Fringe Benefits Tax (FBT)

What are reportable fringe benefits?

Reportable fringe benefits for employees are additional perks or benefits that you receive from your employer, which may need to be reported to the government.

Whether or not these benefits need to be reported depends on their total taxable value during a specific period known as the FBT year, which runs from April 1st to March 31st.

If the total taxable value of the fringe benefits you receive exceeds $2,000 within the FBT year, your employer is required to inform the government about this amount.

All fringe benefits, except those specifically excluded by law, must have their value allocated to the relevant employees for reporting purposes.

Exemption for specific employees

For employees who work in or for public benevolent institutions, health promotion charities, hospitals, public ambulance services, or live-in residential care workers, you must allocate the notional taxable value of benefits that are exempt solely because of their employment in these sectors.

These benefits, known as quasi-fringe benefits, are reportable but remain exempt from FBT.

Electric cars

In the case of electric cars, even though employees can use them for their private purposes without incurring Fringe Benefits Tax (FBT), the benefit itself is still subject to reporting requirements. This means that employers must calculate and report the notional taxable value of the benefits that arise from employees using these exempt electric cars for their personal use.

Excluded fringe benefits

Certain fringe benefits are exempt from reporting requirements but are still subject to FBT. The following benefits do not need to be reported:

Car Parking Fringe Benefits: When you provide car parking facilities for an employee, this benefit does not require reporting.

Expense Payment Fringe Benefit for Car Parking: If you reimburse an employee’s expense for car parking, and it qualifies as an expense payment fringe benefit, it is reportable. However, regular car parking benefits provided by the employer do not fall under this category.

Private Use of Pooled or Shared Cars: Fringe benefits related to the private use of pooled or shared cars do not need to be reported.

Meal Entertainment Benefits: Benefits related to meal entertainment, as well as related travel, accommodation, and entertainment facility leasing benefits, are not reportable if they are not provided through a salary sacrifice arrangement.

Remote Area Housing Assistance, Home Ownership Schemes, and Repurchase Schemes: These benefits are exempt from reporting.

Occasional Travel to Major Australian Population Centre: The cost of occasional travel to a major Australian population center for an employee living in a remote area is not reportable.

Emergency or Essential Health Care: Benefits related to emergency or other essential health care that an employee receives as an Australian citizen or permanent resident while working outside Australia, for which they cannot claim a Medicare benefit, do not need to be reported.

Security and Personal Safety Benefits: Benefits provided to ensure the security and personal safety of an employee due to their job do not require reporting.

If a benefit falls into one of these exempt categories, you do not include it when calculating the total value of benefits provided to an employee or when reporting the employee’s fringe benefits through STP.

Individual fringe benefits amount

The individual fringe benefits amount refers to the total value of all benefits subject to reporting requirements provided to a specific employee during an FBT year. Essentially, it’s the sum of the values of these reportable benefits for that particular employee.

When benefits are given to someone associated with an employee (like a family member) because of that employee’s job, these benefits are still attributed to the employee for reporting purposes. In other words, the value of such benefits is assigned to the employee, not to the associate, when calculating the individual fringe benefits amount.

Reportable fringe benefits amounts

Now, we’ll explore the process of reporting RFBA, which is required when the total taxable value of certain fringe benefits provided to an employee exceeds $2,000 within the Fringe Benefits Tax (FBT) year (from April 1st to March 31st).

Here’s how it works:

Calculating RFBA

To determine an employee’s RFBA, you can use the following formula:

RFBA = Individual fringe benefits amount × (1 – FBT rate)

This is essentially the individual fringe benefits amount multiplied by the lower (type 2) gross-up rate.

It’s important to note that the higher gross-up rate formula is not applicable when calculating an employee’s reportable fringe benefits amount.

Reporting Options Through Single Touch Payroll (STP)

You have two options for reporting an employee’s RFBA through the Single Touch Payroll (STP) system:

Updating year-to-date RFBA

You can choose to update the year-to-date RFBA throughout the year as you provide fringe benefits to your employee. This allows for ongoing reporting as benefits are provided.

Annual RFBA figure

Alternatively, you can report a single RFBA annual figure. This report is made between the end of the FBT year and the time you submit a declaration confirming the finalization of your reporting for that employee for the entire financial year.

When you report an employee’s RFBA through STP, this information will be accessible to the employee through their STP Employment income statement.

Reportable Fringe Benefits & STP reporting

When a reportable fringe benefits amount (RFBA) is displayed on an online Single Touch Payroll (STP) Employment income statement, it’s important to note that it doesn’t become part of the employee’s assessable income for tax purposes.

However, it serves various important functions in assessing an employee’s eligibility for certain benefits and tax-related matters. These include:

Eligibility for Transfer Payments: RFBA is considered when determining an employee’s eligibility for transfer payments and other tax concessions. This means that certain government financial assistance programs and benefits may take the RFBA into account when assessing an employee’s eligibility.

