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Newsletter March 2008

Fringe Benefits Tax

Fringe benefits tax (FBT) is a tax paid on certain non cash benefits employers provide to their employees or their employees’ associates. The FBT year runs from 1 April to 31 March. Entities that are required to lodge an FBT return should do so by late April or May (depending on their 2007 liability).

A fringe benefit is a benefit provided to an employee (or their associate) in respect of their employment. Some of the common benefits that are exempt from FBT such as work-related items and minor benefits are:

• most minor benefits valued at less than $300 where it would be unreasonable to treat the benefit as a fringe benefit;
• a notebook, a laptop computer or similar portable computer (one per employee per FBT year);
• a mobile phone or a car phone if the phone is primarily used in employment;
• an item of protective clothing;
• a calculator or tools of trade.

 Minor Benefits
Where a benefit has a value of less than $300, the benefit can generally only qualify for the minor benefit exemption if it can be concluded that it would be unreasonable to treat the benefit as being subject to FBT. In making this conclusion, it must be determined that the benefit is ‘infrequent’ and ‘irregular’, and that there are no other ‘identical’ or ‘similar benefits.

In-House Benefits Reduction
Where an employer provides one or more ‘in-house fringe benefits’ to an employee in an FBT year, the aggregate taxable value of these benefits can be reduced by up to $1,000 (up from $500 in 2007). And ‘in-house fringe benefit’ is a good or service provided to an employee that is identical or similar to those that the employer supplies to the public in the ordinary course of the employer’s business.

In-specie Superannuation Contributions
From 1 July 2007, as part of the government’s recent simplified superannuation reforms, FBT will no longer apply to cashless (‘in-specie’) employer superannuation contributions made to a complying superannuation fund for the benefit of an employee. This change will provide consistent FBT treatment between employer contributions made in the form of ‘money’ and those made by way of a property transfer (i.e., ‘in-specie’ contributions).

Benchmark Interest Rate for 2008 FBT Year
The benchmark interest rate for the FBT year commencing 1 April 2007 is 8.05% (up from 7.30% that applied in the previous year. The benchmark interest rate is used in calculating loan fringe benefits and car fringe benefits where the employer owns or hire purchases the car and elects to use the operating cost method.

Reportable Fringe Benefits
The FBT reporting threshold has been increased from $1,000 to $2,000 from 1 April 2007. This means that if an employee receives fringe benefits where the taxable value of those benefits is greater than $2,000, the grossed-up amount of those benefits must be shown on the employee’s PAYG payment summary.

From 1 July 2007, an FBT reporting exclusion applies in respect of a ‘pooled’ or ‘shared’ car which gives rise to a car fringe benefit for more than one employee. For this purpose, a pooled or shared car is basically a car provided by an employer for the private use of two or more employees.

Recent changes have been introduced to remove the ability for tax payers to claim specific tax deductions for contributions of gifts to political parties, independent members and candidates. The amendments also remove general deductions for business taxpayers for contributions and gifts to political parties, members and candidates. The amendments apply in relation to contributions and gifts made on or after 1 July 2008.

The government has announced that a superannuation lump sum payment made to a person with a terminal medical condition is tax-free. This is regardless whether the payment is from either a taxed or an untaxed source. The date of the measure has been brought forward from its original date so it applies to payments made on or after 1 July 2007.

In line with its pre-election promise, the government has introduced a Bill to reduce personal income tax rates. The Bill will increase the threshold at which the 30% marginal rate begins to apply and decrease the 40% marginal rate to 38% (from 1 July 2009) and to 37% (from 1 July 2010). 

The low income tax offset will increase as a result of the reduced income tax rates. The maximum amount of the low income tax offset will increase from $750 to $1,200 for the 2008/2009 income year, up to $1,350 for the 2009/2010 year, and up to $1,500 for 2010/2011 and later years.

 Further, the income level above which senior Australians begin to pay tax will increase. This will mean that eligible senior Australians will have no tax liability until their income reaches $28,867 for singles and $24,680 for each member of a couple in the 2008/2009 year.