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OUTLINE OF FRINGE BENEFITS TAX Fringe benefits tax (''FBT'' ) is a tax payable by employers on the value of certain fringe benefits that have been provided to their employees or to associates of those employees. What follows is an outline of the main features of the tax, with references to where each point is discussed. The principal Act dealing with FBT is the Fringe Benefits Tax Assessment Act 1986 (the FBTAA). Section references in this chapter are references to sections of that Act unless otherwise indicated. · Fringe benefit.A fringe benefit is a benefit which is provided to an employee or an associate of an employee, in respect of the employee's employment, by the employee's employer, by an associate of the employer, or by a third party under an arrangement with the employer or an associate of the employer. A ''benefit '' is widely defined to include any right (including any property right), privilege, service or facility. · Taxable value of fringe benefits.The legislation specifies how the taxable value of specific types of fringe benefit is to be determined. The specific benefits are listed at. Benefits not covered by any of the specific rules will be valued either as property benefits or residual benefits (mainly covering services). The valuation rules for property and residual benefits vary, depending on whether the property or service is of a type that the employer normally provides to the public in the ordinary course of business. The FBT payable by an employer is calculated under the gross-up rules by applying the FBT rate of tax to the ''fringe benefits taxable amount'' , ie to the sum of the ''taxable values'' of all fringe benefits for a year of tax increased by a figure based on the applicable FBT rate. For the year commencing 1 April 1998, the sum of the ''taxable values'' is increased by 94.17% (sec 136 ; 136AA ). To ensure similarity in the tax treatment of fringe benefits and salaries, most employers also qualify for an offsetting tax deduction under ITAA97 sec 8-1 for the amount of FBT incurred. · Payable by employer.The tax is payable by an employer, where any employee or an ''associate'' of any employee of the employer has received a benefit that is a fringe benefit:. · Annual tax.Fringe benefits tax is treated as an annual tax. Employers are required to declare the total taxable value of relevant fringe benefits provided to their employees and to associates of their employees, in respect of their employment, during each FBT year and to pay tax on that value. · Fringe benefits tax year.Each FBT year runs from 1 April to the following 31 March. · Self-assessment.Where employees, or associates of employees, of an employer have been provided with fringe benefits during an FBT year, the employer must furnish an annual return by 28 April after the end of the year showing the taxable value of those benefits, and must pay tax on that amount by that date. The system is one of self-assessment by employers, with substantial penalties for underpayment. · Objection and appeal.Employers have rights of objection and appeal against FBT assessments, similar to the rights of objection and appeal against income tax assessments. · Public and private rulings.A system of binding public rulings and binding private rulings applies to FBT taxpayers (sec 74A to 74F ). The same system applies to income tax taxpayers. · Tax instalments.Employers must pay three quarterly FBT instalments in anticipation of each year's liability, akin to provisional tax instalments under the income tax system. · Rate of tax.The rate of FBT for the year beginning 1 April 1998 is 48.5%. · Rebate of tax.FBT is payable on the taxable value of benefits increased by a figure based on the applicable FBT rate (ie by 94.17% for the year commencing 1 April 1998) (sec 136 ; 136AA ) and an offsetting income tax deduction is allowable for FBT incurred. To ensure that certain non-profit employers unable to claim an income tax deduction for FBT are not disadvantaged, a rebate at the rate of 48% is available (sec 65J ). · Income tax position.A benefit which is taxable under the FBTAA (or specifically exempted under that Act, except for certain car expense payment benefits) is free from income tax. The scheme of ITAA97 and the FBTAA is that monetary remuneration, including most allowances, is subject to income tax in the employee's hands, and that non-cash benefits (and certain living-away-from-home allowances) are subject to FBT, which is payable by the employer, and are not subject to income tax (see, for example, Dean 97 ATC 4762 ). As stated above, an employer can claim an income tax deduction for FBT incurred. Further, an employer is assessable to income tax on amounts of FBT reimbursed or amounts received to reduce the taxable value of fringe benefits provided. In Taxation Ruling TR 95/24 , the Commissioner discusses when FBT is deductible for income tax purposes. On the basis of that ruling, for the income tax year ending 30 June 1999, most employers can deduct under ITAA97 sec 8-1 : · their actual FBT liability for the FBT year ending 31 March 1999,· less the FBT instalment referable to the June 1998 FBT quarter,· plus the FBT instalment referable to the June 1999 FBT quarter.As FBT is not an income tax, it is payable by employers such as overseas airline companies on benefits provided to employees who exercise their employment in Australia, and it is not subject to double taxation agreements or airline profits agreements (Taxation Determination TD 93/67 ).