Liability for Levies and Surcharges: RFBA can also impact an employee’s liability for specific levies and surcharges, including:

• Medicare levy surcharge, which is imposed on individuals who do not have private health insurance.
• Private health insurance rebate, which may be affected based on an individual’s income, where a higher RFBA could result in a reduced rebate.
• Additional tax on concessional contributions (Division 293), particularly for superannuation contributions, where a higher RFBA might trigger additional tax.
• Tax offset for spouse superannuation contributions that are eligible.
• Government co-contribution for personal superannuation co-contributions made by the employee.
• Repayments related to Higher Education Loan Program (HELP), Student Financial Supplement Scheme (SFSS), Student Start-up Loan (SSL), ABSTUDY Student Start-up Loan (ABSTUDY SSL), and Trade Support Loan (TSL).
• Child support obligations, which may be influenced by an individual’s financial situation, including RFBA.
• Entitlement to certain income-tested government benefits, where a higher RFBA could affect eligibility and benefit amounts.

Therefore, we can say that while RFBA does not directly impact an employee’s taxable income, it plays a significant role in assessing eligibility for various government benefits, tax offsets, and obligations.

Reducing Reportable Fringe Benefits

Cashing out benefits

One way to lower your reportable fringe benefits amount (RFBA) is by arranging with your employer to convert some or all of your fringe benefits into cash salary. This means you opt to receive cash in place of certain benefits, reducing the taxable value of those benefits and, consequently, your RFBA.

Making employee contributions

You can also decrease your RFBA by making employee contributions from your after-tax income toward the expenses associated with the benefits you receive. For instance, if you have a car fringe benefit, you can choose to contribute a portion of your income to cover some of the operating costs linked to that benefit. These contributions effectively reduce the taxable value of the benefit, thus lowering your RFBA.

Switching to exempt benefits

Another strategy involves changing the nature of the benefits you receive to items that are exempt from Fringe Benefits Tax (FBT). Certain work-related items provided by your employer fall under this category. By transitioning to these exempt benefits, you can reduce your RFBA while still enjoying certain fringe benefits.

What is a loan fringe benefit?

A loan fringe benefit involves an employer (or an associate or third-party under an arrangement) providing an employee (or an associate of the employee or a directed third-party) with a loan (not including a loan of property) carrying a low or no interest rate. Regulations surrounding loan fringe benefits are detailed in the FBT Act.

Note that a loan also includes a debt that remains after the due date of repayment of that debt.

Exempt loans
A loan benefit will be exempt from FBT in any of the following circumstances:

• The employer is in the business of lending money and the rate of interest charged is equal to or greater than the interest charged on a comparable loan to a third-party.
• The employer provides the money to the employee to cover work-related expenses to be incurred within six months.
• The employer provides the loan to enable to employee to cover a security deposit on accommodation e.g. a rental bond. Further conditions must be satisfied.

Excluded loans

• The loan is provided for reasons unconnected with the employment of that employee. For example, where a director of a company makes a cash drawing from the company bank account. It is not necessary the case that the benefit of private access of company funds is connected with the employment of the director.
• The loan is subject to the deemed dividend provisions in Division 7A of the Income Tax Assessment Act 1936. These provisions are relevant where the loan is provided to an employee who is also a shareholder or associate of a shareholder in the employer company.

Taxable value of a loan fringe benefit

The taxable value of a loan fringe benefit is based on the difference between the statutory rate (which is considered an ‘arms-length’ interest charge) and the actual interest rate charged to the employee (or associate). The logic is that a low or no interest loan to any employee is a form of ‘benefit’ that should be captured by the FBT regime. Obviously therefore, if the interest rate charged is at least equal to the statutory rate then the loan provided will not have an FBT consequence (as there is no benefit being afforded to the employee-borrower). The statutory interest rate varies from year to year. The annual rate for the FBT year ended 31 March 2023 was 4.52%.

For a loan with terms that requires interest payments to be made on an infrequent basis (specifically, at intervals greater than every six months), the employer is treated as having provided a separate loan for each block of six months that passes before the next interest payment is required. For example, if interest is required to be paid every 3-years, there would effectively be five separate deemed loans. The first would run for 30 months, the second for 24 months, the third for 18 months, the fourth for 12 months and the fifth for 6 months.

Reduction in taxable value

The taxable value of a loan fringe benefit is reduced by the amount of interest that would have been deductible to the employee had the employee been charged the statutory rate of interest. Therefore, any loan provided to an employee will not be subject to FBT in the instance that the loaned monies are 100% deductible to the employee.

Importantly, note that the deductibility of interest on a loan to an associate of an employee will not be effective in reducing the taxable value of the fringe benefit provided to that employee associate.

