Fringe Benefits Tax - Information for rebatable employers (other than hospitals & charitable institutions)

This fact sheet outlines the measures contained in A New Tax System (Fringe Benefits) Act 2000, No. 52 of 2000 which alters the way in which your organisation calculates its fringe benefits tax (FBT) liability.

1. What is a rebatable employer?

Rebatable employers are certain non-government, non-profit organisations that are eligible for a rebate of 48 per cent of the amount of FBT that would otherwise be payable.

Organisations that qualify for this rebate include:

• certain religious, educational, scientific or public educational institutions
• trade unions and employer associations
• non-profit organisations established for the encouragement of music, art, literature or science
• non-profit organisations established for the encouragement or promotion of a game, sport or animal races
• non-profit organisations established for community service purposes
• non-profit organisations established for the purpose of promoting the development of aviation or tourism, and
• non-profit organisations established for the purpose of promoting the development of the agricultural, pastoral, horticultural, viticultural, manufacturing or industrial resources of Australia.

Public hospitals and not-for-profit hospitals should refer to the fact sheet, Fringe Benefits Tax reform - Information for public and not-for-profit hospitals.

Public Benevolent Institutions and charitable institutions should refer to the fact sheet, Fringe Benefits Tax reform - Information for Public Benevolent Institutions and charitable institutions.

If you are unsure whether your organisation is recognised as a rebatable employer, call the FBT law interpretation information line on 13 33 28 (toll free).

2. What are the changes for rebatable employers?

   From 1 April 2000, there is a new formula for calculating the fringe benefits taxable amount and a new gross-up rate to take into account any GST input tax credits that the provider of the fringe benefit may be entitled to.

   From 1 April 2001, there is a new method for calculating the rebatable amount available to eligible rebatable employers.

3. What is the new formula for calculating an employer's fringe benefits taxable amount?

   From 1 April 2000, an employer's fringe benefits taxable amount will be calculated as follows:'

   Employer's type 1 aggregate fringe benefits taxable amount

   x

   New gross-up rate

   +

   Employer's type 2 aggregate fringe benefits taxable amount

   x

   Former gross-up rate

   Type 1 benefits are those for which the benefit provider is entitled to claim GST input tax credits. Type 2 benefits are those for which the benefit provider is not entitled to claim GST input tax credits (for example, where the benefit is GST-free).

4. What are the gross-up rates?

   From 1 April 2000 the new gross-up rate of 2.1292 is used for type 1 benefits. The former gross-up rate of 1.9417 is used for type 2 benefits.

5. What is the method for calculating the amount of the rebate available to eligible rebatable employers up to 31 March 2000?

   Up to 31 March 2000, the method for calculating the rebatable amount available to eligible rebatable employers is:

   [0.48 x gross tax]	x	rebatable days in a year
   		total days in a year

   Gross tax is the FBT that would have been paid by the employer if they had not been entitled to claim a rebate.

   Rebatable days in the year are the number of days during the FBT year that the employer qualified as a rebatable employer.

   For the purpose of calculating the rebate, the total days in the year means the number of days in the year of tax.

6. How has the method changed for the FBT year commencing
   1 April 2000?

   Whilst the above formula for calculating the amount of the rebate remains the same, the total days in the year now refers to the number of days that the claimant was an employer. This change increases the rebate benefit for organisations which were not employers for the full FBT year.

7. What is the new method for calculating the amount of the rebate available to eligible rebatable employers from 1 April 2001?

   From 1 April 2001, the new method for calculating the amount of rebate available to eligible rebatable employers is:

   0.48 x gross tax	-	aggregate
   		non-rebatable	X	rebatable days in year
   		amount		total days in year

   Gross tax is the FBT that would have been paid by the employer if they had not been entitled to claim a rebate.

   The aggregate non-rebatable amount is the FBT payable on the total of the excess amounts over $30 000 for each employee.

   Rebatable days in the year are the number of days during the FBT year that the employer qualified as a rebatable employer.

