Fringe Benefits Tax...Chapter 6: Fringe Benefits Tax 81 Chapter 6: Fringe Benefits Tax Notes re calculations: -As per the FBT return form, Grossed up and Taxable amounts are presented

Chapter 6: Fringe Benefits Tax

81

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 $3,000.35 and $3,000.88 both become $3,000.

- 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.

6. 46.5%

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.

Solutions

82

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 2.0647. 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 1.8692.

10. Statutory Formula Method Operating Cost Method

ABC - E C x (100% - BP) - R

D

A = 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.

B = Statutory rate based on total kilometres travelled in the tax year

(see table below).

C = Number of days available for private use by the employee in the

tax year.

D = Number of days in the FBT year (usually 365 but 366 in leap

years).

E = 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 31st March 2011.


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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

Solutions

84

18. 4 Name of employee: Edge Auto Pty Ltd 5 Postal address: P.O. Box 356 Carlton Vic 3053 10 No of employees receiving benefits: 12 12 Do you expect to lodge an FBT return: Yes

13 Type 1 2,495 x 2.0647 $ 5,151 Type 2 25,998 x 1.8692 $48,595 Type C $0

14 Fringe Benefits Taxable Amount $53,746.00

15 Amount of tax payable $24,991.89 18 Sub-total $24,991.89 19 Less Instalment Amount $24,000 20 Payment due $991.89 22 Car using the statutory formula A 5 1,163 9,367 Car using the operating cost B 2 261 2,495 Loans granted C 1 980 Expense payments E 3,000 15,650


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19.

TRUE

FALSE

a. The taxable value of a fringe benefit may be increased by the otherwise deductible rule.

F

b. The final Fringe Benefits Tax payment should be paid by 21 June.

F

c. Fringe benefits received by employees are included on their payment summary.

T

d. Prior to providing a motor vehicle benefit an employer must elect which method to use.

F

e. A type 1 benefit is where GST is included in the employer's costs of providing a fringe benefit

T

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.

F

h. Fringe benefits are included as assessable income for the employee.

F

i. A cash entertainment allowance is classified as a fringe benefit.

F

j. Fringe benefits tax is self assessed by the employer. T

Solutions

86

20.

Grossed up value (Type 1) = $12,000 x 2.0647 = $24,776

Grossed up value (Type 2) = $7,000 x 1.8692 = $ 13,084

Total grossed up value = $37,860

FBT liability = $37,860 x 46.5% = $17,604.90

21. 14,000 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 365 - 1250 = $1,900.00

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

(1,560 + 420 + 680 + 400 + 590 + 1,200 + 14,242) x (100% - [35/80 x 100] - 1,250

= (19,092 x 56%) - $1,250

= $9,441 Private use % rounded down to 56%


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24. Taxable amount = $15,000x(6.65%- 3.5%) = $472

Grossed up value = $472 x 1.8692 = $882

FBT payable = $882 x 46.5% = $410.13 25.

2009 2010 2011

28 July $5,000 $5,500 $7,500

28 October 5,000 5,500 7,500

28 February 5,000 5,500 7,500

28 April 7,000 13,500 3,500

21 May 2,000 8,000 (4,000)

22,000 30,000 26,000

Solutions

88

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 365 - 965 = $2,258

D 365

Using operating cost WDV at 1.4.10 = $16,938 Depreciation = $16,938 x 0.25 = $4,234 Deemed interest = $16,938 x 0.0665 = $1,126

$5,360

C x (100% - BP) - R

(1600 + 120 + 1890 + 580 + 1200 + 5,360 ) x (100% - [12650/28000 x 100] - 965

= (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 274 - 0 = $1,708

D 365

Using operating cost

Lease charges = $4,500

C x (100% - BP) - R

= (1100 + 60 + 1240 + 580 + 4,500) 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.


