What is FBT

Anne Harvey – Group Tax Manager, Corporate Finance

Objectives

• What is FBT• What does Taxable Value mean• How is FBT calculated• Types of benefits which attract FBT• When is FBT charged• Update on LAFHA Reforms• Understand Reportable Fringe Benefits

Fringe Benefits Tax - Facts

FBT year 1 April to 31 MarchTax Rate 46.5% - Calculated on Grossed Up Taxable ValueFBT paid by employer – UNSWIncludes benefits under a salary sacrifice arrangementReportable Fringe Benefit included on Payment Summary in June, if >

$2000

FBT is tax on benefits (right, privilege, service or facility) provided to employees & associates (relative, partner/ spouse,

child) by an employer, associate of employer or under an arrangement

with a third party in respect of employment – reward for service

“Employee” includes current, former and future employees

If pay Salary PAYG deduction Employee pays taxIf provide fringe benefit no PAYG deduction Employer pays tax

FBT Calculated on Taxable Value

What is Taxable ValueDetermined by the rules applying to each category of fringe

benefitGenerally the cost of the benefitSome benefits concessional tax, e.g. Motor VehiclesSome reductions and exemptions provided in legislation

GST Impact• Taxable Value based on GST inclusive amount• FBT payable depends on whether entitlement to ITC credit • Can claim Input Tax Credit for GST paid

Important correct GST codes are used and GST amount is correct.

Type 1 Entitlement to ITC

Gross Up rate 2.0647

Taxable Value – incl GST $1000.00* Gross Up rate 2.0647Grossed up TV

$2064.70FBT rate 46.5%FBT cost $960.09

Type 2

No entitlement to ITC

Gross Up rate 1.8692

Taxable Value - no GST $1000.00

* Gross Up rate 1.8692

Grossed up TV $1869.20

FBT rate 46.5%

FBT cost $869.18

FBT Calculation

PRT = $1000 * 1.8692 * 5.45% (NSW PRT rate) = $101.87

UNSW applicable

• Car – available for private use• Expense

reimburse expense to employee pay third party for expense

incurred by employee• Property

Provide free or discounted property• Debt waiver – forgive employee’s debt• Loan - charge no or low interest • Housing - right to use accommodation

and usual place of residence• Living Away From Home Allowance• Residual – not fit a specific category• Tax-exempt body entertainment

Non UNSW

• Car Parking – at or near work and commercial parking station within 1km that charges fee for all day parking which above threshold. (Exemption for Educational Institution in legislation)

• Entertainment (Tax-exempt body entertainment applies)

• Airline transport - airline employees/ travel agents; free or discounted stand by travel

• Board – accommodation and entitlement to 2+ meals a day. Remote construction, oil rig, resident teacher at boarding school.

Types of Fringe Benefits

• Salary packaged Motor Vehicles or UNSW provided – personal use. • Medical Insurance - inpatriates• Permanent Residency – application, police & medical checks, lawyers fees

(Exempt if to enter Australia on relocation)• Gifts, awards and prizes - $300 or more• Travel for family – SSP, accompany employee on business (exclude

relocation)• VC Child care support• Furniture purchase in lieu of relocation transport/ relocation allowance• Kensington College accommodation and meals – provided to

tutors/employees• Reimburse deferred HECS/HELP fees• Write off Advance - Debt waiver• Outstanding Advance not acquitted within 6 months – Loan• Home phone/ internet – private %• Dual purpose travel – business and private• Entertainment – tax exempt body

Examples of Benefits Incurring FBT

Benefit

1. Home internet, home telephone, faxGenerally charged to 6649/6630

2. Course fees – Masters, postgraduate (not short courses)

3. Tax return preparation

4. Where would be entitled to Income Tax deduction if incurred expense

Declaration

1. FBT 12/14. Reduction for business use %

2. FBT 21. Directly related to current job and entitled to income tax deduction.

3. FBT 21. Income Tax deductible

4. FBT 21. Income tax deductible

Reduction or Exemption with Declaration

• Work related item – portable electronic device. Laptop, portable printer, mobile phone, electronic diary, PDA. Limit 1 item per FBT year – same function

• Minor benefit < $300 provided infrequently & irregularly (not for entertainment)

• Professional memberships• LSL awards $1000 for 15 yrs,

+$100 each additional year• Otherwise deductible

• Relocation transport• Relocation consultant• Temporary accommodation

on relocation (limits)• Sale/purchase new home –

relocation (conditions)• Removals and storage

household goods (within 12 months)

Reduction or Exemption within legislation

Entertainment v Sustenance

Entertainment – FBT

• Social function, farewell• Party, Christmas party• Restaurant meals• Business lunch & drinks • Celebrations, Dinners• Spouse meal of employee

travelling on business• Non travelling employee (when

dines with travelling employee)• Morning, afternoon tea, light

lunches – associates• Leisure or amusement

activities• Sporting activities, golf days• Gym membership, sporting

club memberships• Holiday• Theatre/movie ticket• Cruises

Sustenance – no FBT

• Morning and afternoon tea for employees

• Birthday cake – morning tea for employees

• Light lunches, sandwiches, finger food, salad, juice, etc for employees

• Light breakfast at training seminar – incidental to seminar

• Finger food and light refreshments (with moderate alcohol) immediately after training or CPD seminar – incidental to seminar

