Interaction Between GST

1
Interaction Between GST FBT Calculation of
FBT Payable byPublic Hospitals

• Sandra Dowling
• D D Taxation Consulting

2
Session Outline

• Introduction
• New sections outlining calculations
• Impact on specific benefits
• Group Certificate Reporting
• Data capturing issues

3
Fringe Benefits Tax Overview

• FBT is
• a tax payable by employers
• on the fringe benefits taxable amount
• of the employer
• in respect of a year of tax
• 1 April to 31 March

4
Fringe Benefit Definition

• Benefit
• Provided to
• Employee or associate
• By employer or associate or third party by
  arrangement
• In respect of employment
• unless excluded

5
Structure of FBT Act

• Each benefit has own division
• 13 Divisions
• Each Division
• definition
• taxable value
• reductions
• exemptions

6
Types of Fringe Benefits

• Car
• Car parking
• Loan
• Debt waiver
• Living away from home allowance
• Housing
• Board

• Expense payment
• Entertainment
• Tax Exempt Body Entertainment
• Property
• Airline transport fringe benefits
• Residual fringe benefits

7
What is Not a Fringe Benefit?

• Salary / wages
• Exempt benefits
• Awards under an employee share acquisition scheme
• Superannuation contributions
• ETPs
• Capital payment - eg a restrictive covenant

8
Types of Employers

• Standard
• Exempt
• Rebateable

9
GST Overview

• GST payable on taxable supplies / importations
• Input tax credit entitlements for creditable
  acquisitions / importations

10
Taxable Supplies

• What are the core concepts?
• You
• Supply
• For consideration
• In the course of furtherance of
• An enterprise
• Connected with Australia
• By a registered person
• Other than an exempt supply

11
Creditable Acquisition

• What are the core concepts?
• You
• Acquire
• Creditable purpose
• Taxable supply
• Consideration
• Registered

12
Objective of FBT/GST Interaction

• Ensure tax neutrality between fringe benefits and
  cash salary after 1 July 2000
• Stop employees avoiding GST via salary packaging
• Employers registered for GST can claim input tax
  credits in respect of fringe benefits.

13
FBT Legislation Covering GST Interaction

• Introduced 9 March 2000
• Received Royal Assent 30 May 2000
• Effective from 1 April 2000
• Draft Ruling issued 30 June 2000
• Taxation Laws Amendment Bill (No 8)
• introduced 13 October 2000

14
Structure of FBT Legislation

• FBT is levied upon
• Fringe Benefits Taxable Amount
• Which is the sum of Employers
• Type 1 aggregate fringe benefits amount
• Type 2 aggregate fringe benefits amount
• Aggregate non-exempt amount
• Benefits exempt under section 57A
• Section 5B of FBTAA

15
Method Statements

• FBT Assessment Act sets out Method Statements
  to calculate
• type 1 aggregate fringe benefits
• type 2 aggregate fringe benefits
• aggregate non- exempt amount

16
Step One of Method Statement Aggregate Non
Exempt Amount

• For Each Employee calculate
• Individual Grossed-Up Non-Exempt Amount
• Sum of
• Individual grossed-up type 1 non-exempt amount
• Individual grossed-up type 2 non-exempt amount
• Section 5B (1E)
• step one

17
Step Two of Method Statement

• For each employee
• where Individual Grossed-up non-exempt amount
  is greater than 17,000
• Subtract 17,000
• where Individual Grossed-up non-exempt amount
  equals or is less than 17,000
• Amount is nil
• Section 5B(1E)
• Step 2

18
Step Three of Method Statement

• Not applicable to public hospitals
• relates to PBIs whose limit is 30,000

19
Step Four of Method Statement

• Add together amounts calculated at Step 2 for
  each employee
• This is the Aggregate non-exempt amount
• Section 5B(1E)
• step four

20
Individual Grossed-up Type 1 Non Exempt Benefit
.485 .10 (1-.485) x (1 .1) x .485 2.1292
21
Individual Grossed-up Type 2 Non Exempt Benefit
1 (1-FBT Rate)
X
Type 2 Individual Base Non-exempt Amount
1 / (1-.485) 1.9417
22
Type 1 Individual Base Non-Exempt Amount