Exposure Draft No 12, issued by the TLIP, proposes to introduce new ITAA97 Div 71, providing comprehensive income tax treatment for non-cash benefits, including fringe benefits (ITAA97 proposed sec 71-70; sec 76-5). FRINGE BENEFITS TAX YEAR Fringe benefits tax is assessed on an annual basis. The FBT year runs from 1 April to 31 March. References to a ''year'' in relation to FBT mean a year ending on 31 March. RATE OF FRINGE BENEFITS TAX FBT is calculated on the total taxable value of fringe benefits provided by or in respect of the employer concerned during the relevant year (the aggregate fringe benefits amount). However, it is proposed that from 1 April 1998, certain employers exempted from the record-keeping requirements will be able to calculate the FBT payable based on the aggregate fringe benefits amount of an earlier year. The rate of tax is 48.5% for the year commencing 1 April 1998. It should be noted that FBT is calculated under the gross-up rules. GROSS-UP RULES Under the gross-up rules (sec 136AA ), the aggregate fringe benefits amount is increased by: 1 -------------- (1 - FBT rate) Based on the FBT rate applicable for the year ending 31 March 1999 (ie 48.5%), the gross-up rules effectively increase the amount against which the rate of FBT is applied for that year by 94.17%. This is the called the ''fringe benefits taxable amount'' (sec 136AA ). The gross-up rules were introduced to restore similarity in the tax treatment between the provision of salary/wage income and fringe benefits to employees. So that employers are not subject to an increased tax liability under the gross-up rules, an income tax deduction is allowed to employers for the amount of FBT paid. Certain tax-exempt employers, who are unable to claim an income tax deduction for payments of FBT, are able to claim a rebate instead (sec 65J ). 30 ANNUAL RETURNS AND ASSESSMENTS Fringe benefits tax is collected by a self-assessment system. By 28 April each year an employer is required to: · obtain declarations and make elections (Taxation Determination TD 92/199 );· calculate the taxable value of each fringe benefit provided during the preceding year to 31 March;· calculate the FBT payable on the ''fringe benefits taxable amount'' (ie on the total taxable values of all such fringe benefits);· lodge an annual FBT return (unless the taxable amount of fringe benefits is nil ¾ sec 68 ) and pay any tax due or obtain a refund.To complete the return form, the employer must show the different categories of benefits provided, their taxable values and the amount of tax. Return forms are available from the ATO. Special provision is made for the electronic lodgment of FBT returns, notices and applications for amendments. Such documents must bear the electronic signature of the taxpayer (if lodged by the taxpayer) or the tax agent (if lodged by the agent). Before the document is lodged through an agent (using his/her own facilities or someone else's facilities), the taxpayer is required to make a declaration authorising the electronic transmission of the document (sec 70A ). Such a declaration must be kept by the taxpayer for five years (sec 70B ). The original or a copy of the notice of assessment (sec 70D ) must be provided by the agent to the taxpayer. The lodging of a return gives rise to a deemed assessment of the employer's liability for FBT (sec 72 ). That assessment is deemed to have been made by the Commissioner and served on the employer at the time when the return is furnished. If a return is not lodged, the Commissioner can make a formal assessment of the taxable amount and the amount of tax for which, in the Commissioner's opinion, the employer would have been liable (sec 73 ). Alternatively, the Commissioner can require any person to lodge a return for a particular year (sec 69 ). An assessment may be amended where the employer requests an adjustment, or where an audit or subsequent check by the Commissioner reveals undisclosed or undervalued benefits (sec 74 ). From 1 April 1998, requests for amendment may be made either in writing or electronically in the manner prescribed by the Commissioner and must contain the prescribed information. Any amendment may be made within three years of the lodgment of a return. Where there has not been full and true disclosure and there has been an avoidance of tax, the assessment may be amended within six years of the lodgment of the return. Where, in