The deductibility of interest is determined by analysing the use of the loaned monies. If the borrowed funds are put towards a use that relates to carrying on a business or producing assessable income e.g. the purchase of work tools, payment of office rent etc., the interest will be deductible to the extent there is no private use. There is the possibility that borrowed funds may be utilised for a number of purposes – some income-producing and some private in nature. In this instance, there will need to be a calculation of the deductible portion of the overall loan interest.

The required steps to calculate the taxable value of a loan fringe benefit are as follows:

1. Calculate the basic taxable value of loan fringe benefit (ignoring the otherwise deductible rule).

i.e. amount of loan x statutory interest rate – (amount of loan x actual interest rate charged under the terms of the loan agreement).

2. Calculate taxable value as though the statutory rate of interest was charged
i.e. loan amount x statutory rate.

3. Calculate the amount of interest that would have been deductible if the statutory rate of interest was charged

i.e. step 2 amount x business use %.

4. If the employee is charged interest on the loan, calculate how much of the interest would be an allowable deduction.

i.e. loan amount x actual interest rate x business use %. If no interest was charged, the amount calculated under this step will be nil.

5. Subtract the deductible amount in step 4 from the amount that would have been deductible if the statutory interest rate had of been charged (as calculated in step 3). The amount calculated here is the amount by which the taxable value of the loan fringe benefit (as calculated in step 1) can be reduced.
i.e. step 3 amount – step 4 amount.

6. The ultimate taxable value of the loan fringe benefit after taking advantage of the otherwise deductible rule is the amount calculated at step 1 less the amount calculated at step 5.

i.e. step 1 amount – step 5 amount.

Example
Take the example of ABC Pty Ltd. On 31 August 2022, the company provides a $100,000 loan to Thomas, an employee of the company, charging an annual interest of 3%. The statutory interest rate for the FBT year ended 31 March 2023 is 4.52%. Thomas uses 80% of the loaned monies to purchase dividend-yielding shares (interest being deductible) and 20% of the loaned monies to purchase a holiday overseas (interest is not deductible).

Applying steps 1 – 6 to calculate the ultimate taxable value of the loan fringe benefit:

1. The basic taxable value of the loan fringe benefit: $100,000 x 4.52% – ($100,000 x 3%) = $1,520.
2. The taxable value of the loan fringe benefit assuming the statutory interest rate was charged: $100,000 x 4.52 = $4,520.
3. Hypothetical interest deduction for employee assuming the statutory interest rate was charged: $4,520 x 80% = $3,616.
4. How must interest is allowable as an income tax deduction: $100,000 x 3.0% x 80% = $2,400.
5. Calculate the amount by which the basic taxable value of the loan fringe benefit can be reduced by subtracting the amount calculated in step 4 from the amount calculated in step 3: $3,616 – $2,400 = $1,216.
6. Calculate ultimate taxable value of the loan fringe benefit by subtracting the amount in step 5 from the amount in step 1= $1,520 – $1,216 = $304.

The basic taxable value of the loan fringe benefit to Thomas was $1,520 which is reduced by $1,216 according to the ‘otherwise deductible rule’ to arrive at the ultimate taxable value of $304.

Note that there is a unique set of rules for calculating reductions in the taxable value of car loans.

Evidence of the employee’s use of the borrowed monies must be obtained by the employer. The employee should complete an employee declaration (in an approved form) to substantiate the use of borrowed monies and the extent of deductibility of interest on the borrowing.

Debt waiver fringe benefit

What is a debt waiver fringe benefit?
A debt waiver fringe benefit involves an employer (or an associate or third-party under an arrangement) waiving an employee (or an associate of the employee or certain third-party) debt.

Exclusions
There are a number of circumstances in which a debt waiver will not give rise to a fringe benefit.

This includes where:

• The debt is waived for reasons unconnected with the employment of that employee. For example, the waiver of a debt to a family member who is incidentally an employee of the creditor would not typically constitute a debt waiver fringe benefit.
• The employer writes-off the debt because it considers it unlikely to be recovered or because of another commercial reason. Generally, the employer must demonstrate reasonable efforts to recover the debt and adopt an approach to dealing with the debt that accords with the employer policy.
• The waived debt is subject to the deemed dividend provisions in Division 7A of the Income Tax Assessment Act 1936. These provisions are relevant where the debt is waived in respect of an employee who is also a shareholder or associate of a shareholder of an employer company.

Taxable value of debt waiver fringe benefit
The taxable value of a debt waiver fringe benefit is equal to the amount of debt waived including any interest. FBT at 47% will be payable by the employer on the grossed-up taxable value of the debt waiver benefit.

What is entertainment for FBT purposes?

