In the 2012/13 Mid-Year Economic and Fiscal Outlook (MTEFO) released on 22 October 2012, the Federal Government announced the removal of concessional Fringe Benefits Tax (FBT) treatment for in-house fringe benefits accessed through salary sacrifice arrangements. The announcement will have a significant impact on the tax effectiveness of arrangements whereby school staff whose children attend the same school salary sacrifice the school fees of their children.
The legislation containing this amendment was introduced to the House of Representatives on 29 November 2012, but has not been passed.
Broadly, an in-house fringe benefit relates to benefits that are provided by an employer to an employee that are identical or similar to those provided to customers in the ordinary course of business. The provision of education to children of school staff would therefore be an in-house fringe benefit.
Under the old rules, the taxable value of in-house fringe benefits is 75% of either the lowest price at which an identical benefit is sold to the public or under an arm's length transaction, depending on the nature of the benefit. The taxable value is then reduced by a further $1,000.
Under the announced changes, the 25% reduction in taxable value and the $1,000 reduction will be removed.
The new rules apply to new salary sacrifice arrangements entered into on or after 22 October 2012. However during a transitional period (i.e. between 22 October 2012 and 31 March 2014) benefits provided under 'existing arrangements' can be valued under the old rules. An existing arrangement is a legally binding arrangement entered into before 22 October 2012 under which benefits will be provided during the transitional period. All salary sacrifice arrangements will be subject to the new rules from 1 April 2014.
Example
An employee of a school salary sacrifices $8,000 of salary for their child to attend the school.
Under Old Rules:
The taxable value of the fees for FBT purposes would be as follows:
| Taxable value: 75% x $8,000 | $6,000 |
| General exemption of $1,000: | ($1,000) |
| Taxable value: | $5,000 |
| Grossed up value: | |
| $5,000 x 1.8692 | $9,346 |
- Assuming the employer is a rebatable employer and the $30,000 cap has not been exceeded the FBT rebate of 48% applies.
| FBT | $9,346 x 46.5% | $4,346 |
| Less: 48% rebate | ($2,086) | |
| FBT payable | $2,260 |
- The employer is not a rebatable employer and/or the $30,000 cap has been exceeded.
| FBT payable | $9,346 x 46.5% | $4,346 |
Under New Rules (New arrangements entered after 22 October 2012 and all arrangements after 1 April 2014):
The taxable value of the fees for FBT purposes would be as follows:
| Taxable value: | $8,000 | |
| Grossed up value: | ||
| $8,000 x 1.8692 | $14,954 |
- Assuming the employer is a rebatable employer and the $30,000 cap has not been exceeded the FBT rebate of 48% applies.
| FBT | $14,954 x 46.5% | $6,953 |
| Less: 48% rebate | ($3,338) | |
| FBT payable | $3,615 |
- The employer is not a rebatable employer and/or the $30,000 cap has been exceeded.
| FBT | $14,954 x 46.5% | $6,953 |
This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.
