BFA391 - 2018
Tutorial Eleven - Fringe Benefits Tax
Question 1
An employer is required to show on each employee’s payment summary her or his “reportable
fringe benefits amount” for the period covered by the payment summary. An employee has a
reportable fringe benefits amount if her or his individual fringe benefits amount for the
corresponding FBT year (the year ending on the previous 31 March) exceeds $2,000, Sec 135P
FBTAA. The actual amount shown on the payment summary is the grossed-up value of the
individual fringe benefits amount. This amount is non-assessable non-exempt income to the
employee but is reported on the payment summary to ensure that an employee’s liability for various
surcharges and obligations (Medicare Surcharge and HELP repayments) or entitlement to certain
tax offsets or other concessions (family tax benefit) is accurately determined.
Question 2
Under the otherwise deductible rule, the taxable value of a fringe benefit is reduced by the amount
which would have been deductible to the employee had the employee incurred an expense directly
rather than received a fringe benefit. The effect of the rule is that only the employee’s private usage
of the fringe benefit is taxed.
Question 3
a Holiday house use – the benefit is not a housing benefit under s 25 FBTAA because the holiday
house is not being used as the employee’s usual place of residence. However the benefit would
be a residual benefit under s 45 FBTAA. It satisfies both the definitions of “benefit” and “fringe
benefit” in s 136 the later extending to the provision of a benefit to an associate of the employee
– the employee’s family in this case.
b Telephone account - this is an expense payment fringe benefit under s 20 FBTAA. The payment
is made to a third party in respect of expenditure incurred by the employee. If any portion of the
home telephone account was for work related calls then the otherwise deductible rule would
come into play and that portion of the amount would not be subject to fringe benefits.
c Lump sum payment – depending upon the precise nature of the payment it would be likely to be
excluded from being a fringe benefit by one of the paragraphs (k) – (le) of the definition of
fringe benefit in s 136 FBTAA.
d Medical fund contributions - the payment will most likely be an expense payment fringe benefit
under s 20 FBTAA if the employer is paying the employee’s premium directly to the fund.
Question 4
Note: to demonstrate the calculation of FBT, the taxable values have been grossed up and tax
calculated for each item separately. In reality the taxable values would be calculated for each item
and then the total for each type would be grossed up and the fringe benefits tax worked out on the
total amount instead of individual items. This is done at the end of the question. You only have to
do it one way in the exam.
1
Salary of $75,000 is not subject to FBT. It is excluded from the definition of a fringe benefit
under s 136(1) FBTAA but it is regarded as income under s 6-5(2) ITAA97. It is ordinary
income to Larry under s 6-5 ITAA97 and he will pay tax on it on her individual tax return.
The car is a car fringe benefit under s 7 FBTAA. There are two methods for calculating car
fringe benefits, the “statutory formula” method (s 9) and the “operating costs” method (s 10).
The employer must make an election if he wishes to use the operating cost method. In this
example we have enough information to calculate statutory formula method.
0.2 x base value of car x no. of days car provided – amount of recipient payments
no. of days in tax year
20% x 34,000 x 151 – 1,000 = $1,813.15 (this answer assumes he has contributed the $1000)
365
Gross Up = $1,813.15 x 2.0802 = $3,771.71
FBT payable = 3,771.71 x 47% = $1,772.70
The subscription to the professional association is an exempt benefit under s 58Y(1) FBTAA.
Payment of the home telephone account would be an expense payment fringe benefit, s 20
FBTAA. The taxable value is the amount paid or reimbursed, s 23.
Taxable value = $1,450 – 363 (otherwise deductible rule) = 1,087
Gross Up = $1,087 x 2.0802 = $2,261.18
FBT payable = $2,261.18 x 47% = $1,062.75
The entertainment allowance of $2,000 is an allowance intended to cover an estimated expense
regardless of whether or not the recipient incurs the expected expense. An allowance is
assessable to the employee under sec 15-2 ITAA97. It is not a fringe benefit as the employer is
giving money directly to the employee to cover an expense which may eventuate – he is not
providing the benefit as such.
Allowances are included in the definition of salary and wages in sec 136(1) of FBTAA. This
definition states salary and wages include any payments in Schedule 1 TAA (1953) from which
tax must be withheld. TAA sec 12-35 reads: “An entity must withhold an amount from salary,
wages, commission, bonuses or allowances it pays to an individual as an employee (whether of
that or another entity)”. It is therefore excluded from being a fringe benefit and is assessable
income under sec 6-5 ITAA97.
The low interest housing loan is a loan fringe benefit, s 16 FBTAA. The taxable value is the
difference between the notional interest calculated on the loan for the year and the amount of
interest that has actually accrued on the loan, s 18. Notional interest is calculated by reference
to the statutory “benchmark interest rate” which is based on the standard variable rate for
owner-occupied housing loans of major banks as determined by the Reserve Bank.
Taxable value = 80,000 x (5.25% - 2%) = $2,600
Gross Up = $2,600 x 1.8868 = $4,905.68
FBT payable = $4,905.68 x 47% = $2,305.67
The trip to the England would be a residual fringe benefit, s 45 FBTAA. Overseas air travel is
GST free.
2
Taxable value = $2,750
Gross Up = $2,750 x 1.8868 = $5,188.70
FBT payable = $5,188.70 x 47% = $2,438.69
Total FBT Payable = 7,579.81
OR Gross up and calculate tax for each type of benefit:
Type 1: 1,813.15 + 1,087 = 2,900.15 x 2.0802 = 6,032.89
Type 2: 2,600 + 2,750 = 5,350 x 1.8868 = 10,094.38
6,032.89 + 10,094.38 = 16,127.27 x 47% = 7,579.82 FBT Payable