Entertainment for Fringe Benefits Tax (FBT) purposes includes the provision of entertainment by way of food, drink or recreation, along with associated travel and accommodation. The guidelines pertaining to the entertainment for FBT purposes are outlined in the FBT Act.

Importantly, the provision of entertainment is not a distinct form of fringe benefit. Rather, entertainment provided by an employer (or by an associate of the employer or by a third-party as a result of agreement with the employer) to an employee (or an associate of the employee or a third-party in accordance with the direction of the employee) will be allocated to one of following categories of fringe benefits:

• meal entertainment fringe benefit
• expense payment fringe benefit
• property fringe benefit
• residual fringe benefit
• tax-exempt body entertainment fringe benefit

The appropriate category of allocation will depend on the specific circumstances of the entertainment provided.

The taxable value of the entertainment will be calculated in accordance with the valuation rules set out in the relevant fringe benefit category. Essentially:

• Benefits that are categorised as meal entertainment fringe benefits (e.g. the provision of food and drink at a social function) will be valued under the valuation rules that apply to meal entertainment fringe benefits. Note that the meal entertainment fringe benefit category is not compulsory to utilise. There is further discussion on this concept later in the article.
• Benefits that are categorised as property fringe benefits (e.g. providing a meal to an employee who was entertaining clients) will be valued under the valuation rules that apply to property fringe benefits.
• Benefits that are categorised as residual fringe benefits (e.g. paying for a sightseeing tour for an employee who was entertaining clients) will be valued under the valuation rules that apply to residual fringe benefits.
• And so forth…

Meal entertainment fringe benefits

As mentioned, benefits arising from the provision of meal entertainment can (not must) by yearly election be categorised as ‘meal entertainment fringe benefits’. If the election is made, all fringe benefits during the FBT year arising from the provision of food or drink or associated travel / accommodation that has the character of ‘entertainment’ must be classified as a meal entertainment fringe benefit. That is, you cannot pick and choose which benefits are categorised as meal entertainment fringe benefits and which benefits are not.

Keep in mind that food or drink and associated travel and accommodation may only be classified as meal entertainment if it is entertainment. For example, the provision of a light snack to employees during the work day on business premises could not be categorised as a meal entertainment expense as the provision of the food is not ‘entertainment’. In this instance, the benefit provided would need to be allocated to alternative category of fringe benefit e.g. property fringe benefit or residual fringe benefit. The taxable value of the food or drink (and associated accommodation / travel) would then be calculated according to the applicable valuation rules in that relevant fringe benefit category. Note that meal entertainment provided under a salary packaging arrangement must not be classified as a meal entertainment fringe benefit.

There are number of questions to consider in determining whether the provision of food or drink is entertainment. These include:

• When is the food or drink being provided? If provided outside of work hours or outside of work travel time = more likely to be entertainment.
• Why is the food or drink being provided? If for a social event or occasion = more likely to be entertainment. For example, food or drink provided incidentally at a professional development seminar is less likely to be entertainment. Conversely, food or drink provided at a work function to celebrate a staff member birthday is more likely to be entertainment.
• Where is the food or drink being provided? If provided away from business premises = more likely to be entertainment.
• What food or drink is being provided? If the meal is elaborate = more likely to be entertainment. For example, dinner plate meals. Conversely, light meals or refreshments are less likely to be entertainment.

Taxable value of meal entertainment fringe benefits

If any benefit is classified as a meal entertainment fringe benefit, there are two methods that can be employed to calculate the taxable value of the benefits provided:

• The 50-50 split method
• The 12-week register method

Generally, an employer will utilise the method from year to year that results in the lowest FBT liability. Remember that once a benefit is classified as a meal entertainment fringe benefit, all benefits arising from the provision of meal entertainment must be classified in this way. Note also that the taxable value of the meal entertainment fringe benefit will be reduced by any employee contribution.

50-50 split method

The taxable value is simply 50% of total meal entertainment expenditure incurred by the employer throughout the FBT year. Importantly, this is inclusive of meal benefits provided to clients which would otherwise not be subject to fringe benefits tax.

Obviously therefore, the 50-50 split method will be less favourable where a majority of meal entertainment is provided to benefit clients (as opposed to employees and employee associates). Conversely, where the majority of entertainment is provided to employees (and employee associates), the 50-50 split method can be very advantageous as effectively only 50% of meal entertainment expenditure is being subjected to FBT (instead of up to 100%).

It is also vital to be aware that the property benefits exemption and the minor benefits exemption are not available if the 50-50 split method is chosen. Therefore, the classification of food and drink as ‘meal entertainment’ and the selection of the 50-50 split method is probably unideal where meal entertainment benefits could have otherwise been entirely exempt from FBT.

