Welcome
FBT 2006
20 years on
TAX-EXEMPT
BODIES
Recent developments
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Dual cabs – update of exempt vehicles – full list
Apportioning entertainment between employees
and non-employees – clarification
Car benefits – effect of contribution by employee
to purchase price
Retention of electronic records –
what satisfies the ATO?
Meal Entertainment Fringe Benefit: 50/50 split
method - reimbursement of employer’s expenditure by a third party
Laptops - expense payment made earlier in
the FBT year
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Recent Developments
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Remote area housing - non-arm’s length
arrangements
Remote area housing and water – how much is
taxable?
Employee contributions -can excess contributions
be used in a later FBT year?
New interest and penalties to be applied
Employees in foreign service now subject to FBT
ATO’s view on what constitutes a LAFHA – update
3
Recent Developments
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Personal credit card payments – exempt or not?
When to use 365 days or 366 days in formulae –
surprising ATO change
Extended application of relocation concessions
ANAO audit report on the administration of FBT
Cancellation fees – FBT treatment
The provision of food and drink in dining facilities
– when exempt
Employer contributions to social clubs and benefits
provided by social clubs to members
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Recent Developments
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Payments on dwelling after employee terminates
employment
Work related counselling – what can you provide as
exempt benefit?
Charitable institutions and charitable funds – FBT
differences
Laptop and loans – one benefit or two?
Long service awards – exemption increased
Exemption for work-related tools – more laptop
accessories included
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Recent Developments
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Remote area housing – more employers entitled to
provide exemption
FBT rebate eligibility - Commonwealth, State and
Territory institutions – latest
Entertainment – employees attending a function as
a an employment duty
Relocation exemption – does it include transporting
a car?
Employee discounts from third parties – sometimes
taxable, sometimes not
6
WHAT IS A FRINGE
BENEFIT
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A ‘payment’ to an employee, but in a different form to salary or
wages.
Employer, associate, third party
Employee, associate
in respect of employment.
right, privilege, service or facility.
former or future employee.
by another person on behalf of the employer.
to another person on behalf of the employee
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Steps in calculating
FBT liability
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Step 1Work out the individual fringe benefits amount for type 1 benefits for each employee
Step 2 Sum of all the individual fringe benefits amounts worked out in step one.
Step 3 Identify the type 1excluded fringe benefits
Step 4Add the totals from step 2 and step 3. This is known as the type 1 aggregate fringe benefits
amount
Step 5 Work out the individual fringe benefits amount for each employee not included above
Step 6 Sum the individual fringe benefits amounts from 5
Step 7Add up the taxable value of those excluded fringe benefits not in 3 above
Step 8 Add up the totals from step 6 and step 7. This is known as the type 2 aggregate fringe
benefits amount
Step 9 Gross up the type 1 aggregate fringe benefits and the type 2 aggregate fringe benefits
and add them together.
Step 10 Calculate the amount of tax payable as a percentage of the fringe benefits taxable amount
8
Rebatable employers
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Certain non-government, non-profit organisations
that are eligible for a rebate of 48 per cent of the
amount of FBT that would otherwise be payable.
0.48 x (gross tax - aggregate non-rebatable
amount) x rebatable days in year / total days in
year
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Compliance issues
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Rate of tax 48.5%.
Registration As soon as you begin providing fringe benefits..
Annual return 21 May
Fringe benefits tax assessments
Payment of FBT Instalments if previous year’s FBT liability
exceeded $3 000.
Record-keeping requirements
10
Reportable fringe benefits
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Grossed-up taxable value on payment summary benefits total taxable value exceeding $1 000.
'Reportable Fringe Benefits Amount
RFBAs used in income tests for the following:
superannuation surcharge
termination payments surcharge
Medicare levy surcharge
deduction for non-employer sponsored superannuation contributions
tax offset for personal superannuation contributions
tax offset for contributions to spouse’s superannuation
HECS repayments
child-support obligations
entitlement to Family Tax Benefits, Child Care Benefit and Youth Allowance administered by Centrelink
and the Family Assistance Office.
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Car fringe benefits
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Definition
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motor cars, station wagons, panel vans and utilities
all other goods-carrying vehicles with a designed
carrying capacity of less than one tonne, and
all other passenger-carrying vehicles with a
designed carrying capacity of fewer than nine
occupants.
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Requirements for car benefit
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Car held by an employer
Made available for the private use of an employee
Taken to be made available for private use by an employee on any day that:
it is actually used for private purposes by the employee, or
the car is not at the employer's premises, and the employee is allowed to use it
for private purposes.
Garaged at an employee's home is available for the private use
Private use of a motor vehicle that is not a car may give rise to a residual fringe
benefit.
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Home to work travel
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Generally private
Exceptions :
where the home constitutes a place of employment and travel is between two places of
employment or business;
where the taxpayer's employment can be construed as having commenced before or at the time of
leaving home
where the taxpayer transports bulky equipment necessary for employment;
where the taxpayer's employment is inherently of an itinerant nature; and
where the taxpayer is required to break his or her normal journey to perform employment duties
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Itinerant Travel
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inherently itinerant;
fundamental part of the employee's work;
impractical to perform the duties without the use of a car;
employee performs duties at more than one place of
employment;
the nature of the job makes travel in the performance of
duties essential; and
travelling in the performance of the employment duties from
the time of leaving home.