the Commissioner's opinion, there has been tax fraud or evasion, an amendment may be made at any time. For the 1998/99 year, the following lodgment arrangements for tax agents apply: (a) returns with a notional tax of $3,000 or more are to be lodged by 28 April 1999 (or alternatively, one-quarter of notional tax should be paid by 28 April and the return lodged by 28 May); and (b) returns with a notional tax of less than $3,000 should be lodged by 28 May 1999. Returns lodged outside these arrangements are subject to penalties from 28 April. PROCEDURAL POINTS A tax agent preparing a return must sign an agent's certificate setting out the sources of information available for the completion of the return (sec 71 ). If the return is lodged electronically by the agent, the agent must provide the certificate on the return or application for amendment using an electronic signature. If the return is lodged electronically by another person on the agent's behalf, the agent's certificate must be endorsed on the taxpayer's declaration authorising the electronic lodgment. A single return must be lodged for each employer, so that an employer with decentralised operations cannot divide its FBT responsibilities among different branches. The FBT tax file number is the same as the employer's TFN for income tax purposes. Employers exempt from income tax are allocated a file number. PAYMENT OF TAX Fringe benefits tax is paid by three quarterly instalments during each year, with a balancing payment or refund after the end of the year. Instalments are due on 28 July, 28 October and 28 January for the quarters ending on 30 June, 30 September and 31 December. If a balance is payable, this (along with the annual return) is due by 28 April for the year ending the preceding 31 March. Each instalment will generally be one-quarter of the previous year's total FBT liability. Instalments do not have to be paid by employers whose FBT liability in the previous year was less than $3,000. Such employers need only pay on an annual basis. An employer may vary instalments based on an estimated liability for FBT for the year. There are penalties where the estimate and consequent instalments are too low. REPORTING OF BENEFITS ON GROUP CERTIFICATES The A New Tax System (Fringe Benefits Reporting) Act 1999 and the A New Tax System (Medicare Levy Surcharge- Fringe Benefits) Act 1999 require employers, from the 1999/2000 FBT year, to record on group certificates the grossed-up taxable value of certain fringe benefits, where the value of the benefits provided to an employee exceeds $1,000. The value of the benefits (''reportable fringe benefits amount'' ) will be included in the income tests used to determine a taxpayer's entitlement to income-tested tax concessions and liability to income-tested surcharges for the 1999/2000 and later income years. These include the Medicare levy and Medicare levy surcharge, the superannuation contributions surcharge, concessions for personal and spouse superannuation contributions and higher education contributions scheme (HECS) debt repayments. Car parking fringe benefits and meal entertainment fringe benefits will be excluded from the reporting requirements (''excluded fringe benefits'' ). Determining employee's share Currently, an employer's FBT liability is calculated on the total taxable value of fringe benefits provided by, or in respect of, the employer during the year (''aggregate fringe benefits amount'' ) Generally, the proposed measures will require employers to determine the taxable value of all fringe benefits, other than excluded benefits, provided to each employee (''individual fringe benefits amount'' ). Where one fringe benefit is provided for two or more employees, the employer must exercise discretion and allocate the taxable value that reasonably reflects the amount of benefit received by each employee. Special rules apply to remote area housing schemes. Reportable fringe benefits amount Where the individual fringe benefits amount for an employee exceeds $1,000 for the FBT year ending 31 March, that amount, after being grossed-upwill be the reportable fringe benefits amount to be included by the employer in the employee's group certificate for that income year ending 30 June. Where an employee has more than one employer, there may be more than one reportable fringe benefits amount. |
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