Description
The fringe benefits tax (FBT) was the tax applied to most, although not all, fringe benefits in India. A new tax was imposed on employers by India's Finance Act 2005 was introduced for the financial year commencing April 1, 2005.
Fringe Benefits Tax (FBT) – What is it?
Financial Accounting
What is a fringe benefit?
A fringe benefit is an advantage or a compensation provided to an employee or their family and associates which is beyond the normal or regular benefit of the employee being paid salary or wages for their work. Under the FBT Act a benefit is defined very broadly and it includes just about everything from a cup of coffee to a weekend away, use of a motor vehicle, provision of accommodation, receiving books and periodicals or having memberships and subscriptions paid.
What is fringe benefits tax?
Fringe benefits tax (FBT) is a tax paid by the University on benefits or advantages provided by the University to its employees or their family and associates. FBT is levied using various formulae, depending on the benefit type, to attempt to equate to the income tax which would have been levied on the benefit if that benefit had been paid as salaries and wages.
Who pays the tax?
The University pays the tax; this is then processed to the School/Portfolio/Cost Centre or Project’s account which caused the tax to be incurred. Although the University pays the tax to the Australian Taxation Office, there can be an impact on an employee. Where the combined value of all benefits provided to an employee in one financial year is greater than $2,000.00 there is a requirement for the grossed-up value of the benefits to be shown on the employees annual Payment Summary (Group Certificate). Exempt benefits and meal entertainment benefits are not included in the reportable amount. While these reportable benefits are not taxed in the employee’s hands, they are used for determining the Medicare levy surcharge and other income-tested government benefits, such as child support, HECS contribution threshold, etc. The FBT Act provides specific valuation methods for each type of benefit; as a result, the particular method used for calculating the tax for one type of benefit will not necessarily apply to another type of benefit. For example, the method used for motor cars and wagons is different to that for vans and utilities.
What is the effect of fringe benefits tax on the University?
Where FBT applies to an employee benefit, unless there is concessional calculation formula specified in the FBT Act for the benefit, such as the Statutory Formula method with Motor Vehicles, the tax effectively doubles the cost to the University of providing the benefit. As a result of this budget holders need to be aware of any FBT implications and its cost.
Benefits provided by third party
It is not necessary for the University to actually provide the benefit for FBT to apply. A benefit provided by a third party and paid for or arranged by the University or arises out of employment with the University can incur FBT.
CRICOS Provider No. 00103D
FactSheet_FBT_What_is_it
Page 1 of 2
Fringe Benefits Tax (FBT) – What is it?
Financial Accounting Otherwise deductible benefits
In relation to some benefits, however - for example expense payment benefits, and property benefits where an employee is able to demonstrate that they could have claimed a tax deduction themselves had they personally paid the expense, the employee is able to complete an “Otherwise Deductible Declaration” and have the benefit reduced to nil. The Otherwise Deductible rule does not apply to all benefits universally; meal entertainment and motor car benefits are two types of benefits for which a Declaration cannot be used.
Some benefits are exempt
There are a number of other benefits which are exempt from FBT, such as salary sacrificed superannuation contributions, inwards staff relocation costs and mobile telephones, lap-top computers, briefcases, and electronic personal diaries, where they are used primarily for business.
Calculating the tax
To calculate FBT it is necessary to: • • • • • Determine the value of the benefit using the various ATO rules for the various benefits Reduce the value of the benefit by any employee cash contribution made by the employee Reduce the benefit value by any otherwise deductible amount – a declaration must be made by the employee for this to occur Gross-up the value of the benefit. (Grossing up a benefit calculates what the value of the benefit would have been in pre income tax dollars assuming the recipient pays the top marginal rate, the amount of gross-up varies depending upon whether the benefit had a GST Input tax credit available). The tax is levied on the grossed-up value. Currently the rate is 46.5%.