12-week register method

The taxable value is based on meal entertainment expenditure provided to employees (and employee associates) over a period of 12-weeks as recorded on a register. The register is generally valid for that year and the following four FBT years. However, a new register may be required if total meal entertainment expenditure increases more than 20%.

The relevant details to be included in the register include the following:

• The date/s meal entertainment is provided
• Details of who the entertainment is provided to and whether those persons are employees, associates of employees, clients etc.
• The cost of the meal entertainment
• The kind of meal entertainment
• The location of the meal entertainment
• If applicable, whether the meal entertainment is provided at an in-house dining facility.

It is important to be aware that the property benefits exemption is not available under the 12-week register method. However, the minor benefits exemption is available (unlike under the 50-50 split method). Therefore, the 12-week register method may be preferrable over the 50-50 split method where the employer is in a position to utilise the minor benefits exemption.

Again, the classification of food and drink as ‘meal entertainment’ and the selection of the 12-week register method is probably unideal where meal entertainment benefits could have otherwise been entirely exempt from FBT under the property benefits exemption.

What is recreational entertainment?

The provision of recreational entertainment may not be categorised as ‘meal entertainment’ as it is not the provision of food or drink. Instead, the recreational entertainment must be allocated to an appropriate fringe benefit category e.g. property benefit, residual benefit etc. Of course, food or drink (and associated travel / accommodation) provided at these recreational entertainment events may be categorised as meal entertainment fringe benefits.

The taxable value of the recreational entertainment will be calculated under the relevant fringe benefit category valuation rules. Remember that the taxable value of the fringe benefit will be reduced by employee contributions and any deductible component of the entertainment expenditure.

It is also worth noting that there is a 50-50 split method (similar to the 50-50 split method available in respect of meal entertainment) that may be used to calculate the taxable value of hiring or leasing entertainment facilities. This includes the hiring or leasing corporate boxes, boats, planes, or entertainment facilities. The minor benefits exemption and property benefits exemption are not available if the 50-50 split method is applied.

Reduction in taxable value of entertainment

The taxable value of a fringe benefit (including fringe benefits involving entertainment) is reduced by the amount of entertainment that would have been deductible to the employee had the employee personally incurred the expense. However, note the general position is that entertainment expenses tend not to be deductible for income tax purposes as they are deemed to be a private-natured outgoing. Of course, there are many conceivable exceptions to this basic position.

To avoid confusion, it is worth noting that FBT paid on expenditure which is not-deductible entertainment remains deductible for the employer.

What is a residual fringe benefit?

A residual fringe benefit is a type of fringe benefit that occurs when an employer provides their employee with a benefit that doesn’t fit into one of the predefined categories of fringe benefits. It’s a category for benefits that aren’t specifically covered elsewhere.

For instance, a residual fringe benefit might arise if an employer offers their employee:

Use of Employer’s Property: This could involve providing access to items like a video camera or television, which aren’t typically considered as common fringe benefits.

Services: If an employer offers services to employees that don’t fit into the usual fringe benefit categories, such as legal advice provided by a solicitor, it could be classified as a residual fringe benefit.

Insurance Coverage: If an employer extends insurance coverage to their employees under a group policy, especially for something like health insurance, it falls into the residual fringe benefit category.

Private Use of Non-‘Car’ Vehicles: When an employee is granted the private use of a motor vehicle that doesn’t meet the criteria for a ‘car’ under fringe benefits tax (FBT) regulations, such as a one-tonne utility vehicle, it is considered a residual fringe benefit.

Separating Goods and Services

When a benefit includes both goods (physical items) and services, the typical practice is to assign separate values to each component.

The goods component is considered a property fringe benefit, while the services component falls under the category of residual fringe benefits.

However, in specific circumstances, benefits are valued solely according to the rules of residual fringe benefits.

This exception applies when the employer or another provider is in a business where goods and services are typically supplied together, such as during repairs that involve providing spare parts.

In cases where a benefit qualifies as a residual fringe benefit, it is exempted from the regulations governing property fringe benefits, allowing for different valuation and treatment.

Taxable value of in-house residual fringe benefits

In-House Residual Fringe Benefits are those benefits provided by an employer or their associate that closely resemble rights, services, or facilities offered to the general public in their ordinary business operations.

Here are some key points to understand:

Examples

• These benefits are essentially perks that mirror what the employer or their associate provides to the public. For instance, a law firm might offer its employees professional advice for free or at a discounted rate, similar to what they offer their external clients.
• Another example could involve a television rental company giving its employees access to video recorders at a discounted rate, akin to what they provide to their regular customers.

Benefits related to investment insurance contracts, such as life assurance policies that pay out if the insured person is alive on a specified date, do not fall under these rules. They have their own valuation rules, as outlined for external residual fringe benefits.