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Statutory formula method
Taxable value =
(A x B x C/D) -E
A = the base value of the car
B = the statutory percentage
C= the number of days in the FBT year when the car was used or available for
private use of employees
D= the number of days in the FBT year
E = the employee contribution
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Annualised kilometres
AxC/B
A = the number of kilometres travelled in the period
during the year when the car was owned or leased
by the employer
B = the number of days in that period
C= the number of days in the FBT year
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Operating cost method
Taxable value = (A × B) - C
A = the total operating costs
B = the percentage of private use
C= the employee contribution
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Operating costs
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Actual costs and some deemed costs
GST inclusive as appropriate.
Deemed depreciation
Apportioned
Year acquired - cost of the car
Subsequent year - depreciated value
Depreciation cost limit
Car purchased before 1 July 2002:22.5%
Car purchased on or after 1 July 2002:18.75%
Deemed interest
Actual operating costs
repairs
maintenance
fuel
registration and insurance), and
leasing costs.
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Percentage of private
use
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Difference between 100 and the percentage of
business use.
Keeping of log book records and odometer records
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Exempt car fringe
benefits
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taxi, panel van, utility, other commercial vehicle
private use of such a vehicle is limited to:
travel between home and work
travel which is incidental to travel in the course of
duties of employment, and
non-work-related use that is minor, infrequent and
irregular
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Emergency vehicles
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ambulance, police or firefighting service
exterior markings
fitted with a flashing warning light and horn, bell or
alarm
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Record keeping
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Log book year
Not a logbook year
Replacement cars
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Entertainment
Introduction
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Entertainment
Meal entertainment
Categories of benefits
Tax exempt body entertainment FB
Income tax deductibility
GST credits
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Entertainment
Introduction
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Exemptions
Reduction in taxable value
50/50 split method
12 week register method
Entertainment leasing facility expense
Taxation ruling TR 97/17
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Entertainment
Categories of Benefits
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Property FB
Expense payment FB
Residual FB
Meal entertainment FB
Tax exempt body entertainment FB
Board FB
Airline transport FB
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Entertainment
Meaning
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Entertainment by way of
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Food
Drink
Recreation
Accommodation and travel iro above
Recreation includes
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Amusement
Sport
Similar leisure time pursuits
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Entertainment
Meaning
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Entertainment (32 -10 ITAA 97)
The provision of property
 Entertainment at time of provision?
 Direct connection with
entertainment?
Example
 Bottled spirits, TV sets etc.
Example
 Glasses of champagne, hot meals,
holiday accommodation etc.
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Entertainment
Meal entertainment
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Distinction between “entertainment” and
“meal entertainment” important
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Can elect to be a distinct category
~
~
~
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50/50 method of valuation
12 week register method of valuation
If no election actual value of benefit
Meal entertainment is excluded benefit
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Entertainment
Meal entertainment
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Definition of “meal entertainment”
Entertainment bwo food or drink
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Accommodation or travel iro above
Payment or reimbursement
Irrespective of:
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~
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Business discussions/ transactions
Working overtime or performance of duties
Promotion or advertising
At or connection with seminar
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Entertainment
Meal entertainment
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Provision of food or drink not always entertainment must ‘entertain’ - two interpretations
If not element of entertainment
 Category of benefit?
 No denial of income tax deduction
 Not tax exempt body entertainment FB
 Reportable FB?
Ordinary meaning of ‘entertainment’
 Agreeable occupation of mind
 Affording diversion or amusement
 Hospitable provision for wants of guest
Narrow category of cases food or drink is not
entertainment
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Entertainment
Meal entertainment
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When does provision of food and drink not entertain?
TR 97/17
Distinction between entertainment and refreshment
or sustenance - 4 x W test
 Why
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What
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Example 4 - Light lunches, morning teas or full meal?
When
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Example 3 - Social reasons or daily work reasons?
Example 5 - During work, overtime, business travel or after
hours?
Where
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Example 6 - At the office / usual place of work or
elsewhere?
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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TEBEFB
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Provider incurs non deductible exempt
entertainment expenditure
Non-deductible entertainment expenditure not
incurred for assessable income
As result of Div 32 of ITAA
TEBEFB or other benefit
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Implications of TEBFBE
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No exempt property benefits (s 41)
Limitation on minor exempt benefit (s 58P)
Taxable value – extent of expenditure
No reduction in value under otherwise
deductible rule – (property FB, expense payment
FB, residual FB, loan FB, airline transport FB)
Still have choice of 50/50 or 12 week register for
any meal entertainment
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Income tax deductibility
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s 8 ITAA general deduction
s 32 - 5 ITAA no deduction for entertainment
Exceptions to s32 - 5 other than s 32 -20
