Office of FINANCIAL SERVICES
Overview of Fringe Benefits Tax
This topic includes:
- What is fringe benefits tax?
- Definition of an employee for FBT purposes
- What is a fringe benefit?
- How is FBT paid?
- How is FBT calculated?
- Categories of fringe benefits
- How we apportion FBT
- Reportable fringe benefits
What is fringe benefits tax?
Fringe benefits tax (FBT) is a Commonwealth tax levied on non-salary type benefits provided by employers to employees. FBT is paid by the employer not the employee.
The rate of FBT may vary from year to year. For the year that commenced 1st April 2001, the FBT rate is 48.5%.
Definition of an employee for FBT purposes
For FBT purposes, employees are defined as current, future or former employees as well as their personal associates (for example, spouse and children).
What is a fringe benefit?
A fringe benefit is broadly non-cash remuneration. It is essentially a benefit provided to an employee by an employer or an associate of the employer in respect of that employment.
How is FBT paid?
FBT is based on a self-assessment system and has a tax year from 1 April to 31 March. For Macquarie University the tax is payable in quarterly instalments. The instalments paid are based on the amount assessed in the previous tax year. Adjustment against the actual liability is made in the last quarter of the tax year.
How is FBT calculated?
The FBT rate is equal to the top marginal rate plus Medicare levy.
For example, the FBT tax rate for 01/02 is 48.5%.
In April 1994, the grossing-up method was introduced. Under this method, the FBT payable on a benefit is based on the tax-inclusive value of the fringe benefit.
The tax-inclusive value is defined as the net value of the fringe benefit plus the FBT payable on that amount.
The formula used to calculate the tax-inclusive value is:
Tax inclusive value = Net value x Type 1 or Type 2 Gross-up factor
For example, if an employer provided a fringe benefit of $100 to an employee for 01/02 tax year, the tax-inclusive value is calculated as follows:
|Tax-inclusive value||=Net value x Gross-up factor|
|= $100 x 1.9417 (assuming Type 2 Gross-up factor)|
The formula used to calculate fringe benefits is: FBT payable = Tax-inclusive value x FBT rate
Continuing the example above:
|FBT payable||= Tax-inclusive value x FBT rate|
|= $194.17 x 0.485|
Thus the FBT payable by the University on the $100 benefit to the employee is $94.20 and therefore the effective FBT rate is 94.2%.
With the introduction of Goods & Services Tax (GST) from 1st July 2000 , there are two Gross-up factors to be used depending on whether employers can claim input tax credits (ITC) for their payments.
Type 1 Gross-up factor (2.1292) is to be used for situations where employers can claim ITCs. Type 2 Gross-up factor (1.9417) will be used for situations where employers cannot claim ITCs and where the acquisitions are inputed taxed (e.g. housing benefit).
Categories of fringe benefits
The Australian Taxation Office defines various categories of fringe benefits. Macquarie University normally provides only five categories of fringe benefits to its employees. They are:
- Motor vehicles fringe benefits
- Accommodation fringe benefits
- Expenses payment fringe benefits and
- Entertainment fringe benefits.
- Residual benefits
How we apportion FBT
When Macquarie University pays FBT, the Office of Financial Services charges it to the account that funded the original expenditure. On a quarterly basis, the Financial Accounting section raises a General Journal to charge FBT to various accounts from information collected.
Reportable Fringe Benefits
From 1st April 1999, employers subject to FBT are required to record the grossed up taxable value fo fringe benefits on the payment summary of any employee who receives relevant benefits with a total taxable value exceeding $1,000. The grossed up taxable value of reportable fringe benefit is 1.9417 irrespective of Type 1 or Type 2 benefit.
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