With 31 March and the end of the Fringe Benefits Tax year just around the corner, now is the time to take advantage of last minute tax planning opportunities. Below is a summary of the most common types of fringe benefits, and their tax treatment:
This is the most common fringe benefit, and arises where an employer’s car is used by an employee for any private purposes, notwithstanding that the vehicle is also used for business purposes. An exemption applies for taxis, utilities of carrying capacity greater than 1 tonne or unregistered cars.
There are two methods for calculating the taxable value of the vehicle fringe benefit;
1. STATUTORY FORMULA METHOD
Calculated on the base value of a car multiplied by a statutory rate. The statutory rate is determined by the kilometres travelled during the FBT year if the car was acquired prior to 10 May 2011. Otherwise it is a 20% flat rate.
2. OPERATING COST METHOD
Calculated by applying the log book percentage against actual running costs of the car for the FBT year. Record keeping for this method is more detailed than the statutory formula method but often results in a much lower FBT amount.
CAR PARKING BENEFIT
FBT liability arises where a car is parked on business premises that is within one km of a commercial car parking station. An exemption applies to small businesses with gross ordinary income of less than $10 million and the car is not parked in a commercial parking station.
There are a variety of benefits which are FBT free, if they are primarily used for business purposes including a portable electronic device, protective clothing, a briefcase and tools of trade.
MINOR FRINGE BENEFITS
Minor and infrequent benefits of less than $300 are exempt from FBT.
IN-HOUSE BENEFITS EXEMPTION
Allows the employer to reduce the taxable value of in-house benefits by up to
$1,000 per employee per year.
MEAL ENTERTAINMENT ON THE EMPLOYER’S PREMISES
Food and drink provided to employees on ordinary working days are FBT exempt.
MEAL ENTERTAINMENT NOT ON THE EMPLOYER’S PREMISES
All meal entertainment provided to staff outside a business premises is subject to FBT.
EXPENSE PAYMENT BENEFIT
This is where an employer pays or reimburses private expenses incurred by employees. eg. school fees; private telephone bills; rates and land taxes; life and health insurance premiums etc. All these payments would be subject to FBT.
These arise when an employee is provided property (eg. stock) for free or at a discount.
THE ‘OTHERWISE DEDUCTIBLE RULE’
In most cases, where the employee would have been allowed a ‘once only’ tax deduction for the expense if they had paid it themselves, then the taxable value is reduced by its deductible portion.
REDUCTIONS TO TAXABLE VALUES
Once the FBT calculations have been completed, the taxable value of the fringe benefit may be reduced to nil through employee reimbursements or contributions.
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