Relevant income tax exceptions
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Food & drink to employees @ in-house dining
facility ( no party, reception or like)
~
In-house dining facility
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On employer property
Mainly for food & drink to employees
Not open to public
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Relevant income tax exceptions ctd.
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Food or drink to non-employees @ in-house
dining facility ( no party, reception or like)
Food or drink to employees working in dining
facility (no party etc.)
~
Dining facility
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Canteen, dining room or like
Café, restaurant or like
On employer property
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Relevant income tax exceptions ctd.
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Food or drink to employee under industrial
instrument iro overtime
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Industrial instrument
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Recreation facility mainly for employee
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Not for accommodation
Not for dining or drinking unless
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Award or industrial agreement under Australian law
Vending machine
Assessable allowance to employee
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Relevant income tax exceptions ctd.
 Food, drink, accommodation reasonably incidental to
4 hour or longer seminar, unless
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Business meeting, other than
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Training
General policy and management issues
Main purpose to promote the business
Main purpose to provide entertainment
4 hour seminar
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Conference, convention, lecture, speech
Q & A, training, education
Ignore lunch and refreshment time, even if seminar
continues through lunch
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Relevant income tax exceptions ctd.
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Entertainment business
Entertainment part of advertising business to
general public
Food or drink for overtime under industrial
instrument
Free entertainment to public who are sick,
disabled, poor or otherwise disadvantaged
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Exempt property benefit
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To current employee iro employment
Consumed on working day
At business premises of employer
Would include provision of any food and drink
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other than for TEBEFB (eg food to employee at
in-house dining facility which is tax deductible)
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Exempt minor benefit (not TEBEFB)
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Less than $100 taxable value before gross-up
Unreasonable to treat as fringe benefit
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Infrequency and irregularity
Taxable value of other minor benefits
Difficulty in determining taxable value
Stationary for private use, Christmas gifts (MT
2042) , could include food and drinks to non
employees or entertainment other than food (ie
not covered by property exemption)
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Exempt minor benefit (TABEFB)
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Provision of entertainment to employee or ass
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Incidental to provision of ent. to outsiders; and
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Not a meal to employee or ass
To recognise special achievement of employee
Otherwise deductible rule does not apply
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Why?
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Example
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Food and drinks to employees, spouses and
others at social function
Example
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Hot lunch to employees at canteen on premises
Same to spouses
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Entertainment
Tax exempt body entertainment
FB (TEBEFB)
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Example
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Employee reimbursed for meal and wine on
business trip
Also reimbursed for meal of spouse
Example
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Employee sent to day seminar at which hot food
and wine is provided
The seminar is only 2 hours long
2 hour seminar and only snacks provided
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Entertainment
Meal entertainment election
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Can elect to treat provision of all meal
entertainment …
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under 50/50 or
12 week register methods
Applies to all meal entertainment
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Provided by employee
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Not associate
Not by third party under arrangement
Must be entertainment
To exclusion of other categories
No exemptions or reduction in taxable value
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Entertainment
50/50
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Taxable value = 50% of all meal
entertainment expense
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Provided to employees
Associates
Others
Example 11
Planning hint
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Does more than 50% of meal ent relate to staff?
Does more than 50% of meal ent relate to
others?
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Entertainment
50/50
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Entertainment facility leasing expense
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Leasing or hiring costs of
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~
~
Corporate boxes
Boats
Planes
Other facilities for purpose of providing
entertainment
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Not attributable to food and drink
Not attributable to advertising that is deductible
Can elect to use 50/50 valuation
Example 12
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Entertainment
12 week register
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Must elect the 12 week register method
Must retain a valid register
Taxable value
 Total meal entertainment expenditure x register
percentage
 Register percentage
~
Total value meal entertainment FBs in 12 weeks
Total value of meal entertainment in 12 weeks
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Entertainment
12 week register
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Requirements of a valid register
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Kept for 12 weeks
Valid for year 12 weeks end plus another 4
Register starts 1 year ends next, valid for next
plus 4
If meal entertainment expense in year > 20% of
first year, valid only for that year
Two registers in 1 year, first invalid
12 week period must be representative of first
FBT year
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Entertainment
12 week register