• Worked out using a method statement
• Add
• amount calculated at step 3 of section 1(K)
• amount calculated at step 3 of section 1(L)
• Section 5B(1H)

23
Type 2 Individual Base Non-Exempt Amount

• Worked out using a method statement
• Add
• amount calculated at step 4 of section 1(K)
• amount calculated at step 4 of section 1(L)
• Section 5B(1J)

24
Section 1K Method Statement

• Ignoring section 57A work out
• employees individual fringe benefits amount
• identify the benefits that are GST creditable
  benefits (Step Three)
• identify the benefits that are NOT GST creditable
  benefits (Step Four)
• Section 5B(1K)

25
Section 1L Method Statement

• Ignoring section 57A work out
• employees share of excluded fringe benefits BUT
  disregard
• meal entertainment
• car parking
• entertainment leasing facilities
• identify the benefits that are GST creditable
  benefits (Step Three)
• Type 1
• identify the benefits that are NOT GST creditable
  benefits (Step Four)
• Type 2
• Section 5B(1L)

26
GST-Creditable Benefits

• Fringe benefits that are GST-creditable benefits
  under section 149A of FBT Act
• Provider is entitled to ITC for acquiring /
  importing the fringe benefit
• (general provisions of Division 11 of GST Act)
• or
• Provider entitled to ITC by virtue of Division
  111 of GST act
• (reimbursements)

27
Calculation of FBT Payable

• multiply Fringe Benefits Taxable Amount by 48.5
  to calculate FBT payable
• Fringe Benefits Tax Act

28
Suggested Methodologyto Determine FBT Payable

• 1. Identify the benefits which are relevant for
  capping
• benefits that are NOT exempt
• excluded benefits other than the 3 exceptions
• 2. What is the taxable value of each benefit?
• 3. Allocate to individual employees
• 4. Is the benefit Type 1 or 2?
• 5. For each employee add up all Type 1 and gross
  up by 2.1292
• 6. For each employee add up all Type 2 and gross
  up by 1.9417

29
Suggested Methodologyto Determine FBT
PayableCont..

• 7. For each employee add amounts at step 5 and
  step 6
• 8. Where an employee has 17,000 or less, ignore
  their amount
• 9. Where an employee has more than 17,000
• subtract 17,000
• 10. Add remaining amounts for each employee (ie
  amount above 17,000) together
• 11. Multiply amount at step 10 by FBT tax rate

30
Excluded Fringe Benefits

• meal entertainment
• car parking
• entertainment Leasing Facilities
• fuel associated with remote area housing
• freight costs for food for employees living in a
  remote area
• occasional travel to a major Australian
  population centre by employees and families
  living in remote area
• other benefits specifically relating to police
  force, defence force, etc

31
Excluded Fringe BenefitsNot Included in Capping
Limit

• meal entertainment
• car parking
• entertainment leasing facilities

32
Specific Benefits

33
Car Fringe Benefits

34
Taxable Value of Cars

• Two methods to calculate taxable value
• Statutory Formula Method
• Operating Cost Method

35
Statutory Formula Method
ABC - E D

• Where
• A base value of the car
• B statutory percentage
• C number of days benefits provided
• D number of days in that year of tax
• E recipient's contribution

36
Base Value

• cost price
• expenditure attributable to acquisition or
  delivery
• excludes tax on registration or transfer
• includes non business accessories
• includes sales tax where acquired sales tax free
  pre 1 July 2000
• includes GST where acquired post 30 June 2000

37
Operating Cost Formula
(100 - Operating business
- Recipient Cost percentage)
Contributions
x
38
Operating Costs

• car expenses
• insurance and registration
• deemed depreciation (where owned)
• deemed interest (where owned)
• lease charges (where leased)

39
Car Expenses

• registration
• insurance
• repairs
• maintenance
• fuel
• excludes insured repair costs
• Note Does not include Toll Charges

40
Ways in Which Hospitals Provide Cars

• Cars Purchased by Hospital
• Executive Officer Cars
• Operational / Pool Cars
• Cars Leased in Hospital Name
• Executive Officer Cars
• Operational / Pool Cars
• Novated Leases
• hospital staff via external remuneration company
• Note reimbursement of employees car expenses is
  NOT a car fringe benefit - it is expense payment
  fringe benefit

