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Newsletter March 2010

Fringe benefits tax is a tax paid on certain benefits you provide to your employees or your employees’ associates. FBT is separate from income tax and is based on the taxable value of the various fringe benefits you provide. The FBT year runs from 1 April to 31 March. 

A fringe benefit is a benefit provided in respect of employment. However, the following are not fringe benefits:

• payments of salary or wages,
• shares purchased under approved employee share acquisition schemes,
• your employer contributions to complying super funds,
• employment termination payments (for example, a company car given or sold to your employee on termination),

Some of the common benefits that are exempt from FBT are:

• most minor benefits valued at less than $300 where it would be unreasonable to treat the benefit as a fringe benefit,
• certain work-related items such as:
  • a portable electronic device
  • an item of computer software
  • an item of protective clothing
  • a briefcase
  • a tool of trade.

As an employer, you have to pay FBT, even if the benefit is provided by an associate or by a third party under an arrangement with you. For example, you may deal with a supplier who, in turn, provides free goods to your employees.

The FBT rate of 46.5% is applied to the grossed up value of benefits to determine the total FBT due. An FBT return covering the FBT year that begins on 1 April and ends on 31 March, should be lodged by 21 May each year

The changes apply to employee share scheme (ESS) interests acquired on or after 1 July 2009. The new rules will also apply to some shares, rights and stapled securities acquired before that time. The changes include;

• Generally, the difference between the market value of an ESS interest and what an employee pays for the interest is taxed upfront,
• The $1,000 tax concession remains available if an employee and the scheme meet certain conditions and the employee’s taxable income (after adjustments) is $180,000 or less.

From 1 July 2009, changes to tax laws will affect people earning foreign employment income. Generally, they will only be exempt from income tax in Australia if they earn their income by providing foreign services relating to certain development projects and charitable or government activities. If you are unsure of whether you qualify for the exemption while working overseas, you should ask your employer.

Due to these changes, this year you may be issued with a PAYG Payment Summary – foreign employment by your Australian employer if their foreign employment income is assessable in Australia. If you:

• have salary and wages (including allowances) shown on their PAYG Payment Summary – foreign employment, you will need to include these amounts in the tax return as assessable income. You will also need to include any Australian tax withheld in the tax return,
• are entitled to a foreign income tax offset for amounts of foreign tax paid, you will need to claim the foreign income tax offset,
• can claim any work-related expenses incurred in earning the income shown on their PAYG Payment Summary – foreign employment, you will need to show the expenses,
• have reportable fringe benefits and/or reportable employer super contribution shown on the PAYG Payment summary – foreign employment, you will need to include this amount in your tax return.

On 14 December 2009, the changes to the non-commercial losses rules became law. These changes affect the eligibility to claim a deduction for business losses for the 2009–10 income year and future years.

The changes now include a new income requirement. You meet the income requirement where the sum of the following is less than $250,000:

• taxable income (ignoring business losses),
• total reportable fringe benefits,
• reportable super contributions
• total net investment losses, including net financial investment losses and net rental property losses.

If you don’t meet the income requirement, you can no longer use the four tests to work out whether you are eligible to claim a deduction for the losses. The tests are the:

• assessable income test
• profits test
• real property test
• other assets test.

Unless one of the exceptions apply, your loss will be deferred. The loss can then only be applied against future assessable income from that activity. If you meet the income requirement in a later year, you can claim a deduction for losses in that year, provided you meet one of the four tests.

If you don’t meet the income requirement you may still be eligible to apply for the Commissioner’s discretion if your genuinely commercial activity has a lead time. Taxpayers must provide independent evidence where available, and objectively establish that their activity will become profitable within a period that is commercially viable for that industry.