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CPA Calculating Fringe Benefits Tax - YouTube
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[4]
to avoid a situation where no income tax
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would be paid
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fringe benefits tax or fbt may be
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applicable
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where an organization provides benefits
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to its employees
[15]
instead of salary the first part of the
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process in deciding whether fbt applies
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is to decide whether there is a fringe
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benefit
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once we have determined that fringe
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benefits have been provided
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and what types of fringe benefits they
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are we need to determine the amount of
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fbt payable
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this process consists of three steps the
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steps focus on determining the taxable
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value
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calculating the taxable amount by
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grossing up the taxable value
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then multiplying the taxable amount by
[47]
the fbt
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rate the first step for the calculation
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of fbt payable
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is to determine the taxable value of the
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fringe benefits
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given to employees the taxable value as
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the name suggests
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aims to capture the dollar value of the
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benefit given to the employee
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there are several categories of fringe
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benefits and different ones
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have different ways of calculating the
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taxable value
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in some cases the calculation is simple
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for example a debt waiver fringe benefit
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which applies
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when an existing loan to the employee
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has been forgiven
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is the value of the debt forgiven for an
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expense payment fringe benefit
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it is generally the gst inclusive
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expense paid for
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or reimbursed by the employer
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however for other types of fringe
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benefits the calculations are more
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complex
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for instance for a motor vehicle fringe
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benefit there are two formulas that the
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employer can choose from
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being the statutory formula method and
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operating cost method
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the statutory formula method is a broad
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formula
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that does not take into account most of
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the actual expenses incurred by the
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employer
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whereas the operating cost method uses a
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formula that does take into account
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the details of the actual expenses
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note that the taxable value of a fringe
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benefit can be reduced
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by the employee's after-tax contribution
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it can also be reduced due to the
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operation of the otherwise deductible
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rule
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an employee's after-tax contribution to
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the employer
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that partially pays the cost of paying
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for the fringe benefit
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will reduce the taxable value of the
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fringe benefit provided
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this makes sense because to the degree
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the employee has contributed to the cost
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of the benefit
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the value of the benefit provided by the
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employer
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is reduced the taxable value of the
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fringe benefit
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can also be reduced in some cases by the
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otherwise deductible
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rule in summary the otherwise deductible
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rule
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involves asking the hypothetical
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question
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if the employee had paid for this
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benefit without reimbursement
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would they have received a once-off
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deduction for it
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to the extent the answer is yes the
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otherwise deductible rule
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reduces the taxable value of the benefit
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for example an employer reimburses an
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employee for the costs of their mobile
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phone usage
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assume that the mobile phone is 100 used
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for work expenses
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this is an expense payment fringe
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benefit but
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had the employee paid for this
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themselves they would have received a
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full deduction and so the taxable value
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of the benefit
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is reduced to nil once the taxable
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values of fringe benefits have been
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determined
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the next step is to calculate the
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taxable amount
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of fringe benefits for any given
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employee
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this involves grossing up and
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aggregating the taxable values
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of each fringe benefit any given fringe
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benefit will be grossed up
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by either a type 1 amount or a type 2
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amount
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which of the two gross up rates is used
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will depend on
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whether the employer can claim a gst
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input tax credit
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on the benefit so for instance a
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non-gst registered employer will only
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have
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type 2 benefits for a gst registered
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employer
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the benefit will be a type 1 benefit if
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they can claim an input tax credit
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on the benefit for example if
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they pay for the employee's electricity
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bill this would be type 1
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because it has gst in it but if they pay
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for the employee's water bill
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it will be type 2 because water bills
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are not subject to gst
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why is the type 1 gross-up rate higher
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because the gst registered employer gets
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a benefit in the form
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of an input tax credit so as to equalize
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this
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there is a higher gross up rate so that
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a greater amount of fbt is payable
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and the net tax result for the employer
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is the same
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the third step in calculating the fbt
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payable is to multiply the fringe
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benefits
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taxable amount calculated in the
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previous step
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by the fbt rate the rate is set to match
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the top
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rate paid by individuals inclusive of
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medicare levy
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let's take an example of a building
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company bld propriety limited
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which is registered for gst bld gives
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one of its employees
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ella a number of fringe benefits it
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reimburses her for private school fees
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for her daughter
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it also leases a new car and pays for
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all of its expenses
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ella can use this car for private
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purposes and ella makes a payment to bld
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from her after-tax salary as a
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contribution to the cost of running the
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car
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step one would be calculating the
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taxable value of each of the benefits
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given to ella
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the reimbursement of private school fees
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would be an expense payment fringe
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benefit
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and the taxable value is the amount paid
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for the car fringe benefit assume the
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employer chooses to use the statutory
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method for the taxable value calculation
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the formula provides the calculation for
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the taxable value of the car fringe
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benefit
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including ella's after-tax contribution
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step 2 would be to calculate the taxable
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amount
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by grossing up the relevant taxable
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values the car fringe benefit would be a
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type 1 fringe benefit
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and the private school fees would be
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type 2
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as private school fees are not subject
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to gst
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the total taxable amount is the sum of
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the type 1
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taxable amount and the type 2 taxable
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amount
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step 3 would then involve calculating
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the amount of fbt payable
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this involves multiplying the taxable
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amount by the fbt rate
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which determines the company's fbt
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liability
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to recap there are three steps in
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determining the calculation of fbt
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payable
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these steps focus on determining the
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taxable value
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calculating the taxable amount by
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grossing up the taxable value
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then multiplying the taxable amount by
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the fbt rate
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