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Information required in register
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Date meal provided
If recipient is employee or associate
Cost of meal entertainment
Kind of meal provided
Where meal provided
If provided on employer’s premises, whether at
in-house dining facility
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Entertainment
GST credits
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To extent for a creditable purpose
No creditable acquisition if no income tax
deduction for entertainment expenditure
Credit to extent entertainment deductible
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Actual method
50/50
12 week register
TEBEFB = not deductible for income tax other
than 32-20, but may still be creditable as
result of 32-20
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Entertainment
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Comparison of valuations
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~
~
Actual
50/50
12 week register
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Other Categories
Introduction
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Property
Expense payment
Residual
Debt waiver
Loan
Car parking
Board
Remote housing
Living away from home allowance
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Other Categories
Property
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Property provided for free or at discount
Paid for my employer
Property
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Tangible – goods including gas, electricity,
animals and fish
Intangible – includes real property, chose in
action, but not contract of insurance or licence or
lease over real property or tangible
TV depends on
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In-house property FB
External property FB
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Other Categories
Property
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Property provided for free or at discount
Paid for my employer
Property
 Tangible – goods including gas, electricity, animals
and fish
 Intangible – includes real property, chose in action,
but not
~
~
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contract of insurance
licence or lease over real property or tangible
TV depends on
 In-house property FB
 External property FB
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Other Categories
Property
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In-house property FB
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Only tangible property
Provided by employer or ass
~
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Provided by 3rd party
~
~
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Identical or similar to that ordinarily sold
Acquired from employer or associate
Identical or similar to that ordinarily sold y employer
and 3rd party provider
External property FB
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Any property FB that is not an in-house prop FB
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Other Categories
Property
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Taxable Value - In-house property FB
 Goods manufactured for retail sale
~
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Goods manufactured for wholesale sale
~
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75% market value
Goods purchased for sale in business
~
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Lowest arm’s length selling price
Goods manufactured, similar but not identical to
those sold ( for example seconds)
~
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75% lowest price to public
Arm’s length purchase price
All other
~
75% of market value
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Other Categories
Property
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Taxable Value – external property FB
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Provider is employer or ass and prop purchased
at arm’s length
~
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Provider not employer or associate but incurred
the expense under arm’s length transaction
~
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Cost price
Amount of expenditure
All other
~
Amount employee could reasonably be expected to
pay
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Other Categories
Property
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Reduction in Taxable Value
 Amount of the employee’s contribution
 Amount that would be otherwise deductible
~
~
~
~
~
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Had the employee purchased
Only for one off deductions, not depreciable
Can agree that contribution relates to non-deductible portion so as
to reduce TV to nil
Require employee declaration as to what is otherwise deductible
Does not apply to associates
In-house FB reduced by $500
Exempt property benefits
 Provided to employee for consumption at work on a
working day
 Minor benefit
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Other Categories
Expense payment
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Discharge recipients obligation to 3rd party
Reimburse recipients expenditure
In-house expense payment FB
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Relates to good or services employer or
associate sells to public
External expense payment FB
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Everything other than in-house
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Other Categories
Expense payment
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Taxable value
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In-house
~
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External
~
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As per in-house property FB
Amount of expenditure
Exemptions
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“no-private use” declaration, only work expenses
In respect of accommodation
~
~
~
Recipient living away from home
Not travelling for work
Recipient declaration
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Other Categories
Expense payment
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Exemptions continued
 ‘cents per kilometre’ motor vehicle
~
~
~
Not for holiday
Not for relocation, employment interview, work medical etc
Not to former employee
Minor benefit
Reduction in taxable value
 Recipient contribution
 To expense were otherwise deductible
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~
~
~
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Only if recipient is employee
Once only deduction
An employee declaration required
$500 for in-house
63
Other Categories
Residual
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Catch-all, not falling in other benefit
categories
Usually services
In-house
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Provider is employer or associate
Similar to that provided to public
External
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Anything not in-house
64
Other Categories
Residual
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Taxable value
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In-house
~
Identical benefits
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~
No identical to public