Taxable value of in-house residual fringe benefits (not under salary packaging)

• The taxable value for these benefits is determined as 75% of the lowest price that the employer charges the public for identical benefits at the time.
• This value is then further reduced by any amount paid by the employee for the benefit.
• Identical benefits are considered the same in all respects except for minor or insignificant differences or differences related to the benefit’s value.

When Identical Benefits Aren’t Publicly Offered
In cases where the employer does not provide identical benefits to the public, the taxable value is still calculated as 75% of the amount the employee would reasonably be expected to pay to obtain the same benefit in a typical arm’s length transaction. This value is then reduced by any contribution made by the employee.

Apportionment for Benefits Extending Beyond FBT Year
If the period during which the benefit is provided spans across the end of the Fringe Benefits Tax (FBT) year, the taxable value is allocated proportionally between the two years on a pro rata basis.

Thus, these rules ensure that employees are taxed on the actual value of in-house residual fringe benefits, either based on what the public pays for similar benefits or what the employee would reasonably be expected to pay for them in a typical transaction, taking into account any employee contributions.

Taxable value of in-house residual fringe benefits accessed through salary packaging

The taxable value of an in-house residual fringe benefit accessed through a salary packaging arrangement is calculated by assessing its notional value at the comparison time (the time when the value is assessed), and then reducing this value by any contribution made by the employee.

External residual fringe benefits

External residual fringe benefits are fringe benefits that do not fall under the category of in-house residual fringe benefits.

Scenarios where external residual fringe benefits arise are:

Benefit Not Provided to the Public
External residual fringe benefits often occur when employers provide fringe benefits that are not typically offered to the general public as part of their regular business operations.

For example, if a hairdresser offers health insurance coverage to their employees through a group policy not generally available to customers, it falls into this category.

Third Party Arrangements
Another common scenario involves employers arranging for a third party to provide fringe benefits to their employees.

For instance, a solicitor may arrange for an accountant to offer discounted services to their employees. In such cases, the benefits are external residual fringe benefits.

Taxable value of external residual fringe benefits

The calculation of taxable value for external residual fringe benefits depends on the circumstances:

If Purchased at Arm’s Length
When an employer purchases the service, right, or privilege associated with the fringe benefit through an arm’s length transaction (i.e., a transaction conducted fairly between unrelated parties), the taxable value is the cost price paid by the employer.

This cost price is then reduced by any contribution made by the employee.

If Arm’s Length Transaction Doesn’t Apply
In cases where the above rule does not apply, the taxable value is determined based on what the employee could reasonably be expected to pay to obtain the same benefit in an arm’s length transaction.

This value is then reduced by any amount contributed by the employee.

Apportionment for Benefits Spanning FBT Years
If the benefit period extends beyond the end of the Fringe Benefits Tax (FBT) year, the taxable value is allocated proportionally between the two years on a pro rata basis.

Hire cars and the “Otherwise deductible rule”

When an employer hires a car for less than three months and makes it available for an employee’s private use, it may result in a residual fringe benefit.

The taxable value of this benefit is typically equal to the arm’s length hire fees, which can be reduced under the “otherwise deductible rule.”

Reducing taxable value using the otherwise deductible rule

You can reduce the taxable value of a residual fringe benefit by applying the “otherwise deductible” rule, but this rule only applies if the recipient of the benefit is the employee.

Conditions for Applying the Rule

• The rule comes into play if the benefit provided is not itself a fringe benefit and the employee acted as a regular consumer or member of the public when purchasing the service or privilege that makes up the residual benefit.
• For instance, if an employee rented an item of property and used it exclusively for work-related tasks, the entire rental cost would be tax-deductible for them.

In such cases, if you, as the employer, rented the same item and made it available to the employee for their work-related use, the taxable value of this residual fringe benefit would be zero, regardless of any employee contribution.

Substantiation requirements for the otherwise deductible rule

Documentation for hypothetical deductible amount

You must have documentation that supports the extent to which the purchase price of the residual benefit would have been deductible to the employee. This documentation should be obtained from the employee before you lodge the relevant FBT return.

If the documentation is in the form of a Residual Benefit Declaration by the employee, it must comply with the format approved by law.

You must have documentation that supports the extent to which the purchase price of the residual benefit would have been deductible to the employee.

This documentation should be obtained from the employee before you submit the relevant Fringe Benefits Tax (FBT) return.

If the documentation is in the form of a Residual Benefit Declaration by the employee, it must comply with the format approved by law.

Travel Diary

A travel diary is necessary in certain situations:

• If the residual benefit involves travel within Australia for more than five consecutive nights and the travel is not exclusively for performing employment-related duties. Note that the requirement for a travel diary still applies even if the business travel requires the employee to stay away over a weekend, as long as the primary purpose is employment-related.
• For travel outside Australia that spans more than five consecutive nights.

The travel diary should include details such as the location of activities, dates, approximate starting times, duration, and the nature of the activities.

