Question

Discuss the Fringe Benefits Tax (FBT) implications of the following cases (a) – (e): (Note - No calculations are needed. Only answer whether the employer is liable for FBT or not and why or why not) (a) An employer provides a Christmas lunch at a local restaurant, costing $1,000, for 10 of its key employees. (b) A sporting club, which pays its honorary treasurer an honorarium of $5,000 per year, providing a car to him. The car is used 90% for club business. The treasurer has a full-time job at the local hospital. (c) An employer gives each of its 15 staff a leg ham each valued at $60 for Christmas. (d) An employer allows its staff to take home their laptop computers. It is estimated that only half the work done at home is business related. (e) A company director, not in receipt of any remuneration from the company, uses the company’s two-tonne truck while undertaking renovations to his own home.

Answer 1

Fringe Benefit Tax

Fringe Benefit Tax (FBT) was introduced to levy tax on any benefits that an employee receives from his employer apart from wages, salaries. Basically the Non cash employee benefits. Earlier this was used to evade tax on the part of Employee, however FBT then made the source itself taxable, ie now the employer will have to pay tax at the specified rate on such fringe benefits that are being given to Employees.
The only purpose behind such benefits is to recruit, motivate, keep high quality people.

The Internal Revenue Services (IRS) maintans a list named 'Tax Guide to Fringe Benefit'.

(a) Employer provides a Christmas Lunch at a local restaurant, costing $1000 for 10 of his key Employees.
--> As per the list maintained by IRS, meals are excluded for the said list. So, even though the lunch is organised for Key Employees this will not be a considered as fringe benefit given to Employees.
Such a benefit will be classified as Tax-free Fringe benefit.

(b) A sporting club, which pays its honorary treasurer an honorarium of $5,000 providing a car to him. The car is used 90% for club business. The treasurer has a full time job at a local hospital.
--> Personal use a of Company car is considered to be a taxable fringe benefit. Personal use may include commuting at work place, allowing non associated members to use service, etc.
So 10% of the honorary received that consumes personal usage of the car will be leviable under Fringe Benefit Tax.

(c) An employer gives each of its 15 staff a leg ham each valued $60 for Christmas.
--> The IRS has specified that gifts such as ham, turkey, etc provided on Christmas or other holidays need not be counted as taxable income. However, further it also states that if such gifts are presented frequently then it shall be levied to Fringe Benefit Tax.
In the given case, a gift for Christmas in the form of Leg Ham will not be considered to be a taxable income and thus no FBT levieable.

(d) An employer allows its staff to take home their laptop computers. It is estimated that only half of the work done at home is business related.
--> Assuming that no cost is recovered from employees against Laptops used at home, this being a benefit for employees shall be counted as a taxable fringe benefit. 50% of the work done at home is for personal use out of an asset provided by company shall be levieable under FBT.

(e) A company director not in Reciept of any remuneration from the company, uses the company's two tonne truck while undertaking renovation to his own house.
--> Director not receiving any remuneration from the company is of no consideration while considering Fringe Benefit Tax. Using Company's two tonne truck from personal use shall be taxable fringe benefit.
As, if not company director would have got it rented from any other place and had to bear the entire cost and same way a company had to let go off its assets for two days that might have slowed down the business.
Even though its a rare occasion it shall be classified under taxable fringe benefit.