75% of lowest arm’s length price to public
75% of lowest price employee expected to pay in arm’s
length transaction
External
~
Purchased by provider

~
Cost price
Any other case

Amount employee reasonably expected to pay in arm’s
length transaction
65
Other Categories
Residual
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Taxable value continued
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Motor vehicle other than car
~
~
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Calculated under operating cost or
Cents/kilometre
Reduction in taxable value


Recipient contribution
Otherwise deductible
~
~
~

Only employee
One-off deduction
Employee declaration
$500 for in-house
66
Other Categories
Debt waiver

Employer forgives or waives an employees
~

Not if written of as genuine bad debt
Taxable value
~
Amount of debt waived


Include interest accrued
No reduction in taxable value available
67
Other Categories
Loan

Employer makes loan to employee
~
~
~
Provided in respect of each year that an obligation to
repay exists
Benefit also arises if amount owed and payment not
enforced
Repayments not require before 6 months


Accrued interest = separate loan
Taxable value
~
Difference between actual interest and ‘notional
amount of interest’ accrued at statutory rate

Current statutory rate = 6.55%
68
Other Categories
Loan

Exempt loan
~
~
On same terms and conditions as ordinary customer
Advance for sole purpose of expenses in course of
employment duties



~
Not exceed reasonable expense
Employee to vouch for expense
Expense incurred within 6 months of advance
Advance to employee for rental bond or utilities


Repaid in 12 months
Employee in receipt of one of following:
 Expense payment iro accommodation
 Housing benefit
 Residual benefit iro accommodation
69
Other Categories
Loan

Reduction in taxable value
~
Otherwise deductible rule




Recipient an employee
Once-only deduction
Interest rate less than statutory rate
Employee declaration necessary
70
Other Categories
Car parking

Provided by employer for use of employee or ass.
~
~
Car parked at premises owned, leased or controlled
by provider
Within 1 km radius = commercial parking station


~
~
~
~
~
Charging fee for all day parking
In excess of car parking threshold (currently $5.96)
Parked > 4 hrs between 7.00am and 7.00pm
Car provided by employer or leased, owned or
controlled by employee
Provided iro employment
Parked at or near primary place of employment
Travel between work and home once a day
71
Other Categories
Car parking

Taxable value – 3 methods
~
~
~

Commercial parking station method
Market value method
Average cost method
Commercial parking station method
~
~
~
~
Lowest fee charged
By commercial parking station
Within 1 km radius
Reduced by employees payment towards cost
72
Other Categories
Car parking