CRICOS Provider No. 00103D
FactSheet_FBT_What_is_it
Page 2 of 2
doc_179247623.pdf
The fringe benefits tax (FBT) was the tax applied to most, although not all, fringe benefits in India. A new tax was imposed on employers by India's Finance Act 2005 was introduced for the financial year commencing April 1, 2005.
Fringe Benefits Tax (FBT) – What is it?
Financial Accounting
What is a fringe benefit?
A fringe benefit is an advantage or a compensation provided to an employee or their family and associates which is beyond the normal or regular benefit of the employee being paid salary or wages for their work. Under the FBT Act a benefit is defined very broadly and it includes just about everything from a cup of coffee to a weekend away, use of a motor vehicle, provision of accommodation, receiving books and periodicals or having memberships and subscriptions paid.
What is fringe benefits tax?
Fringe benefits tax (FBT) is a tax paid by the University on benefits or advantages provided by the University to its employees or their family and associates. FBT is levied using various formulae, depending on the benefit type, to attempt to equate to the income tax which would have been levied on the benefit if that benefit had been paid as salaries and wages.
Who pays the tax?
The University pays the tax; this is then processed to the School/Portfolio/Cost Centre or Project’s account which caused the tax to be incurred. Although the University pays the tax to the Australian Taxation Office, there can be an impact on an employee. Where the combined value of all benefits provided to an employee in one financial year is greater than $2,000.00 there is a requirement for the grossed-up value of the benefits to be shown on the employees annual Payment Summary (Group Certificate). Exempt benefits and meal entertainment benefits are not included in the reportable amount. While these reportable benefits are not taxed in the employee’s hands, they are used for determining the Medicare levy surcharge and other income-tested government benefits, such as child support, HECS contribution threshold, etc. The FBT Act provides specific valuation methods for each type of benefit; as a result, the particular method used for calculating the tax for one type of benefit will not necessarily apply to another type of benefit. For example, the method used for motor cars and wagons is different to that for vans and utilities.
What is the effect of fringe benefits tax on the University?
Where FBT applies to an employee benefit, unless there is concessional calculation formula specified in the FBT Act for the benefit, such as the Statutory Formula method with Motor Vehicles, the tax effectively doubles the cost to the University of providing the benefit. As a result of this budget holders need to be aware of any FBT implications and its cost.
Benefits provided by third party
It is not necessary for the University to actually provide the benefit for FBT to apply. A benefit provided by a third party and paid for or arranged by the University or arises out of employment with the University can incur FBT.
CRICOS Provider No. 00103D
FactSheet_FBT_What_is_it
Page 1 of 2
Fringe Benefits Tax (FBT) – What is it?
Financial Accounting Otherwise deductible benefits
In relation to some benefits, however - for example expense payment benefits, and property benefits where an employee is able to demonstrate that they could have claimed a tax deduction themselves had they personally paid the expense, the employee is able to complete an “Otherwise Deductible Declaration” and have the benefit reduced to nil. The Otherwise Deductible rule does not apply to all benefits universally; meal entertainment and motor car benefits are two types of benefits for which a Declaration cannot be used.
Some benefits are exempt
There are a number of other benefits which are exempt from FBT, such as salary sacrificed superannuation contributions, inwards staff relocation costs and mobile telephones, lap-top computers, briefcases, and electronic personal diaries, where they are used primarily for business.
Calculating the tax
To calculate FBT it is necessary to: • • • • • Determine the value of the benefit using the various ATO rules for the various benefits Reduce the value of the benefit by any employee cash contribution made by the employee Reduce the benefit value by any otherwise deductible amount – a declaration must be made by the employee for this to occur Gross-up the value of the benefit. (Grossing up a benefit calculates what the value of the benefit would have been in pre income tax dollars assuming the recipient pays the top marginal rate, the amount of gross-up varies depending upon whether the benefit had a GST Input tax credit available). The tax is levied on the grossed-up value. Currently the rate is 46.5%.
CRICOS Provider No. 00103D
FactSheet_FBT_What_is_it
Page 2 of 2
doc_179247623.pdf