• Meal at seminar that goes for over 4 hours

• Meal (with alcohol) while travelling on business - employee

• Tea / coffee – employee• Overtime meal in office

Business Purpose

• Predominantly business undertaken

• Considered Incidental to business – extra day to acclimatise

• Weekends during business period, e.g. 2 week business trip

• Day to prepare/ wrap up• Make Flight connections• Due to flight availability/ delays• 1 day Stopover en route – no

extra cost• Day between business meeting

Dual Purpose

• Travel to conference then holiday• Holiday at same or different location• Book Annual Leave days in myUNSW• Family accompanies• Private portion 40% or more of total

days• Travel Allowance only for business days• Frequency of trips• No restrictions on private travel

Flight cost split 50/50 between business and private FBT on 50% private

If employee pays 50% of airfare directly to Travel Agent No benefit No FBT

Travel Benefits

Currently

• FBTAA provides concessional taxation to LAFH benefits

• LAFHA is compensation for additional expenses & disadvantages suffered due to employee being required to live away from usual place of residence in order to perform employment duties

• Required by employer to move• Temporary period – fixed term

contract• Intention to return to live at former

locality• Employee provides a LAFHA

declaration each FBT year

Tax Implications

• Employee Salary Sacrifices for Rent and F&D

• Managed by HR through Payroll• Rent – No PAYG, No FBT • F&D – No PAYG, No FBT on exempt

statutory amount (i.e. >$42pw per adult up to ATO rate)

• No Payroll Tax - Exempt Fringe Benefit

• LAFHA not subject to SGC• No Workers Compensation -

Exempt Fringe Benefit

Living Away From Home

Living Away From Home Reforms Background

• 2010 - ATO started to take stricter view on LAFHA in Private Rulings issued• Mid 2011 – ATO sent review letters to some organisations requesting information • Mid 2011 – ATO audit letters• 29 November 2011 – Treasury released Consultation paper on proposed LAFHA

reforms• 3 February 2012 – Submissions due on Consultation paper• UNSW as part of Go8 made submission to Treasury outlining significant impacts of

reforms• Large number of Accounting bodies and other organisations also made submissions• Late 2011 – HR advised Faculties to be aware of changes in recruitment discussions• February 2012 – HR arranged for PwC to provide information session to LAFHA

recipients• 8 May 2012 – in Federal Budget further details released on proposed reforms –

expected start date 1 July 2012• Exposure Draft and Explanatory Materials released• 28 June 2012 – Bill introduced to winter sitting of Parliament• Bill not yet been passed – new start date 1 October 2012

Living Away From Home Reforms

• Treat LAFHA as part of employee’s assessable income

• Allow an Income Tax deduction to employees eligible for LAFHA For reasonable expenses

incurred and substantiated for accommodation

For food beyond statutory amount. If exceed specified amount, substantiate full expense

Maximum period of 12 months

Retain written evidence for 5 years

Eligibility

• Required by employer to live away from Australian residence

• Maintain a home in Australia• Ownership interest in home• Home which living away from

must be available for their personal use and enjoyment at all times

• Cannot be rented out or sublet• Expectation to return to live at

former residence

Living Away from Home Proposed Reforms

Who impacted

• Fixed term employees from Overseas - no longer eligible for LAFHA from 1 Oct 2012

• Domestic employees on LAFHA if change to contract

• Visiting Academics Living Allowance – from 1 Oct 2012 no longer exempt from FBT as not living away from Australian residence

• SSP – accommodation or living expense paid/reimbursed – from 1 Oct 2012 only exempt if satisfy proposed LAFHA rules

Tax Implications

• Employee - Overseas employee now taxable salary from 1 October 2012

• Employer Additional Payroll Tax - no longer

LAFHA Additional Workers Compensation Additional SGC

• Employer subject to FBT on LAFHA benefits provided to employees not eligible to claim income tax deduction

• Employer subject to FBT on F&D for employees eligible for LAFHA on first $42 per week per adult, $21pw per child

Living Away From Home Reforms

If expenses charged to the GL account, FBT will be accrued at month end

Accrued FBT v Actual FBT

V

Reportable Fringe Benefits

• Reportable Benefits Motor Vehicles LAFHA Expense Benefit Property Benefit Residual Benefit Housing Loans Debt waiver Recreational entertainment

• Non Reportable Benefits

F&D Entertainment Hire/Lease entertainment

facility (i.e. corporate use/ exclusive use facility)

Car Parking

Employee Receives More Than $2000 in RFB in year include Grossed Up value of benefits on Payment Summary at June

Employer

RFB Grossed Up using lower gross up rate 1.8692

Example: 4 family airfares @ $1500 = $6000TV (no GST) $6000FBT $6000*1.8692*46.5% = $5215

RFB $6000*1.8692 $11215

Employee• Not included in assessable

income • Included for rebate and

surcharge calculations• Medicare levy surcharge• Super co-contributions• Child support obligations• HELP repayments• Dependent tax offsets• Income tested government

benefits

Reportable Fringe Benefit – Payment Summary

Questions

Further Information

Finance website: http://www.fin.unsw.edu.au/PoliciesProcedures/AccountingManual/FBT.html

Contact: Anne Harvey - Ext 51635. Email: a.harvey@unsw.edu.au

Eric McCallum – Ext 52825, Lucy Lowe – Ext 51204