Employee declaration

You should obtain a Residual Benefit Declaration from the employee in an approved format. However, there are exceptions where this declaration is not required:

• When the residual benefit is used solely for performing employment-related duties, such as protective clothing and tools of trade.
• When there is a need to keep a travel diary.
• When the requirement to keep a travel diary is waived because the employee is a member of an international aircrew.
• When the provision of the fringe benefit is covered by a recurring fringe benefit declaration.

What is the FBT rebate?

The FBT (Fringe Benefits Tax) rebate is a benefit offered to certain organisations, known as rebatable employers, allowing them to receive a rebate based on a percentage of the gross FBT they are liable to pay.

This rebate is subject to a specific capping threshold, meaning there is a limit to the amount that can be claimed. The rules around the FBT rebate are outlined in the FBT Act.

The core objective of this rebate is to ensure fairness. It aims to level the financial playing field by guaranteeing that the cost incurred by certain organisations when offering fringe benefits to their employees does not significantly differ from the expenses borne by employers who can claim an income tax deduction for their FBT payments.

Who qualifies for the FBT rebate?

Organisations that qualify for the FBT rebate fall into specific categories. These categories include:

Non-government, not-for-profit organisations that are registered charities and endorsed by relevant authorities as tax concessions charities. However, this excludes public benevolent institutions and health promotion charities.

Some scientific or public educational institutions meet the criteria for the FBT rebate.

Certain trade unions and employer associations located in Australia that are exempt from income tax are eligible for the rebate.

Various not-for-profit tax-exempt organisations can qualify for the FBT rebate, depending on their purposes. These purposes may include:

• activities related to music,
• community services,
• science,
• animal racing,
• art, games or sports,
• literature,
• music,
• aviation or tourism development
• certain resource sectors such as agriculture, manufacturing, and industry

For registered charities to access the FBT rebate, they must be endorsed by the authorities. It’s important to note that the rebate is only available to registered charities that also function as institutions.

Who doesn’t quality for the FBT rebate?

The FBT rebate has specific exclusions. It is not accessible to:

• Registered Charities Functioning as Funds: Registered charities that primarily operate as funds do not qualify for the FBT rebate.
• Institutions Established by Government Law: Entities established under government laws, which could include public universities, public museums, and public art galleries, are not eligible for the FBT rebate.
• Public Benevolent Institutions and Health Promotion Charities: These particular types of organisations are not entitled to the FBT rebate. Instead, they are eligible for FBT exemption.

A registered charity is an entity that has obtained registration as a charity by the ACNC (Australian Charities and Not-for-profits Commission).

Not-for-profit organisations outside the mentioned exclusions can determine their eligibility for the FBT rebate through a self-assessment process, provided they meet the criteria of being a rebatable employer.

The FBT rebate grants eligible entities a refund calculated as a percentage of their gross FBT liability. However, there is a maximum limit, known as a capping threshold, on the rebate amount that can be claimed, which varies depending on specific circumstances.

FBT rebate percentage and capping threshold

The FBT rebate is calculated at a rate of 47% of the gross FBT payable, subject to a capping threshold of $30,000.

Here’s what this means:

Rebate Percentage: The rebate is determined by applying a rate of 47% to the difference between the gross tax amount (the FBT that would typically be payable) and the “aggregate non-rebatable amount.”

Capping Threshold: The capping threshold, fixed at $30,000, is the maximum amount up to which the rebate can be claimed.

In other words, if the total grossed-up taxable value of fringe benefits provided to an employee exceeds this threshold, the rebate cannot be claimed for the FBT liability on the excess amount.

The capping threshold applies regardless of whether the rebatable employer employed the employee for the entire FBT year.

For example, if an employee received benefits with a total grossed-up value of $15,000 between October and March, the rebate applies to all of the FBT payable for providing these benefits, as long as the total does not exceed the $30,000 capping threshold.

Some organisations provide entertainment benefits as part of salary packaging arrangements. In such cases, there may be a separate capping threshold that applies specifically to these entertainment benefits.

Separate cap for salary packaged entertainment benefits

A distinct grossed-up cap of $5,000 is applicable to fringe benefits related to salary packaged meal entertainment and entertainment facility leasing expenses. This cap is applicable to employers who have access to either an FBT exemption or rebate.

A salary packaging (aka salary sacrifice or total remuneration packaging) arrangement is when an employee agrees to sacrifice a portion of their future salary or wages in exchange for the employer providing benefits of approximately equivalent value.

The cap is relevant to the following categories of salary packaged entertainment

• Entertainment Involving Food or Drink: This includes benefits related to food and beverages provided for entertainment purposes.
• Accommodation or Travel Connected to Entertainment: Fringe benefits associated with accommodation or travel that are linked to or meant to facilitate the provision of entertainment fall under this cap.
• Entertainment Facility Leasing Expenses: Expenses related to leasing entertainment facilities are also subject to this cap.

