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PKF Australia

Accountants and Business Advisers

Fringe Benefits Tax changes

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Darren Shone

Partner

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Fringe Benefits Tax changes

Posted 19 Feb 14 by Darren Shone

The Coalition Government has reversed the proposed car fringe benefits changes, restoring the status quo. As a result, the statutory formula method is still allowed as an alternative to the log book method.

However, what has not been so well publicised is that the Fringe Benefits Tax (FBT) rate will increase.

The Medicare Levy will increase by 0.5% from 1 July 2014 and as a result any provisions of the tax act that reference the Medicare rate will be increased. One such rate that is referenced is the FBT rate and so it will also increase by 0.5%, from 46.5% to 47%, as of 1 April 2014.

This change will not impact businesses that have the value of fringe benefits reduced to nil through employee contributions.

In particular, these changes may have a significant impact on the not for profit sector which receives concessional FBT treatment by way of exemptions or rebate. These impacts could include a decrease to the pre-gross up value of benefits that are FBT exempt (up to the $30,000 grossed-up FBT limit for Public Benevolent Institutions). This is because the grossed up amount of benefits has not been increased, but the gross up factor has changed due to the change in FBT rates. The gross up rates will change as follows:

  • For type 1 benefits the pre grossed-up benefits amount will increase from 2.0647 to 2.0802
  • For type 2 benefits the pre grossed-up benefits amount will increase from 1.8692 to 1.8868

As a result, for those eligible for the exemption, the pre grossed-up value of benefits will change as follows:

  • For type 1 benefits the pre grossed up benefits amount will decrease from $14,529 to $14,421 per employee
  • For type 2 benefits the pre grossed up benefits amount will decrease from $16,049 to $15,899 per employee

For rebateable employers the value of the rebate will be decreased by the same amount of the increase in the gross up formula. The FBT rate has increased on the remaining benefit after the rebate as follows for $100 in value of benefits:

  • For type 1 benefits the post grossed up benefits amount will increase from $206.47 to $208.02
    • The FBT therefore rises from $96 to $97.77
    • The rebate remains at 48%
    • So the after rebate liability increases from $49.92 to $50.84 per $100 of benefit or $0.92 per $100 of benefit
    • For an organization that has total benefits of say $20,000 the FBT bill increases by $184
  • For type 2 benefits the pre grossed-up benefits amount will increase from $186.92 to $188.68
    • The FBT therefore rises from $86.92 to $88.68
    • The rebate remains at 48%
    • So the after rebate liability increases from $45.19 to $46.11 per $100 of benefit or $0.92 per $100 of benefit
    • For an organization that has total benefits of say $20,000 the FBT bill increases by $184

While the amounts themselves do not appear to be significant, they do require a review of packaging arrangements and FBT liabilities being offered from 1 April 2014, particularly by those in the not for profit sector. Those that do not conduct reviews risk providing benefits in excess of the intended salary package and being subject to FBT due to the changes.

To ensure that your house is in order, contact Darren Shone about conducting an FBT Healthcheck on your business.


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