   For the purpose of calculating the rebate, the total days in the year are the number of days that the claimant was an employer.

8. What is the effect of the new method for calculating the amount of the rebate?

   If the total grossed-up value of the fringe benefits provided to an individual employee exceeds $30 000, a rebate cannot be claimed for the FBT liability on the excess amount.

   The $30 000 capping threshold applies even if the employee was not employed for the full FBT year. For example, if the total grossed-up value of the benefits provided to a person employed between October and March is $15 000, a rebate will apply to all of the FBT payable for providing these benefits.

9. Why are these changes being made?

   The formula used to calculate the fringe benefits taxable amount and the grossing-up rate have been adjusted to take into account any GST input tax credits that the provider of the fringe benefit may be entitled to.

   The changes to the method for calculating the amount of the rebate will improve the equity of the tax system while recognising the special needs of the rebatable employers who provide their employees with fringe benefits.

   Under the current tax system, the remuneration paid to an employee of a rebatable employer is taxed differently to the remuneration paid to other employees. This results in different amounts of tax being paid on the same remuneration received by different employees.

10. What is the actual figure that must be reported on the employee's group certificate?

    From 1 April 1999, any benefits provided to an employee with a taxable value of or more than $1,000 must be reported on group certificate for the income year ending on 30 June 2000. The amount to be reported on the group certificate is the grossed up taxable value of the benefits provided. So the minimum amount that must appear on a group certificate will be $1,941. The amount of the reportable benefit is not included in the taxable income of the employee, but will be used to determine obligations for various taxation measures, and eligibility for government payments. It will be used for the following income tests:

    • medicare levy surcharge;
    • superannuation surcharge;
    • personal superannuation deductions;
    • personal superannuation rebate;
    • rebate for contribution to spouse's superannuation;
    • termination payments surcharge;
    • HECS repayments;
    • Child support obligations.

    For all of these income tested taxation matters, the grossed up taxable value of the benefit will be used. However, for determining eligibility to various income tested government benefits, only the taxable value of the benefit will be used. From 1 July 2001, there are two gross up rates within the FBT regime. If the employer is entitled to an input tax credit in respect of the provision of the benefit, the gross up factor will be 2.1292. Where no such entitlement exists, the gross up rate will be the lower 1.9417 factor.

    For reportable benefits purposes, the lower gross up rate of 1.9417 is always used, regardless of the gross up rate used to determine the taxable value.

    So for the year ended 30 June 2001, the employer will need to report on the Payment Summary (new name for group certificates) the grossed up taxable value of the benefit using the 1.9417 gross up factor.

11. Will the changes affect the FBT reporting requirements of a rebatable employer?

    Since 1 April 1999, all employers have been required to report the total grossed-up taxable value of certain benefits on an employee's group certificate where the total taxable value exceeds $1000.

    The new formula will not change the calculation of an employee's reportable fringe benefits amount. Employers will continue to gross-up the employee's individual fringe benefits amounts by the former gross-up rate of 1.9417 when calculating the amount to be shown on an employee's group certificate or payment summary.

12. What are the FBT implications of garaging a work vehicle at a residence of an employee?

    Under the FBT legislation, there are two methods of taxing car benefits, being the statutory formula method, and the operating cost method. The issue of home garaging for each of these methods will be discussed.
    
    Under the statutory formula method, a taxable fringe benefits arises on any day in which a car is made available for private use of an employee. When a car is garaged at a residence of an employee, then it is taken to be available for private use on that day. As such, a taxable fringe benefit arises on that day. This will be the case regardless of why the employee has taken the vehicle home. For example they may be on call, or they may be taking the car home due to the lack of secure parking facilities at the business premises. Despite these reasons, under the statutory formula method, the car is taxable on those days.
    
    Under the operating cost method, a taxable fringe benefit will only arise where an employee uses the car for a private journey. The operating cost method requires an employee to prepare a log book recording all business journeys for a period of 13 weeks. The private use percentage excludes any business journeys from the total usage of the vehicle, and this percentage is then applied to the total running costs of the vehicle to determine the taxable value of the car.
    