Commercial parking station method ctd.
~
Employer to keep records of actual number of
benefits provided






Number spaces available
Number business days in year
Method of valuation chosen
Daily value of spaces
Number of employees parked on premises each day
Market value method
~
~
~
Valuation of space by valuer
Reduced by employee payment
Same record requirements as above
73
Other Categories
Car parking

Average cost method
~
~
~

Average of lowest fee for first and last day of FBT
year
Reduced by recipient payment
Same record keeping requirements as above
Number of benefits provided – 3 methods
~
~
~
Actual
12 week register
Statutory formula
74
Other Categories
Car parking

12 week register
~
~
Parking FBs valued for 12 weeks
Yearly value calculated

$A x 52/12 x B/365
 A = total TV over 12 weeks (any of 3 methods)
 B = number of days in period from first day
provided to employee covered by election and ends
on last day FBT year benefit proved to same
employee
75
Other Categories
Car parking

Statutory formula
~
~
~
Assumes 228 FBs arise from each space in FBT year
Reduced proportionately if number employees is less
than number of car parks
Value


~
$A x B/365 x 228
A and B = same as above
Must make election



Specify if covers all employees or
Class of employees or
Specific employees
76
Other Categories
Car parking

Exempt benefits
~
~
~
~
~
Not meet requirements for car parking FB
Expense payments that are not car parking expense
payment FBs
Disabled employees
Parking provided by various exempt employers
Small business
77
Other Categories
Car parking expense payment

Reimbursement of parking expenses
~
~
~
Parking > 7 hours
Between 7.00am and 7.pm
No requirement regarding


Availability of car parking
Lowest fee charged
78
Other Categories
Board

Provision of meal to employee or ass. where also
entitled to provision of accommodation and:
~
entitlement to 2 meals a day


~
~
~
~
Under industrial award or
Under employment arrangement ordinarily provided
Supplied by employer
Cooked or prepared on employers premises or
worksite or place adjacent
Meal supplied on employees premises
Example

meals in dining facility on remote construction site, oil
rig or ship
79
Other Categories
Board

Taxable value
~
~

$2 per meal per person
$1 per meal if person under 12
Reduction
~
~
Reduced by any recipient payment
To extent otherwise deductible
80
Other Categories
Remote housing

Housing
~
Employee provided with accommodation

~

House, flat, hotel, motel, caravan, ship, etc
Usual place of residence of employee
Taxable value
~
~
~
Market value
Reduced by recipient rent
Employee of hotel etc.


75% market rental
Reduced by recipient rent
81
Other Categories
Remote housing

Exempt
~
~
Remote housing benefit
Remote



40km from town with population 14,000 -130,000
100km from town with population > 130,000
Reduction in TV of related benefits
~
50% reduction in TV of residential fuel to recipient of:



~
Exempt remote area housing benefit
Remote area housing loan FB
Remote area housing rent FB
Remote housing loan


Loan FB iro housing loan provided iro usual place of res
Instead of remote housing would be exempt benefit
82
Other Categories
Remote housing

Reduction in TV of related benefits, ctd.
~
Remote area housing rent


~
Expense payment arises from rent iro usual residence
Instead of remote housing would be exempt benefit
50% reduction in TV remote area housing assistance


If provided as housing benefit would be exempt
Housing assistance that is not housing benefit
 Reimbursement /payment of rent
 Making housing loan
 Reimbursement/payment interest on housing loan
 Provision of land or house and land
 Reimburse/payment cost of acquiring land/house
 Payment to employee iro granting to employer
purchase option or payment iro purchase option
83
Other Categories
Living away from home
allowance

Allowance paid to employee by employer for
~
~
~
~


Additional expenses incurred
Disadvantages suffered
Because required to live away from home
To perform employment duties
Distinction between travel and living away from
home
Separately identified allowance in addition
84
Other Categories
Living away from home
allowance

Taxable value
~
Allowance reduced by


Reasonable cost of accommodation
Reasonable compensation for increased food expense,
equal to difference between
 Sum of $42 per adult in household and $21 for
every child under 12; and
 Lesser of food component of allowance or
maximum reasonable amount notified by
commissioner
85
The End
86