Salary packaged entertainment benefits are now considered within the capping thresholds that are relevant for FBT exemptions and rebates. However, if these thresholds are exceeded in a given year, they can be increased, but only up to the lesser of two amounts:

• $5,000, or
• The total grossed-up taxable value of benefits related to salary packaged entertainment.

This implies that employers have a unified grossed-up cap of $5,000 per employee for each FBT year regarding salary packaged entertainment benefits that maintain their eligibility for concessional FBT treatment.

The $5,000 cap remains applicable even if the employee was not employed for the entire FBT year.

The $5,000 separate cap concerning meal entertainment and entertainment facility leasing expenses represents the grossed-up amount. It is crucial to determine the appropriate gross-up rate when calculating whether the $5,000 cap has been exceeded.

Any benefits surpassing the separate grossed-up cap of $5,000 are factored in when assessing whether the total value of all benefits an employee receives during the FBT year exceeds their general FBT exemption or rebate cap.

Calculating the aggregate non-rebatable amount for FBT rebate

Step 1

Calculate the individual grossed-up non-rebatable amount for every employee, which is the total of two components

Individual Grossed-Up Type 1 Non-Rebatable Amount: This is the grossed-up value, employing the type 1 gross-up formula, encompassing GST-creditable benefits and taxable values of specific excluded fringe benefits (excluding those related to meal entertainment, car parking, or entertainment facilities leasing expenses that are GST-creditable amounts).

Individual Grossed-Up Type 2 Non-Rebatable Amount: Computed using the type 2 gross-up formula, this covers benefits not considered when calculating the type 1 individual base non-rebatable amount.

Step 2

Subtract $30,000 from the individual grossed-up non-rebatable amount for each employee.

Step 2a. f the outcome from Step 2 is positive for an employee, further reduce it (but not below zero) by the lesser of:

• $5,000, and
• the portion of the employee’s individual grossed-up non-rebatable amount linked to benefits covered by section 65J(2J), including salary-packaged meal entertainment and entertainment facility leasing benefits.

Step 3

Sum up the results obtained from step 2A for all employees of the employer.

Step 4

Multiply the total from step 3 by the FBT rate.
This final figure represents the employer’s aggregate non-rebatable amount for the year, indicating the proportion of taxable fringe benefits for which the employer is ineligible to claim a rebate.

Table: Calculation Steps and Accurate Formulas for Aggregate Non-Rebatable Amount

Step	Calculation Description	Formula
1	Individual Grossed-Up Non-Rebatable Amount Calculation for Each Employee.	Type 1 Gross-Up + Type 2 Gross-Up
	Individual Grossed-Up Type 1 Non-Rebatable Amount (GST-creditable benefits and taxable values of excluded fringe benefits).	Type 1 Gross-Up Formula
	Individual Grossed-Up Type 2 Non-Rebatable Amount (Benefits not included in Type 1 calculation).	Type 2 Gross-Up Formula
2	Reduction of Individual Grossed-Up Non-Rebatable Amount.	Individual Grossed-Up Amount – $30,000
2A	Additional Reduction for 2017 FBT Year and Beyond.	Minimum of ($5,000, Portion linked to section 65J(2J) benefits)
3	Accumulation of Results for All Employees.	Sum of Results from Step 2A for All Employees
4	Calculation of Aggregate Non-Rebatable Amount.	Total from Step 3 x FBT Rate

Not for profit entities

To qualify for the rebate, non-profit societies, associations, or clubs must meet specific criteria:

• These entities should not operate for the individual profit or gain of their members.
• They must not be companies in which all shares are beneficially owned by government authorities at the Commonwealth, state, or territory level.
• They should not be companies limited by guarantee where member interests and rights are beneficially owned by government authorities at the Commonwealth, state, or territory level.

Exceptions

• Inclusive Associations: Associations that include both government and non-government bodies within their membership can still be considered non-profit associations.
• Government-Controlled Bodies: Entities formed and controlled by the government, performing functions on behalf of the government, do not fall under the category of “associations.”

FBT rebate calculation formula

You can calculate the rebate amount by applying the following formula:

Rebate Amount = 0.47 × (Gross Tax – Aggregate Non-Rebatable Amount) × (Rebatable Days in Year / Total Days in Year)

Here’s a breakdown of the formula components:

• Gross Tax: This represents the amount of Fringe Benefits Tax (FBT) that would be payable without considering the rebate.
• Rebatable Days in Year: This is the number of full days in the tax year during which the employer qualifies for the rebate.
• Total Days in Year: It refers to the total number of days in the tax year, excluding the days when the employer did not engage in activities as an employer.