Guide (online subscription updated quarterly) Australian Master Financial Planning Guide (annual book) FBT Compliance Guide (annual book) Fringe Benefits Tax Guide for Employers (subscription) Australian Income Tax Guide (subscription) Australian Federal Income Tax Reporter (subscription) Financial Planning Navigator (online subscription)

This calculator is made available by CCH for use subject to the following:

    the calculator (including its help file) provides general information without taking account of the particular circumstances of any individual; it is not, and should not be relied on as, a substitute for appropriate professional advice; CCH gives no assurance that the calculator is free of errors or suitable for any user’s intended purposes; to the extent permitted by law, CCH will not be liable for any damages or loss suffered by the user or anyone else from use of the calculator.

© 2008 CCH Australia Limited ABN 95 096 903 365

Source: www.cch.com.au

Category: Credit

Similar articles: