Parking Fringe Benefits Tax Made Easy
The Australian Taxation Office (ATO) imposes the Fringe Benefits Tax (FBT) as part of the Australian tax code. Most non-cash perks that an employer offers "in respect of employment" are subject to tax. Regardless of whether the benefit is given directly to the employee or to a member of the employee's family, the employer is subject to the tax, not the employee. The Fringe Benefits Tax Assessment Act of 1986, which was passed in 1986, governs how the tax is applied.
What is a Fringe Benefits Tax?
An employee receives a "payment" in the form of a fringe benefit in addition to their income or earnings. In terms of who qualifies as an employee, they might be a current, past, or future employee, a director of a company, or the beneficiary of a trust who works in the business.
Fringe advantages include, for instance: granting a reduced loan to an employee, paying for their gym membership, giving them free concert tickets, letting them use a company vehicle for personal use, allowing them to use a company automobile for work, and supplying them with benefits under a salary-sacrifice agreement.
The most important thing to remember about this type of tax is that you, as an employee, won’t care about paying it; the Fringe Benefits Tax is paid by the employer only.
How does it work?
If an employer is required to pay Fringe Benefits Tax (FBT) during an FBT year, they must register for FBT and file an FBT return (1 April to 31 March). To sign up you will need to register online using the Australian Government Business Registration Service. If you already have an Australian business number (ABN), you can register by phone using the business inquiries line. If you are an authorized contact for the business, you can submit the paper form application to register for Fringe Benefits Tax by lodging your annual FBT return.
Even if the company pays FBT if the benefit exceeds $2,000 it must also be recorded by the employer as reportable fringe benefits on the employee's PAYG payment summary (formerly known as group certificate). The reportable fringe benefits are not included in the employee's taxable income, although appearing on the PAYG payment summary and the employee's tax return. They are considered when determining means (income).
The sum stated represents the "grossed-up" taxable value of benefits received by the employee or a person associated with the employee (such as a relative) during the FBT year, which ends on March 31 of every year.
What about vehicles?
If an employer makes an automobile that they own or lease available to an employee for personal use, this may be considered a car fringe perk. For the purposes of the Fringe Benefits Tax (FBT), a car is any of the following: a panel van or utility vehicle, or any other goods-carrying vehicle with a carrying capacity of less than one tonne (including four-wheel drive vehicles), or any additional passenger-carrying vehicle made to seat fewer than nine people.
A residual fringe benefit rather than a car fringe benefit may be offered by the company if the vehicle is not a car, and the employee uses it for private purposes.
An employee's home garaged company vehicle will often be subject to FBT. However, numerous business parking lots and locations were shut down during the 2020 FBT year.
Because of this, the ATO has stated that for employers using the operating cost method, "we will accept that you do not hold the car for the purpose of providing fringe benefits to your employee" if the "car has not been driven at all during the period it has been garaged at home or has only been driven briefly for the purpose of maintaining the car." But you'll have to keep the car's odometer at numbers that indicate it hasn't been driven.
The Income Tax Assessment Act exempts certain situations from the taxation of fringe benefits. If an employee uses the car to commute between home and work, for marketing-related travel, for official tours, or when it is being used to transport children.
According to Austaxpbr in 2001, any use of a vehicle for a purpose other than that which was intended is a fringe benefit. It is important to calculate the Fringe benefit as a result. Employers can calculate fringe benefits using the operating cost method if they keep sufficient data.
Car Price: $33,000
Repair costs came to $550. (Including GST)
When the car wasn't being used for business purposes. 15 days.
The 15-day fringe benefit is applicable.
The car was used for a total of 336 days during the course of the year. The Australian Taxation Office states that the period used to calculate fringe benefits is from 1 April to 31 March.
Fringe Benefit (33,000+550) divided by 15/336 or $1498.
If an employer gives an employee a loan and charges a lesser rate of interest or no interest, Fringe Benefits Taxation may apply. An interest rate that is lower than the statutory pre-defined rate of interest is referred to as having a lower rate of interest. i.e., the bank rate, also known as the benchmark rate.
Understanding the type and intent of loan usage is essential. An advance salary is considered a loan to the employee and is subject to the taxation of fringe benefits.
Difference between the actual interest that will be accrued from the employee and the statutory interest rate that is now in effect in the market, which may be fixed by the Apex Bank or the Prime lending rate offered by a nationalized bank.
If we take one example, Emma's employer loaned her $500000, which she utilized to buy a private asset for $450000 and share $50000 with her spouse. Both are used only for private purposes. Also eligible for a fringe benefit is the employee's family. As a result, the employee's spouse readily received the benefit in this instance. This is a taxable benefit to the employer. If Emma (the employee) had bought the shares, they would have been counted as an income-generating asset.
Therefore, no loan interest benefit can be deducted from the fringe benefit in this situation.
Loan Fringe Benefit: $500000 x 213 / 366 = $290984.
The employer is involved in the bathtub trade. The retail cost of the bathtub is $2600 for the general public. Emma (the employee) received a discount of $1300. Cost pricing shouldn't be taken into account. The opportunity passed up is what the employer gains.
In this example, the fringe benefit is $1300.
If Emma would buy the shares on her own, the Fringe Benefit shall be reduced by (500000 x 4.5% * 213/366) x 50000/500000, which is the Interest Cost.
Specifically, $277890 - $13094 Net Fringe Benefit = $290984.
To make up for the tax planning by large corporations, the taxation of fringe benefits was introduced. The firms used to offer pay packages, which consisted primarily of fringe benefits rather than a large wage. The Company owned the fringe benefits, which were written off as depreciation. The Employee, however, earned a reduced wage and submitted a smaller income tax return.
For administrative purposes, the Government levied a tax on fringe benefits on the Employer after identifying a revenue leak. It is a form of source tax deduction. The corporation is responsible for paying all interest and penalties if the conditions are not followed.
It is crucial for all companies and employees to keep records of the bills and other documentation that will serve as the basis for the filing of the fringe benefit return. If the business wants to deduct anything from the payment of a fringe benefit, they can do so by producing the necessary documentation.
Records in their original form must be presented to the revenue authorities in case the situation is under investigation. Some employers used to structure their pay proposals as expenditure reimbursements. Since the FBT was implemented, the reimbursement now counts as a fringe benefit that the employer must pay taxes on.
This case study has shown how the Fringe Benefits Tax is calculated, and how it works. Hopefully, Parking Made Easy helped you in understanding the essentials of a Fringe Benefits Tax.