    Travel between home and work is essentially a private journey, and thus that journey would not be required to be recorded on the log book. However, there are a number of circumstances where travel between home and work will be business travel. These are:

    • Itinerant employees. This exception occurs where the employee has shifting places of employment, and is characterised by a web of workplaces, none of which are regarded as regular or fixed places of employment.
    • Client visit on the way to work. This exception occurs where the employee is required to attend an alternative destination before travelling to the usual workplace, where the alternative destination is not a regular place of employment.
    • Travel between regular workplaces.
    • Client visit early the next day. Where a vehicle is provided soli for the purpose of undertaking a business journey the next morning, the trip to the residence is a business journey.
    • Carrying bulky equipment. Where a vehicle is provided soli to transport bulky equipment to and from the workplace, the travel is a business journey.
      On call employees. The trip from the residence to the workplace will only be business journey where the employee commences performance of their duties before leaving home. For example where instructions are given via a telephone by a doctor than they have commenced duties at that time. The mere receipt of a telephone call is not sufficient to allow the journey to work to be considered a business journey. As can be seen from these instances, for the operating cost method, the crucial test is whether the journey is business or private. The place of garaging of the vehicle is largely immaterial for this determination. If the journey between home and work does not fall within one of the above exemptions, it becomes a private journey. If that year is a year in which the log book is used (it must be prepared at least once every 5 years, for a continuous period of 13 weeks), than the journey is not recorded in the log book as a business journey.
    
    
13. What happens if an employer has inadvertently not complied with the requirements of the FBT legislation?

    The following are broad guidelines on the remission of Fringe Benefits Tax obligations for charities who as employers are faced with possible FBT obligations for the very first time. This may occur in circumstances including but not limited to the following:

    • A Public Benevolent Institution (PBI) uses salary sacrifice arrangements for employees, and has taken advantage of the S57A exemption to reduce their FBT liability to nil. However, examination of the activities of the employer show that they are not a PBI, and as such will face a sizeable FBT obligation.
    • An employer becomes aware of their FBT obligations well after the introduction of the capping measures for a PBI on 1 April 2001. For the 2002 FBT year the employer does not lodge a FBT return on time. For previous years the employer has not met its reportable benefits obligations due to ignorance of their responsibilities.

The Commissioner of Taxation released Practice Statement PS 2000/9 on 2 November 2000. This Practice Statement covers the remission of penalties under the new tax system, and applies to all taxes reported on activity statements from 1 July 2000, and to fringe benefits tax matters for the year starting on 1 April 2001. Whilst it does not specifically apply to periods before these dates for FBT purposes, (other than FBT instalments), the FBT area will take into consideration the intention and general policy outline of the Practice Statement when asked to remit penalties for employers. These general principles will also be taken into account when determining the amount of back taxes to be imposed.

It would be useful at this stage to quote various paragraphs from the Practice Statement.

"Where a person fails to satisfy a statutory requirement, the law makes the person liable for an administrative penalty at the maximum amount specified in the statutory provision. The penalty is not imposed by the Commissioner. It arises automatically as a consequence of the person's action or inaction. However, the law does allow the Commissioner to remit all or part of the adinistrative penalty." (Paragraph 4)

"The ATO's policies on the remission of the new administrative penalties are currently being prepared and will be released later this year. The remission guidelines will be based on the ATO Compliance Model and will be consistent with the principles of the Taxpayers' Charter. While these guidelines will explain our longer term expectations, it is necessary to articulate our response to taxpayer behaviour in the first year of the new tax system (the transitional period)." (Paragraph 5)

"The ATO's response will take account of the fact that the community has to become aware of new obligations and procedures. Providing taxpayers with advice and assistance will help with the transition and also achieve improved compliance for the future. The ATO recognises that non-compliance with new obligations may be caused by a lack of knowledge rather than a non-compliant attitude. The policy on remission of penalties in the transitional period will reflect this reality. This is not a concessional approach but a fair and reasonable application of the remission discretion in accordance with the Compliance Model." (Paragraph 6)