41
Gross-Up Rate

• Can be either Type 1 or Type 2
• Depends on
• whether car is purchased / leased
• when car purchased / leased
• whether employer entitled to ITC

42
Entitlement to ITC

• Where a car is owned
• acquisition date triggers the ITC entitlement
• Where a car is leased
• lease payment dates trigger the ITC entitlement
• Entitlement to ITC for operating costs DOES NOT
  determine the FBT gross-up rate

43
ITC Entitlement for Cars Phased-In

• The general rule - ITC for cars will be phased in
  over three years
• no entitlement for 2001
• 50 entitlement for 2002
• 100 entitlement for 2003
• WATCH THE TRAP! - these provisions relate to
  PURCHASED cars - they will not apply to leased
  cars
• WATCH THE OTHER TRAP! - these provisions do NOT
  apply if employer was previously entitled to a
  sales tax exemption

44
Purchased Cars

• For bodies that were previously sales tax exempt
• Cars purchased post 30 June 2000 will be Type 1
• Cars purchased pre 1 July 2000 will be Type 2

45
Leased Cars

• leased cars will be Type 1 if the lease charges
  include GST
• BUT
• 2001 is a transitional year
• some will be type 1 and type 2
• some will be only type 2
• some will be only type 1
• Non-reviewable leasing contracts
• entered into pre 8 July 1999

46
Leased Cars Determining Type 1 or Type 2

• first leased pre 1 July 2000
• 2001 FBT year
• combination type 1 and type 2
• 2002 FBT year onwards
• - will be type 1
• first leased post 30 June 2000
• will be type 1 benefit
• only leased between 1 April 2000 and 30 June 2000
• will be type 2 benefit

47
Novated Cars

• reviewable leases (GST levied)
• 2001 FBT year
• combination type 1 and type 2
• 2002 Year onwards
• will be type 1
• non reviewable leases (no GST levied)
• will be type 2
• Non- Reviewable lease
• contract written before 8 July 1999
• No provision to review to include GST

48
Car Fringe Benefits

• Statutory Formula Method
• use GST inclusive price in base value for cars
  leased/purchased after 1 July 2000
• cars leased/purchased pre 1 July 2000 use the
  cost price plus sales tax in base value
• Operating Cost Method
• use GST inclusive running costs
• how to capture those amounts
• gross up expenditure
• beware costs between 1 April 2000 and 30 June
  2000
• registration does not have GST
• third party Insurance does have GST

49
Example Car First Leased Post GST

• leased from 1 October 2000
• available for private use each day
• cost 28,000 (GST inclusive)
• kms travelled 13,000 during period
• fuel costs 1,300 (GST inclusive)
• rego 470
• insurance 380 (GST inclusive)
• lease charges 2,800 (GST inclusive)
• business percentage 85

50
Example Car First Leased Pre GST

• leased from 9 May 2000
• available for private use each day
• cost 28,000 (GST inclusive)
• kms travelled 15,500 during period
• fuel costs 2,300 (GST inclusive)
• rego 470
• insurance 380 (GST inclusive)
• lease charges 4,660 (GST inclusive)
• business percentage 85

51
Loan and Debt Waiver Fringe Benefits

• Loan benefit arises where
• loan to employee
• advance to employee
• Debt waiver benefit arises where
• employee released from an obligation
• Taxable value based on amount lent / waived

52
Loan and Debt Waiver Fringe Benefits

• Determining FBT gross up rate
• Always Type 2
• No ITC available because
• loans are input taxed
• no acquisition in respect of debt waiver

53
Living Away From Home Allowance (LAFHA)

• LAFHA arises where
• allowance given to employee
• in respect of temporary relocation
• Taxable value based on amount paid to employee

54
Living Away From Home Allowance

• Determining FBT gross up rate
• Always Type 2
• No ITCs as the payment of a living away from home
  allowance is not a creditable acquisition

55
Housing Fringe Benefits

56
Housing Fringe Benefits

• Benefit arises where
• Employee provided with right to occupy
• Home, house, unit of accommodation
• Which is employees usual place of residence
• Taxable value either
• Statutory formula
• Market value

