Assessment of Fringe Benefits Tax (FBT) Liability

This assignment is about calculating the Fringe Benefit Tax (FBT) liability for an employer. The case study involves Charlie, who was given a car by his employer and used it privately for some periods. The taxable value of the car fringe benefit has been computed using both the statutory method and the operating cost method, with the former yielding a lower value. Additionally, there are two expense fringe benefits: the hire of a car before Charlie's marriage and accommodation on their honeymoon. These expenses are considered private and attract FBT. Finally, there is also a car parking fringe benefit calculated based on the market value of the parking fees. The total FBT liability for the employer is $17,241.9.

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Issue
The key issue in the given case is to determine the Fringe Benefit Tax (FBT) liabilities that
would arise on account of the information about the potential fringe benefits which have been
offered and are applicable for the year ending June 30, 2017.
Relevant Rule
Fringe benefits are referred to as those non-cash benefits which tend to private in nature and
the taxation of these benefits is governed by the relevant provisions of the Fringe Benefit Tax
Assessment Act, 1986 (Cth.) (also called as “FBTAA86”). Although a variety of benefits
extended to employees can be termed as fringe benefits, but one of the most common fringe
benefits that is extended is known as car fringe benefits (Barkoczy, 2017).
Car Fringe Benefit
The basic requirement for this fringe benefit is that the car should be owned by the employer
and must be extended to employee for personal or private use. It is noteworthy that extension
of car for professional usage does not amount to car fringe benefits being extended. The
various steps involved in the computation of FBT liability on account of car fringe benefit are
highlighted below in accordance with TR 96/26 (Gilders et. al., 2016).
Step 1: Determining the duration of private use of car or vehicle in the given year
Hence, it becomes essential to determine the date on which the private usage of vehicle
begins. This would essentially happen in one of the following two situations (Section 7,
FBTAA86) (Deutsch et. al., 2016).
 Actual usage of car by the employee for personal or private purpose
 The car becomes available for personal use of the employee irrespective of whether
the employee uses it or not.
Also, in case of an employer owned car which is garaged at the residence of an employee, it
is assumed that the concerned employee can use the car for private purpose irrespective of
whether any explicit permission for the same has been given by the employer or no. Besides,
in instances where the residence and office are essentially the same, there is an implicit
assumption that the car is available for private or personal use (Section 7, FBTAA86).
Additionally, as a general understanding, the commutation of the employee from home to

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work and vice-versa in the employer owned car is taken to be the private usage of the vehicle
and attracts car fringe benefits (CCH, 2013).
The car is assumed to be not available for private usage only when it goes to the garage or
workshop for some extensive repairs which may be expected after some accident or an
incident causing significant damage to the vehicle. However, if the car is in workshop for
some maintenance issue or regular servicing, then the vehicle would be assumed to be
available for private use by the employee (Sadiq et. al., 2016).
Step 2: Computation of the taxable benefits associated with car fringe benefit
In order to compute the same, there is a choice with regards to the method deployed. One
option is the statutory formula method while the other option is the operating cost method. In
the statutory formula method, the taxable value of the fringe benefit associated with the car
usage is determined on the basis of the statutory rate which is multiplied by the base value of
the car(Section 9, FBTAA86). On the other hand, the operating cost method pegs the taxable
value in relation to car fringe benefit to the total operating cost which have been incurred in
the current year for which the FBT needs to be computed (Woellner, 2014). The percentage
of operating cost chosen depends on the amount of private use by the employee and thus
lower the private usage by the employee, the percentage chosen would also be lower (Section
10, FBTAA86). With regards to the method used, choice is available and the taxpayer is free
to choose the method which leads to lower FBT liability. However, unless elected at the time
of extension of vehicle for private usage, the statutory formula method is the most common
and preferred approach for computation of taxable value (Barkoczy, 2017).
The formula to be use under this approach is highlighted below (Section 9, FBTAA86).
Taxable value (Car Fringe Benefit) = (Car base value * Statutory percentage applicable
*Portion of year for which car is used for private purpose) – Contribution from employee
The various terms outlined in the formula above are briefly explained below.
 The base value of the car would include cost price paid (excluding any stamp duty or
registration cost), non-business accessories cost, delivery charges of dealer along with
any GST that may be applicable (Section 9, FBTAA86). Also, even though
depreciation is incurred but the same is not reflected in the base value of the car on an

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annual basis. However, 33.33% reduction in the base value can be claimed from the
5th year onwards from the date of purchase (Deutsch et. al., 2016).
 The statutory percentage previously used to be directly linked to the extent of private
use kilometres in a particular year. However, for any benefits those have been
extended after May 11, 2011, the distance travelled ceases to be a determinant as it
has been fixed at 20% irrespective of the distance travelled in the year (Section 9,
FBTAA86) (Gilders et. al., 2016).
 The portion of private usage can be determined by dividing the days on which the car
is available for private use by the total number of days in the year. This enables the
reflection of private usage in the taxable value of the benefit (Section 9, FBTAA86).
 The employee contribution tends to include any amount which the employee directly
pays to the employer for the usage of the car along with any operating expenses
related to the car which were borne by the employee (Section 9, FBTAA86) (CCH,
2013).
Step 3: Determination of the FBT liability associated with car fringe benefit
Once the taxable value is determined, the FBT liability associated with the extended benefit
can be computed in the following manner (Woellner, 2014).
FBT liability for the employer = Taxable value * Gross Up Factor * FBT rate
The taxable value has been already calculated but the gross up factor would be dependent on
the type of the good and whether it attracts GST or not. The Type 1 goods attract GST unlike
Type 2 goods which do not attract GST. A car is a type 1 good and the relevant gross up
factor for the year under consideration stands at 2.1463. Further, the FBT rate for the time
period under consideration is 49% (Barkoczy, 2017).
Expense Fringe Benefit
This is incurred when any expense of private nature is borne by the employer. The expense
may be fees of children or any other personal expense which the employer does not need to
bear (Section 20, FBTAA86) (Sadiq et. al., 2016).
FBT liability = Expense paid * Gross up factor * FBT rate

