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Calculating FBT Payable

The FBT payable is calculated as follows:
  1. Calculate each employee's Individual fringe benefits amount and add all of the employee's amounts together.
  2. Add the taxable value of all excluded fringe benefits.
  3. Separate the total of the benefits calculated above into those where the provider was entitled to claim an input tax credit for the acquisition of the benefit (referred to as Type 1 benefits) and those where no input tax credit was available (referred to as Type 2 benefits).
  4. Multiply the aggregate taxable value of the Type 1 fringe benefits by the following gross-up formula:
    FBT rate + GST rate
    = 2.0802
    (1- FBT rate)(1 + GST rate) FBT rate
  5. Multiply the aggregate taxable value of Type 2 fringe benefits by the following gross-up formula:
    1
    = 1.8868
    1- FBT rate
  6. Add the amounts determined in steps 4 and 5 together. From this amount, subtract the exempt component that applies to public benevolent institutions under Section 57A.
  7. Multiply the amount remaining from Step 6 by the FBT rate, that is 47% to ascertain the FBT payable.
  8. If the employer is entitled to a rebate of FBT, this will need to be taken into consideration when ascertaining the FBT payable.

Gross-Up Rules

To ensure neutrality between an employee receiving a fringe benefit or cash salary within the context of the GST system, there are two relevant gross-up rates that are used to calculate the taxable value of a particular fringe benefit depending on whether the employer is or is not entitled to an input tax credit.
The fringe benefits taxable amount is dependent on the application of the relevant gross-up rate. Since the commencement of GST, a higher gross-up rate, Type 1 Rate, was introduced, to account for the effect of input tax credits being claimed for the GST paid on some fringe benefits. This higher gross-up rate is applied to those fringe benefits where an employer is entitled to an input tax credit. The lower gross-up rate, Type 2 rate, is applicable to those fringe benefits where the employer has no entitlement to an input tax credit.
Aggregate Fringe Benefit Type
Gross-up rate
Entitlement to an Input Tax Credit
Type 1
2.0802 (Higher)
Employer
is entitled
 to an input tax credit for the fringe benefit provided.
Type 2
1.8868 (Lower)
Employer
is not entitled
 to an input tax credit for the fringe benefit provided.
Which of these gross-up rates is to be applied depends on whether the amounts are ‘type 1 aggregate fringe benefits amounts’ or ‘type 2 aggregate fringe benefits amounts’.
Type 1 aggregate fringe benefits amount (Higher gross-up rate)
The 'type 1 aggregate fringe benefits amount' represents the total value of fringe benefits provided to employees or their associates where the provider of the benefit (i.e. employer) was entitled to input tax credits (assuming the entity is registered for the GST) at the time the benefit was acquired. The amount is then grossed-up to a tax inclusive value (referred to as the grossed-up taxable value or GUTV) by applying the following FBT gross-up formula, that is:
Taxable ;Value ;=
Type 1 aggregate Fringe benefits amount
x
FBT rate + GST rate
[ 1- FBT rate] x [ 1+ GST rate] x FBT rate
FBT Rate
47%
GST Rate
10%
This gross-up formula effectively recoups any input tax credits arising from the provision of fringe benefits. A Type 1 aggregate fringe benefits amount is multiplied by 2.0802.
The formula therefore ensures that the net cost to an employer of remunerating an employee with fringe benefits or cash salary will remain tax neutral from 1 July 2000.
Type 2 aggregate fringe benefits amount (Lower gross-up rate)
The second type of aggregate fringe benefits amount provides for situations where:
  • fringe benefits are provided, and their taxable value is determined before the introduction of the GST (pre 1 July 2000);
  • fringe benefits are GST-free;
  • the goods or services are not acquired by the employer, for example, the goods or services are manufactured; and
  • the activities of certain registered employers are input taxed.
An employer's type 2 aggregate fringe benefits amount is therefore the sum of:
  • The individual fringe benefits amount for each of the employer's employees that relate to fringe benefits for which the provider (ie. employer) of the benefit was not entitled to an input tax credits on the acquisition of the benefit; and
  • The total value of excluded fringe benefits on which the provider (i.e. employer) of the benefit was not entitled to input tax credits on the acquisition of the benefit.
The type 2 aggregate fringe benefits amount is then grossed-up at the lower gross up rate (referred to as the grossed-up taxable value or GUTV) by applying the following FBT gross-up formula, that is:
Taxable Value =
Type 2 aggregate Fringe benefits amount
x
1
;1- FBT rate
This gross up formula means that the Type 2 aggregate fringe benefits amount is multiplied by 1.8868.

This article applies to:

  • PRODUCT: ONESOURCE Fringe Benefits Tax