Fringe benefits tax - a guide for employers

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Chapter 2 - Calculating fringe benefits tax

Remember, a fringe benefit may be provided by another person on behalf of an employer. It may also be provided to an associate of an employee (for example, a relative).

We do not usually notify you (the employer) of how much fringe benefits tax (FBT) you have to pay. Rather, you self-assess your FBT payable. For more on FBT assessments, refer to section   3.3 of How fringe benefits tax works.

2.1 FBT year

The FBT year is the 12   months beginning 1   April and ending 31   March .

2.2 Rate of tax

The rate of FBT may vary from year to year but we will advise you of the rate each year. Currently, the FBT rate is 46.5%.

Prior to the FBT year commencing 1 April 2006, the FBT rate was 48.5%.

2.3 How is the amount of tax determined?

Where you provide taxable fringe benefits to employees, there are some distinct steps involved in calculating your FBT liability. With the introduction of the goods and services tax (GST), there are two separate gross-up rates used to calculate fringe benefits taxable amounts - a higher (type   1) and a lower (type   2) gross-up rate.

The higher gross-up rate (refer to section   2.11 ) is used where you (or other benefit providers) are entitled to a GST credit for GST paid on benefits provided to an employee. These benefits are known as GST-creditable benefits (refer to section   2.5 for a full definition of a GST-creditable benefit).

The lower gross-up rate is used where there is no entitlement to a GST credit (refer to section   2.11 ).

You use the lower gross-up rate to calculate an employee's reportable fringe benefits amount (refer to section   5.4 of Reportable fringe benefits).

2.4 GST and fringe benefits

A GST of 10% applies on most goods and services supplied in Australia and on goods imported into Australia. GST affects the calculation of your FBT liability.

As outlined in section   2.3 , you use a higher gross-up rate to calculate your FBT liability where you (or other providers) are entitled to GST credits for GST paid on goods or services acquired to provide the benefits. Where there is no entitlement to a GST credit, the lower gross-up rate is used.

If an employee makes a contribution or payment towards the cost of the fringe benefit provided, this may be treated as consideration for a taxable sale for GST purposes.

2.5 GST-creditable benefits

A GST-creditable benefit arises where the person who provided the fringe benefit (or another member of the same GST group) is entitled to a GST credit for providing the benefit.

A benefit provided in respect of an employee is also a GST-creditable benefit if:

• the benefit consists of
  • a thing (as defined in the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act))
  • an interest in such a thing
  • a right over such a thing
  • a personal right to call for or be granted any interest in or right over such a thing
  • a licence to use such a thing, or
  • any other contractual right exercisable over or in relation to such a thing, and
• the thing was acquired or imported and the person who provided the fringe benefit (or another member of the same GST group) is entitled to a GST credit because of the acquisition or importation.

Example: travel

An employee travels interstate on business for his employer. His wife accompanies him. They stay an extra few days to visit relatives. Their stay at the motel is a taxable sale and the employee receives a tax invoice when he pays the account. His employer reimburses him on his return by paying him the full cost of their accommodation expenses. The employer is entitled to a GST credit equal to the amount of GST included in the price of the accommodation.

Example: provision of benefits

An employer provides an employee with a home entertainment system for their private use. The employer received a tax invoice when they purchased the home entertainment system. The employer is entitled to a GST credit equal to the amount of GST included in the price of the entertainment system.

2.6 GST-free and input taxed benefits

Any fringe benefits that are wholly GST-free or input taxed, or for which you (or another provider) are not otherwise entitled to a GST credit, are classified as type   2 benefits. They are grossed up at the lower gross-up rate (refer to section   2.11 ).

2.7 Establishing the individual fringe benefits amount

You must allocate the taxable value of all fringe benefits, except excluded fringe benefits, related to an FBT year to the relevant employee. This is the employee's individual fringe benefits amount. Where you provide benefits to an associate of an employee in respect of that employee's employment, you allocate the value to the employee, not to the associate.

The taxable value of a fringe benefit is established from a series of valuation rules. There are different categories of fringe benefit and each has its own specific rules for calculating the taxable value. These rules are set out in later chapters of this guide on the specific types of fringe benefits.

2.8 Employee contributions

In most categories, if an employee makes a payment to you as a contribution towards the cost of providing a fringe benefit, the taxable value of that fringe benefit is reduced by the amount of the payment. Such a payment is referred to as an employee contribution (or recipient's contribution).

Some important points to note about employee contributions are:

• an employee contribution may be made only from an employee's after-tax income
• you can't use an employee contribution towards a particular fringe benefit to reduce the taxable value of any other fringe benefit
• in certain circumstances, journal entries in your accounts can be an employee contribution
• an employee contribution paid directly to you (including those received by journal entry) are included in your assessable income (as a general rule, the costs you incur in providing fringe benefits are income tax deductible)
• an employee contribution paid to a third party who is not an associate (for example, for the servicing of a car) is not assessable to you
• when calculating the taxable value of either a type   1 or type   2 benefit, you use the full GST-inclusive amount of the contribution to reduce the taxable value of the benefit.

2.9 Excluded fringe benefits

Excluded fringe benefits are those fringe benefits that don't have to be reported on payment summaries. For a list of these benefits, refer to section   5.2 of Reportable fringe benefits.

2.10 Calculating the fringe benefits taxable amount

Use the following steps to calculate your fringe benefits taxable amount.