"In the transitional period, the ATO considers that it is important to encourage and assist taxpayers to adapt quickly to the new tax system. The remission policies will be designed to achieve this goal. They will distinguish between taxpayers who make a genuine attempt to comply with the requirements of the new tax system and those who do not attempt to understand and satisfy their obligations. The penalties will not be remitted where taxpayers are deliberately non-compliant. In cases of serious fraudulent activity the ATO will seek to prosecute the offence." (Paragraph 7)

"An overriding principle in the application of this statement is to adopt a fair and reasonable approach, recognising the issues faced by business in implementing the new tax system. It is reasonable to expect that, notwithstanding people's best efforts, mistakes will be made during this transitional period." (Paragraph 9)

"Accordingly, the benefit of any doubt in applying the guidelines contained in this statement should be given to the taxpayer. Generally, evidence that a taxpayer has made a genuine attempt to meet his or her obligations should be accepted in the absence of clear evidence to the contrary." (Paragraph 10)

"The balance would shift where a taxpayer has an extended history of deliberate non-compliance with his or her taxation affairs. In these cases, clear evidence of the taxpayer having made a genuine attempt to meet his or her obligations would be required." (Paragraph 11)

The general principles outlined in the practice statement will be used by the ATO for FBT purposes prior to 1 April 2001. This means that if an employer makes a genuine attempt to meet their taxation obligations, than the ATO will take this into consideration when remitting any penalties. The ATO will also take into account the principles as outlined in the ATO Compliance Model and Taxpayer Charter.

14. Need more information on FBT?

Further information on the operation of the new fringe benefits tax gross-up formula that applies from 1 April 2000 is provided in:

• Draft Taxation ruling TR 2000/D8, and
• The fact sheet, Fringe Benefits Tax reform -The interaction between GST and FBT.

A calculation sheet containing a step-by-step calculation methodology and a fully worked example is being developed to explain these changes in more detail. This calculation sheet will be available in the near future.

For queries about paying your fringe benefits tax, varying your instalments or lodging your FBT return, please ring 13 11 42 (toll free).

For questions about fringe benefits tax law interpretation, see your taxation adviser or contact the FBT law interpretation information line on 13 33 28 (toll free).

Our FBT law interpretation staff can answer your questions and provide you with current FBT publications.

FBT publications are also available on the ATO Internet site.

You can obtain a range of other tax reform materials by:

• phoning the business Tax Reform Infoline on 13 24 78
• obtaining A Fax From Tax on 13 28 60
• phoning the TTY service if you have a hearing or speech impairment
• writing to us at PO Box 9935 in your capital city, or
• if you do not speak English and need help from the ATO, ringing the Translating and Interpreting Service (TIS) on 13 14 50.

Businesses can rely on the information presented in this publication, which provides advice from the Commissioner of Taxation on the operation of the GST system.

Under the GST law, any written ruling or advice given or published by the Commissioner protects taxpayers who have followed the information provided. Rulings or advice can be issued in the form of fact sheets, information booklets, advice manuals and bulletins.

In the event that there is a change in the law or the Commissioner's position on a particular matter, you will be protected in respect of what you have done up to the date of that change. This means that if you have relied on a ruling which has later been changed and, in reliance on the earlier ruling, you have underpaid an amount of GST, you will not be liable for the shortfall prior to the later ruling. Similarly, you will not be liable to repay an amount overpaid by the Commissioner as a refund in these circumstances. Equally, no penalties or interest will apply.

You should take care to ensure that the information in this publication is the latest advice from the Tax Office. Where a change occurs, the Tax Office will be taking all steps to alert taxpayers to that change.

The information in this publication is intended to explain how the GST System will work. It may not apply fully to your circumstances. You can always get help from the Tax Office or consider using a professional tax practitioner.