An expense payment fringe benefit arises when
- a payment is made by
- the employer, or
- an associate of the employer, or
- a third party by arrangement
- to discharge an obligation, or
- to reimburse expenditure
incurred by an employee or an associate of the employee
Inhouse Expense Payment Fringe Benefits
An in-house expense payment fringe benefit is where the expense is for goods or services that the employer or associate normally sells to customers.
It can be either:
- a property expense payment fringe benefit
- an inhouse property expense payment fringe benefit is for goods only, and the taxable value is 75% of an arms length price, calculated as the lowest selling price charged to the public, or otherwise 75% of an arm’s length market value.**
- a residual expense payment fringe benefit
- an inhouse residual expense payment fringe benefit is essentially a fringe benefit which is not covered by other categories, and is usually in the nature of a service or the use of property. The taxable value is 75% of the lowest arm’s length price charged to the public at the time for identical benefits, or otherwise 75% of an arm’s length market value.**
The first $1,000 of inhouse fringe benefits provided to each in employee within an FBT year are exempt under Section 62 FBTAA 1986, deducted from taxable value before deducting otherwise deductible amounts. Note however the limitation of inhouse benefits concessions through amendments taking effect for new or materially altered salary packaging arrangements from 22 October 2012, and from 1 April 2014 otherwise.**
** Rule Modifications 22 October 2012 – salary sacrifice arrangements and inhouse benefits
Under amendments which took effect from 22 October 2012, the concessions for inhouse property and inhouse residual fringe benefits taxable values, are not to be available where they are being accessed through salary sacrifice arrangements.
Where benefits are accessed through a salary packaging arrangement:
- taxable value for the benefits will become simply “notional value” – an arms length market valuation
- the $1,000 reduction in value will not be available
- Transitional Arrangements – the amendments will apply to all new salary packaging arrangements from 22 October 2012. Arrangements already in place before 22 October will be excluded until 1 April 2014.
External (i.e. not inhouse) Expense Payment Fringe Benefits
The taxable value of an expense payment fringe benefit which is not an “inhouse” benefit is the amount paid by the employer.
Reductions of taxable value
In general, taxable values are reduced by
- the employee contribution – the amount paid for the benefit by the employee (or associate), reduced by the amount of any reimbursements, and
- amounts which are “otherwise deductible”
- the otherwise deductible rule does not apply to benefits made available to associates of the employee
- expenses spanning more than one year, such as depreciation deductions (except instant write-off claims under $300) are not included
Losses otherwise deductible: Draft Taxation Ruling TR2013/D1 presents the Tax Office view that the Otherwise Deductible rules cannot be used to reduce the taxable value of external expense payment fringe benefits to which the loss deferral rules under Sec 35-10(2) (ITAA 1997) would apply. The loss deferral rules treat a loss as not having been incurred in a year that the taxpayer fails certain business activity tests.
The Draft Ruling argues that once Sec 35-10(2) is applied, the expenses remaining lose their distinguishing identity and therefore also lose the required nexus with the (otherwise) deductible expenses in question. Moreover, it is argued, there is no way to calculate how much expenditure remains.
Claiming Input Tax Credits on expense payment fringe benefits
The claim for an input tax gst credit generally must be supported by a tax invoice held by the employer, and be for a creditable purpose.
The tax invoice can be in the name of the employee, but the employer’s ITC claim is reduced by the amount of any credit claimable by the employee.
Substantiation and documentation
To support a reduction of taxable value on basis that the expenses are “otherwise deductible”, requires documentary evidence of the expenses and an employee declaration.
Documentary evidence, when required, follows the normal expected format for substantiating tax deductions, e.g. an invoice, receipt or similar document showing the transaction date, date of receipt, supplier name, nature of goods or services and the amount.
In general, employee declarations are required in order to support the calculation of private use percentage (if any) and therefore the taxable value of any fringe benefit which remains after applying the “otherwise deductible” rule, or the extent to which the expense is directly tax deductible. Declarations are required to be held by the employer before lodgment of the FBT return, or by 21 May if no return is required.
Links to downloadable declaration templates are published by the Tax Office here: FBT Declarations
When applicable a travel diary is required for travel which involves an overnight stay of more than 5 consecutive nights, for domestic travel with a private use percentage or all overseas travel. This requirement may be waived if the expenses are validly covered by a no-private use declaration.
- ATO – Expense payment fringe benefits – employer’s guide
- ATO – GST and fringe benefits – employer’s guide
- EM extract of Tax Laws Amendment (2012 Measures No. 6) Bill 2012 – an explanation of the rules introduced from October 2012 which remove concessional FBT treatment for in-house fringe benefits accessed through salary packaging
This page was last modified on 23 Aug 2017