Step	Action
1	For each employee, identify those fringe benefits that are GST-creditable benefits . Work out the employee's individual fringe benefits amount (refer to section   2.7 ) for those benefits.
2	Add up all the individual fringe benefits amounts worked out in step   1.
3	Identify the excluded fringe benefits (refer to section   2.9 ) that are GST-creditable benefits .
4	Add up the totals from steps 2 and 3. This is known as the type   1 aggregate fringe benefits amount .
5	For each employee, identify those benefits that are not taken into account under step   1. Work out the individual fringe benefits amount for each employee for those benefits.
6	Add up all the individual fringe benefits amounts worked out in step 5.
7	Identify the excluded fringe benefits that are not taken into account under step 3 and add up the taxable value of those excluded fringe benefits .
8	Add up the totals from steps 6 and 7. This is known as the type   2 aggregate fringe benefits amount .
9	Calculate the fringe benefits taxable amount (refer to section   2.11 ) by grossing up the type   1 aggregate fringe benefits amount and the type   2 aggregate fringe benefits amount and adding them together.
10	Calculate the amount of tax payable as a percentage of the fringe benefits taxable amount .

2.11 The fringe benefits taxable amount

Higher gross-up formula (type 1)

The higher gross-up formula was introduced to avoid allowing employers the benefit of GST credits for goods and services purchased for the private use of employees. The higher gross-up rate effectively recovers the GST credit you can obtain in providing a fringe benefit. You use the following formula to calculate the higher gross-up rate:

Type 1 aggregate                               X                                                         FBT rate + GST rate                                    

fringe benefits amount                                         (1 - FBT rate) x (1+GST rate) x FBT rate

The higher FBT gross-up formula results in a gross-up rate of 2.0647 where the FBT rate is 46.5% and the GST rate is 10%. Prior to the FBT year commencing 1   April 2006, the FBT rate was 48.5% and the higher gross-up rate was 2.1292.

The type 1 aggregate fringe benefits amount represents the total taxable values of fringe benefits (including any excluded fringe benefits) that are GST-creditable benefits (refer to section   2.5 ).

Lower gross-up formula (type 2)

Fringe benefits and excluded fringe benefits that are not type   1 benefits are called type   2 benefits. The lower gross-up rate is used for type   2 benefits. You use the following formula to calculate the rate:

Type 2 aggregate fringe benefits amount                   X                                 1                          

                                                                                                                                                                                    (1 - FBT rate)

The type 2 FBT gross-up formula results in a gross-up rate of 1.8692 where the FBT rate is 46.5%. Prior to the FBT year commencing 1   April 2006, the lower gross-up rate was 1.9417.

The type   2 aggregate fringe benefits amount represents the total taxable values of all other fringe benefits (including any excluded fringe benefits) that are not type   1 benefits.

Formula for calculating the fringe benefits taxable amount

You calculate your fringe benefits taxable amount as follows:

Type 1 aggregate                                                                                       FBT rate + GST rate                                      

fringe benefits amount             X                       (1 - FBT rate) x (1+GST rate) x FBT rate

plus

Type 2 aggregate                         X                                             1                            

fringe benefits amount                               (1 - FBT rate)

Example: using gross-up rates An employer provides the following benefits to a single employee.
Car fringe benefit (GST taxable supply with an entitlement to GST credits).	$7,700
Restaurant meals valued as expense payment fringe benefits (excluded fringe benefit with an entitlement to GST credits).	$1,100
School fees valued as expense payment fringe benefits (GST-free supplies with no entitlement to GST credits).	$6,000
Remote area rent reimbursement (excluded fringe benefit with no entitlement to GST credits).	$3,000
Type 1 individual fringe benefits amount (steps 1 and 2) Type 1 excluded fringe benefits amount (step   3) Employer's type 1 aggregate fringe benefits amount (step   4) Type 2 individual fringe benefits amount (steps   5 and 6) Type 2 excluded fringe benefits amount (step   7) Employer's type 2 aggregate fringe benefits amount (step   8) If the FBT rate is 46.5% and the GST rate is 10%, the employer's fringe benefits taxable amount is calculated as follows: $8,800     X                                                 46.5% + 10%                                                                                             (1 - 46.5%) x (1 + 10%) x 46.5% = $8,800 x 2.0647 = $18,169 (rounded to the nearest dollar) Plus $9,000           X                                   1                                                                                 (1 - 46.5%) = $9,000 x 1.8692 = $16,822 (rounded to the nearest dollar) The total fringe benefits taxable amount (step   9) = $34,991	$7,700 $1,100 $8,800 $6,000 $3,000 $9,000

2.12 Calculating the FBT payable

The tax payable is the fringe benefits taxable amount multiplied by the rate of tax.

Example:

If the fringe benefits taxable amount is $34,991 and the rate of tax is 46.5%, the tax payable is $16,270.81 - that is, $34,991   x   46.5% (step   10 from 2.10).

The rate of tax may vary from year to year, but we will advise you of the rate each year. The current FBT rate is 46.5%. For future years, check to see if the rate has changed.

For an explanation of how to calculate FBT if you are a non-profit organisation, refer to Non-profit organisations and fringe benefits tax .

More information

For more information, refer to Miscellaneous Taxation Ruling MT   2050 - Fringe benefits tax: payment of recipients contribution by journal entry .

Changes and updates

The electronic version of the guide is reviewed on a quarterly basis. The following tables detail any major changes and updates made to this chapter at each review.

2010 calendar year

Quarter 1

Section	Changes and updates
	Nil.

Quarter 2

Section	Changes and updates
	Nil.

Quarter 3

Section	Changes and updates
Chapter title	Renamed from 'Calculating FBT' to 'Calculating fringe benefits tax'.

Last Modified: Friday, 1 April 2011

ATO references:
NO NAT 1054