Calculation of FBT on Car Benefit Provided by Periwinkle to Emma

Question: Explain calculation of FBT on car benefit provided by Periwinkle to Emma. Answer: Fringe benefit refers to the benefits that have been provided by the employer to his employee. This service has been provided to the employee by the employer on account of his employment. The benefits that has been provided to the employee are separate from his normal wages which are been paid to him. The government imposes tax on these benefits that are been provided by the employer to the employee The tax so levied by the government will be borne by the employer himself and no tax in this case will be transferred to the employee. The tax that needs to be calculated in this is case, will be computed on the gross value of the benefit that has been provided to the employee. Certain examples of the fringe benefits provided to the employee are as follows: Office car used by the employee for his personal use. Gym membership fees of the employees paid by the company. Loan provided to the employee at reimbursement rate. Free ticket provided by the employees. In order to determine whether a given benefit is covered in the fringe benefit or not, it would be determined based on the fact the given benefits would have been provided to the employee if he would not be holding a place within the company. The fringe benefit tax for the year has kept at 49%. The tax so computed at this rate would be paid by the employer to the government. Higher gross up value when employer is entitled for GST credit, at the rate of 2.1463 Lower gross up value when employer is not entitled for GST credit, at the rate of 1.9608 In the given case, Periwinkle Limited is engaged in the business of manufacturing bathtub. One of the employees Emma has been provided with a car being she has to travel a lot for business related purposes. However, she uses the car for his personal use as well. Calculation of FBT on car benefit provided by Periwinkle to Emma The car has been purchased on 1st May 2015 and used till 31 March 2016 The purchase value of the car $33,000. This amount includes GST. Additional expenses incurred (including GST) are $550. During this period the car has travelled for 10,000 Kilometers. During the period, the car has been used daily except for 10 days when Emma was out of station and the car w sparked at the airport and for 5 days when it was undergoing repairs. FBT taxable value = FBT capital value X statutory percentage X (number of days in FBT year the vehicle is available for use)/365 Where, FBT capital value is cost of car less on road cost FBT capital value = $33000 - $550 = $32450 Statutory percentage Since the car travelled for 10,000 kms and purchased on 1 May, 2015, hence statutory percentage will be 20% Kilometers travelled during the FBT year (1 April - 31 March) Statutory Percentage Existing contracts New Contracts entered into after 7.30pm 10 May 2011 1 April 2014 1 April 2015 1 April 2016 Less than 15,000km per annum 26% 20% 20% 20% 20% of days in FBT year car is available for use The Car travelled has being used for 335 days between 1 may, 2015 to 31 March, 2016 out of which car is not used for 15 days being Emma was out of station and car was on repair, and hence in short the has been used for 320 days. FBT taxable value = $32450 X 20% X (320/365) = $5690 (rounded off) FBT liability = FBT taxable value X Gross up factor X FBT rate = $5690 X 2.1463 X 49% = $ 5,984 Calculation of FBT on loan given by Periwinkle to Emma FBT will be computed on the loan given by the company to Emma, if the interest rate for the loan at which the same has been provided to the employee is lower than the interest rate prevailing in the market. In the given case, the company has provided loan worth $500,000 to Emma at an interest rate of 4.45%. The interest rate prevailing in the market, as provided in the Australian tax laws for the year 2016 is 5.45%. Thus, in this case, the differential amount will be treated as fringe benefit and would be eligible for FBT taxation. Taxable value of loan Fringe tax benefit = $ 5, 00,000 X (5.45 4.45) % X 212/365 = $ 5808 FBT liability = taxable value X FBT rate = $2904 X 49% = $ 1423 Emma has used 10% of the loan amount for purchasing shares. In this case she would be entitled for further deduction on the interest on loan amount used for income generating purposes Hence further deduction of FBT liability (FBT liability X 10%) = $1423 ($1423X 10%) = $ 142 Net FBT liability in case of Loan fringe benefit = $1423- $142 = $ 1280 Purchase of bathtub by Emma at a concessional price If a company gives the goods that have been manufactured by it to the employees at concessional prices, then in that case the same would not be accountable for FBT taxation. The employer in this case is not required to keep a track for such sale made by him. In the given case, Periwinkle Limited is engaged in the business of manufacturing bathtub. One of the employees Emma has purchased the Bath tab from the company at $1300. The cost price of the bath tab was $1700 and the company use to sell the same for $2600 in the market. Being in this case, the goods are being manufactured by the company itself, the concessional rate would not be liable for any fringe benefit taxation on the part of the employer. References ATO. Gov, Statutory formula method for Car FBT taxation, viewed on 1st June 2016, ATO. Gov, FBT Tax rate 2016, viewed on 1st June 2016, ATO. Gov, Market Interest Rate 2016, viewed on 1st June 2016.