57
Gross-Up Rate

• Either Type 1 or Type 2
• Depends on type of accommodation
• most will be residential premises - is input
  taxed, therefore no GST - type 2
• commercial residential premises - type 1
• Depends upon whether employer owns / leases
  premises
• eg. when purchased pre 1 July 2000, no ITC
  therefore type 2

58
Contribution by Employee Towards Rent

• If the supply of the accommodation is input taxed
  dont have to take 1/11th of the recipients
  contribution as GST

59
Expense Payment Fringe Benefits

60
Expense Payment Fringe Benefits

• Benefit arises where
• Employer either
• (a) reimburses employee
• (b) makes payment to third party
• for expense incurred by employee
• Taxable value amount reimbursed / paid

61
Determining FBT Gross-Up Rate

• Can be either Type 1 or Type 2
• Depends on whether employer entitled to ITC

62
Entitlement to Input Tax Credits

• GST Creditable Benefits
• via Division 11 of GST Act
• have to meet criteria
• NOTE reimbursements to employees are not an
  acquisition, therefore not entitled to ITC under
  this Division
• via Division 111 of GST Act
• deals with reimbursements to employees

63
Reimbursements - Div 111Current legislation

• Reimburse an expense of
• an employee
• an agent of the employer
• an officer of a company
• Conditions that must be met
• related directly to his/her activities as
  employee
• taxable supply to employee
• employee must not be entitled to ITC
• employee must obtain tax invoice

64
Reimbursements - Div 111 Examples Under Current
Legislation

• ITC entitlement where employer reimburses
• employee purchased stationery as agent for
  employer
• employees telephone bill of which 10 is
  business use
• No ITC entitlement where employer reimburses
• employees private or domestic expenditure such as
  holidays or private telephone bill

65
Reimbursements - Div 111Proposed Amendments

• Taxation Laws Amendment Bill (No 8) 2000
• Amendment extends entitlement to ITC for all
  reimbursements which constitute Expense Payment
  Fringe Benefits
• No longer has to directly relate to employees
  activities as an employee
• If passed will apply from 1 July 2000
• Need to amend BAS?

66
Reimbursements - Div 111Examples Under Proposed
Amendments

• ITC entitlement where employer reimburses
• employee for purchase of stationery as agent for
  employer
• employees telephone bill of which 10 is
  business use
• employees private or domestic expenditure such
  as holidays, private telephone expenses that have
  no business element

67
Property Residual Fringe Benefits

• Benefit arises where
• Property
• Title to property passes to employee
• Beneficial ownership passes to employee
• Residual
• Use of property or service provided to employee
• Taxable value based on GST inclusive amount or
  market value

68
Property Residual Fringe Benefits

• Determining FBT gross up rate
• Either Type 1 or Type 2
• Entitlement to input tax credits
• Most acquisitions and importations will be
  eligible for ITC
• note provision of goods that are GST free eg food

69
Recipients Contributions

• What is a recipients contribution
• payment by employee or associate
• from after tax income (not salary sacrifice)
• towards cost of benefit
• Reduces Taxable Value of certain benefits
• GST 1/11 x amount received
• include in BAS
• note exception input taxed/GST free supplies
• The whole amount is taken into account in
  determining the taxable value of the fringe
  benefit

70
Group Certificate Reporting

• The new gross-up formula does not effect
  calculation of RFBA.
• Group certificate reporting still uses the former
  gross-up formula of 1.9417

71
Data Capturing

• Taxable Value of fringe benefits must be
  calculated on a GST inclusive basis
• Problem
• GST inclusive data unlikely to be available in
  G/L
• G/L accounts mixture of taxable, non taxable items

72
House Keeping

• Instalments are 1/4 of prior year FBT liability
• Instalments Due via BAS
• 21 July
• 21 October
• 21 January
• 21 April
• Lodge FBT return 21 May

73
Disclaimer

• Parts of this workshop are based on our views of
  how these provisions are intended to operate.
• We have considered the legislation passed to
  date, the current bill before Parliament and the
  draft rulings that have been issued to date.
• Participants should bear this in mind and seek
  advice on their specific facts before making any
  decisions.