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27. 4 Name of employee: JR Concrete Pty Ltd 5 Postal address: 196 Appin St. Samsony WA 6163 10 No of employees receiving benefits: 10 12 Do you expect to lodge an FBT return: Yes

13 Type 1 12,025 x 2.0647 $24,828 Type 2 28,712 x 1.8692 $53,668 Type C $0


15 Amount of tax payable $36,500.64 18 Sub-total $36,500.64 19 Less Instalment Amount $19,500 20 Payment due $17,000.64 22 Car using the statutory formula A 2 1,860 7,482 Car using the operating cost B 2 680 3,825 Loans granted C 1 1,580 Expense payments E 15,650 Car Parking 8,200 Debt Waiver 4,000

Solutions

90

28. 4 Name of employee: ATT Communications Pty Ltd 5 Postal address: 11 Thompson Ave. Adelaide SA 6163 10 No of employees receiving benefits: 11 12 Do you expect to lodge an FBT return: Yes

13 Type 1 26,540 x 2.0647 $54,797 Type 2 52,810 x 1.8692 $98,712 Type C $0


15 Amount of tax payable $71,381.69 18 Sub-total $71,381.69 19 Less Instalment Amount $36,000 20 Payment due $35,381.69 22 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


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29. Solution: Operating Cost Method

Jason Bright

1. C x (100% - BP) - R

C = Actual costs ( 420 + 1,050 + 210 + 2,800 + 320 )

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 15th March 2008 thus 25%.

2. 5,159 x 2.0647 = $10,651

3. FBT = 10,651 x .465 = $4,952.71

Solution: Statutory Formula Method

1. ABC – E

D

= 46,000 x 0.07 x 365 - 0

365

= $3,220

2. 3,220 x 2.0647 = $6,648

3. FBT = 6,648 x .465 = $3,091.32

Solutions

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Solution: Operating Cost Method

Mark Skaife ( Lease )

C x (100% - BP) - R

C = Actual costs ( 6,800 + 460 + 1,630 + 600 + 1,200 + 180 ) = 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 2.0647 = $13,738 Grossed up value

3. FBT = 13,738 x .465 = $6,388.17


1. ABC – E

D

= 62,000 x 0.11 x 335 - 520 ( Annualised kilometres = 26,149 )

365

= $5,739

2. 5,739 x 2.0647

$11,849

3. FBT = 11,849 x .465

$5,509.78


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Craig Lowndes

1. C x (100% - BP) - R

C = Actual costs ( 420 + 760 + 280 + 2,500 + 680 )

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 2.0647 = $10,494

3. FBT = 10,494 x .465 = $4,879.71


1. ABC – E

D

= 31,000 x 0.11 x 365 - 810

365

= $2,600

2. 2,600 x 2.0647 = $5,368

3. FBT = 5,368 x .465 = $2,496.12

Solutions

94


Larry Perkins ( Lease )

C x (100% - BP) - R

C = Actual costs ( 5,200 + 460 + 1,280 + 420 + 1,580 + 800 ) = 9,740

( Lease costs: $5,200)

9,740 x ( 100% - ((21,000/29,000 x 100 ))

= 9,740 x 27%

= $2,629


2. 2,629 X 2.0647 = $5,428

3. FBT = 5,428 x .465 = $2,524.02


1. ABC – E

D

= 54,000 x 0.07 x 182

365

=

Annualised Kilometres = 29,000 x 365/182 = 58,159 km, therefore

statutory rate = .07

$1,884

2. 1,884 x 2.0647

$3,889

3. FBT = 3,889 x .465

$1,808.38


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Solution: Operating Cost Method John Bowe ( Lease )

C x (100% - BP) - R

C = Actual costs ( 5,700 + 460 + 1,100 + 520 + 2,150 + 440 ) = 10,370

( Lease costs $5,700 )

10,370x ( 100% - ((16,000/33,000 x 100 )) – 1240

= ( 10,370 x 51% ) -1,240

= $4,048


2. 4,048 X 2.0647 = $8,357

3. FBT = 8,357 x .465 = $3,886


1. ABC – E

D

= 58,000 x 0.11 x 356 - 1240

365

= $4,982

2. 4,982 x 2.0647

$10,286

3. FBT = 10,286 x .465

$4,782.99

Solutions

96


Mark Webber

1. C x (100% - BP) - R

C = Actual costs ( 420 + 820 + 330 + 1,750 + 1,050 )

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 1st July 2009 thus 25%.