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The gross up factor would be dependent on the nature of expenses. Expenses that attract GST
to be paid would be termed as Type 1 goods while those which would not attract GST would
be referred to as Type 2 goods.
Car Parking Fringe Benefit
For the extension of car parking fringe benefits, all the following conditions must be satisfied
in accordance with TR 96/26 (Gilders et. al., 2016).
 The car tends to be parked that is under the provider’s control through ownership or
lease
 Car parking must be done for a period in excess of four hours which must lie between
7 am and 7 pm
 The car parked must be under the control of an employee
 The parking is provided on account of employment of the employee
 The parking of the car is near the primary place of employment
 On the given day, it is imperative that atleast once the car must have been used by the
employee to commute between office and home
Besides, the above general conditions, there are two specific conditions under s.39A, FBTAA
86 which relate to the car parking lowest fee to be greater than the threshold value and also
location of the car parking station in not more than 1 km radius of the car park provided by
the employer. The threshold value for the year ending on March 31, 2017 is $ 8.48 in
accordance with TD 2016/17 (Barkoczy, 2017).
Taxable value of car parking fringe benefits = Market value of car parking – Employee
contribution
FBT liability on employer = Taxable value * Gross up factor * FBT rate
Application
Shime Homes Pty Ltd is the employer in this case while Charlie is the employer. Based on
the given facts which are outlined in the case, the FBT liability needs to be ascertained
primarily with regards to the discussion of the various relevant rules highlighted above.
Car fringe benefits

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The car was given to Charlie on September 1, 2016. Considering that Charlie used to park the
car in his own garage, it is fair to assume that Charlie can use the car for private purpose
irrespective of any explicit information given in this regards.
Base value of the car = $ 70,000
Thus, total potential days of private usage for Charlie = September 1 2016 to March 31 2017
= 212 days
The days when the car was out for servicing during Christmas would not be considered as
non-availability as it was in the workshop for servicing only and not any material repair for
any damage caused. However, deduction is private use days would be claimed for the two
week period in February when the car was damaged and was in the workshop.
Hence, total period of private use = 212 – 14 = 198 days
It is imperative that since the various operating expenses have been paid by the employer,
hence the employee contribution in relation to the various operating costs is minimal.
However, total operating costs incurred by the employer = 5500*7 + 240*(7/12)+ 960*(7/12)
= $ 39,200
The taxable value of the car fringe benefit has been computed using the statutory method as
indicated below.
Car fringe benefit (Taxable Value) = 70000*0.20*(198/365) = $ 7,594.52
Further, the taxable value of the car fringe benefit also needs to be computed using the
operating cost method as indicated below.
Car fringe benefit (Taxable Value) = (Total operating costs * Percentage private usage) –
Employee contribution = (39200*(30000/8000)) = $ 14,700
It is apparent that the preferred method would be the statutory method since it leads to lower
value of taxable car fringe benefits.
FBT liability for employer = 7594.52*2.1463*0.49 = $ 7,987.06
Expense Fringe Benefit

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Based on the given case facts, there are two expenses which are of personal nature but are
borne by the employer thus causing a non-cash benefit to the employer which would be taxed
at the end of the employer. The car hired before marriage for Charlie by the employer for a
cost of $ 1,000 was clearly a private expense which was not related to the profession. Hence,
it would attract fringe benefit tax. Also, the accommodation on honeymoon was a private cost
which the employer did not need to bear as it did not account from professional
commitments. Thus, due to the accommodation being sponsored by the employer the
personal expense of the employee (Charlie) is lowered thus leading to extension of expense
fringe benefits.
FBT liability for employer = (3000+1000)* 2.1463*0.49 = $ 4,206.75
Car Parking Fringe Benefit
It is fair to assume that in the given case that the various conditions related to the car parking
fringe benefit can be assumed to be fulfilled. Also, the parking fee per day is greater than the
threshold value for FY2017.
Also, market value of fringe benefit = $ 200 per week
Total car parking fringe benefits (From September 1 to March 31) = 200*(28-4) = $4,800
There are total 28 weeks, 2 weeks the car is on repair and 2 weeks have been adjusted for
marriage, honeymoon.
FBT liability for employer = 4800 * 2.1463*0.49 = $ 5,048.1
Conclusion
On the basis of the above computations, it would be fair to conclude that various fringe tax
benefits have been extended to the employee Charlie and total FBT liability for the employer
on this account would be (5048.1+ 4206.75 + 7987.06) or $ 17,241.9.

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References
Statutes & Tax Rulings
Fringe Benefit Tax Assessment Act, 1986 (Cth)
TR 96/26
TD 2016/17
Books
Barkoczy, S. (2017), Foundation of Taxation Law 2017 (9thedition), North Ryde: CCH
Publications
CCH (2013), Australian Master Tax Guide 2013 (51st edition), Sydney: Wolters Kluwer
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016), Australian tax
handbook (8th edition), Pymont: Thomson Reuters,
Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. (2016), Understanding taxation
law 2016 (9th edition), Sydney: LexisNexis/Butterworths.
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A
(2016) , Principles of Taxation Law 2016 (8th edition), Pymont: Thomson Reuters
Woellner, R (2014), Australian taxation law 2014 (7th edition), North Ryde: CCH Australia