Taxation Law BTF5965 Fringe Benefits Tax PDF

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Taxation Law BTF5965 summary of legislation and cases for each chapter with comments and notes to assist with exams...

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Fringe benefit s. 136(1) 1. Benefit: definition is very wide and is likely to capture most benefits provided by an employer to an employee 2. Privided during the year of tax: 1st April to 31st March 3. Employer, associate or third party arranger （1） Employer includes current, former and future employers （2） Fringe benefits can also be provided by an employer to an employee indirectly through third party arrangements. Note: that employer must “participate in or facilitate the provision or receipt of the benefit” Payne v FCT (1996) the Commissioner confirms that frequent flyer points earned by an employee for workrelated travel do not constitute a fringe benefit as they have not been provided by an employer, associate of the employer or a third party arranger. 4. Employee (current, former and future) or associate 5. In respect of the employment of the employee: there must be a “sufficient and material relationship between the employment and the provision of the benefit. （1） J & G Knowles & Associates Pty Ltd v FCT (2000): Loan provided to the directors is not fringe benefit, as the loan was not made to the directors in their capacity as directors but because they were the “ultimate owners of the business and its assets” （2） Starrim Pty Ltd v FCT (2000): Loan provided to company directors and shareholders to purchase a land of the company is not fringe benefit, as the loan was made due to they were the purchasers of the property and not in respect of employment. （3） Slade Bloodstock Pty Ltd v FCT (2007): Repayments of loans owed by an employer to an employee is not fringe benefits. Exclusions 1. Salary or wages; superannuation; benefits under employee share scheme, payments on termination of employment. 2. Allowance: predetermined amount to cover an estimated expense (under income tax, not FBT); Reimbursement: payment made in respect of actual expenditure (under FBT, Roads and Traffic Authority of New South Wales v FCT, Ruling TR 92/15). FBT payable 1. Taxable value can be reduced by (1) recipient’s contribution; (2) otherwise deductible rule: reduce to the extent the amount would have been deductible to the employee had the employee incurred the expense directly (only apply to employee, not associate) 2. Type (1) Type 1: employer is entitled to GST input tax credits. (2) Type 2 (3) FBT = (Type 1 * 2.0802 + Type 2 * 1.8868) * 47% (49% in 2016) Categories of fringe benefits 1. Car fringe benefit: (1) A car fringe benefit arises where an employer provides a car for an employee’s private use, s 7(1) of FBTAA. (not exclusively in the course of producing assessable income s. 136(1)) (a) Actual use is irrelevant; a fringe benefits arises when the car is available for use, eg car is garaged at employee’s home. s 7(2)

(b) In Ruling MT 2021 and Determination TD 94/16, a car fringe benefit will arise even where the employee is overseas if the car is garaged at or near the employee’s home during this time. (c) Where an employee is prohibited from using an employer-provided car for personal purposes but the employer “turns a blind eye”, the private use of the car is a finge benefit deemed to be provided by the employer. s 7(4) (d) s 7(3) : a car fringe benefit will also arise where an employee or an associate of the employee has custody and control over the car and it is not being used for employment purpose at the time. (2) Exempt benefits include: (a) Certain cars (eg, taxi, panel van, utility truck or other road vehicle not designed for the principal purpose of carrying passengers) provided for work purpose and private use is minor, infrequent and irregular: s 8(2)； (b) Unregistered cars: s 8(3); (c) Any fringe benefits that arise in relation to the provision of a car fringe benefit are treated as exempt benefits: s 53 For example, payments for fuel or repairs by the employer could be considered expense payment fringe benefits, but are exempt due to the operation of s 53 (3) Taxable value (a) Statutory formula method (automatically unless ecect to use the cost basis): 0.2 * base value * days of benefit provided/ days of a year – amount of the recipient’s payment Base value = cost or leased car value (reduced by 1/3 at least 4 years after first held) (b) Operating cost: C * (100% - BP) – R C = any costs relating to the car incurred, including deemed depreciation and interest BP = business use percentage R = recipient’s payment 2. Debit waiver benefits: A debt waiver fringe benefit arises where an employee (or associate) owes an amount to an employer and the employee (or associate) is released from his or her obligation to repay all or some of that amount. S. 14 of FBTAA. Debt must be waived due to the employment relationship and not for some other reason (eg, because it is irrecoverable) to constitute a debt waiver fringe benefit. 3. Loan fringe benefits: A loan fringe benefit arises in each year when an employer provides an employee (or associate) with a loan: s 16 of BFTAA Taxable value = loan * (statutory interest rate – actual interest rate) * days benefit provided/days of a year – any amount applied by otherwise deductible rule 4. Expense payment fringe benefits (1) Arise (a) Pay an expense incurred by the employee; or (b) Reimburse an employee for expenditure incurred by the employee (2) Exempt benefits (a) No private use declaration s. 20A (b) Certain accommodation expense payment fringe benefit where the employee is required to live away from their usual residence

(3) Taxable value (a) In-house expense: lower of the cost or price s. 22A (b) External expense: amount incurred by employer s. 23 Exempt fringe benefits 1. Minor benefits (1) Notional taxable value of the benefit is less than $300. (2) $300 limit is applied to each benefit and is not a cumulative exemption (3) Frequency and regularity of the minor benefit should be taken into consideration: infrequent but regular benefits (a bottle of wine every Christmas; dinner at every year end) qualify as minor benefits Ruling TR 2007/12 2. Work-related items: only apply where they are primarily for use in the employee’s employment 3. Membership fees and subscription 4. Single-trip taxi travel: beginning or ending at the place of work Interaction 1. Income tax (1) Employer: general deductions (2) Employee: NANE income 2. GST: employer, may constitute a creditable acquisition...