2. 2,003 x 2.0647 = $4,135

3. FBT = 4,135 x .465 = $1,922.77


1. ABC – E

D

= 38,000 x 0.11 x 274 - 180

365

= $2,957

2. 2,957 x 2.0647 = $6,105

3. FBT = 6,105 x .465 = $2,838.82

Recommendations:

Driver Most Tax Efficient Method Bright Statutory Formula Method Skaife Statutory Formula Method

Lowndes Statutory Formula Method Perkins Statutory Formula Method Bowe Operating Cost Method

Webber Operating Cost Method


97

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 3rd 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.

Solutions

98

4.

Type 1 Benefits $ $

Car benefit - Saab Turbo 3,800 x 2.0647 7,845

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 1.8692 51,066 58,911 X 46.5%

Fringe Benefits Tax Payable $27,393.61

5.

Type 1 Benefits $ $

Car benefit – Holden Commodore 7,200

GST inclusive Food 3,800

Expense payment – holiday 4,300

15,300 x 2.0647 31,589

Type 2 Benefits Slushee Drinks Dispenser 1,400 GST Free Food 2,900

4,300 x 1.8692 8,037 39,626 X 46.5%


6.

Type 1 Benefits $ $

Packaged Liquor 7,200

Car benefit – Ford Focus 6,300

Expense payment – private travel 3,800

17,300 x 2.0647 35,719

Type 2 Benefits

Expense benefit – parking fines 4,300 Residual benefit – poster 5,000

9,300 x 1.8692 17,383 53,102 x 46.5%



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7. Value of Benefit = $33,000 x 11% = $3,630

8. Annualised kms = 9,500 x 365/182 = 19,052km

Statutory Fraction = 20%

Value of Benefit = ($21,000 x 20% x 182/365 ) - $900 = $1,194

9. 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 (3,100 + 2,900) 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

Solutions

100

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 2.0647 = 2,568 Type 2 Benefits Lexus – Operating Cost Method 6,972 x 1.8692 = 13,032 15,600 x 46.5% Fringe Benefits Tax Payable $ 7,254.00

* The Lexus is a type 2 benefit as it was purchased pre GST.


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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% - 71.16% = 28% (Rounded down)

Operating Costs Running costs (4,100 + 1,150) 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% - 49.61% = 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%) = $ 1,460

Solutions

102

15. Value of Benefit Primary Loan: 15,000 x6.65% = $ 997

16. 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) = $2,674


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( a ) Type 1 benefits Commodore – Operating Cost 1,319 Weekend Trip 1,500 2,819 x 2.0647 $5,820 Type 2 benefits Loan benefit 750 Falcon – Statutory Formula 1,120

1,870 x 1.8692 $3,495 9,315

x 46.5% FBT Payable $4,331.47

( b ) $4,331.47 - $4,000 = $ 331.47 payable to ATO

Solutions

104

18. Yacht Club Membership $3,200 Renault – Statutory Formula (60,000 x 7% x 274/365) – 2,800 = $ 352

Renault – Operating Costs

Running Costs (2,800 + 3,100) = 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 92/365 335 $1,335 Type 1 Benefits Renault 352 Yacht Club 3,200 Train ticket 1,000 4,552 x 2.0647 9,398 Type 2 Benefits Medical Bills 2,500 Loan Benefit 1,335

3,835 x 1.8692 7,168 16,566 x 46.5% FBT Payable $7,703.19


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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 92/365 670 35,000 x 6.65% x 58/365 369 $1,039 Type 1 Benefits Gym 2,200 Concert tickets 380 2,580 x 2.0647 5,326 Type 2 Benefits School Fees 9,000 Loan Benefit 1,039

10,039 x 1.8692 18,764 24,090 x 46.5% FBT Payable $11,201.85

Solutions

106

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

= ( 31+ 30 + 31 + 31 +28 + 31 ) – 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 3,600 + 1,800 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 16.50 x 3/3 ) = $11,286


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Type 1 Benefits

Hyundai 1,673

Toyota 1,626

Movie Tickets 1,440

Holiday 12,000

Car Parking 11,286

28,025 x 2.0647 57,863

Type 2 Benefits

Loan 558 x 1.8692 1,043

58,906

x 46.5%

FBT payable $27,391.29

Less Instalments paid 9,100.00

FBT Due $18,291.29

Documents

Fringe Benefits Tax...Chapter 6: Fringe Benefits Tax 81 Chapter 6: Fringe Benefits Tax Notes re calculations: -As per the FBT return form, Grossed up and Taxable amounts are presented