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  • Issue no. 18 - FBT/GST

    18.1 What is the linkage between the GST and FBT regimes?

    Two relevant rulings issued:

    TR 2001/2External Link: Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula to apply from 1 April 2000.

    GSTR 2001/3External Link: GST and how it applies to supplies of fringe benefits.

    18.2 What is the extent of creditable purpose where employer uses the 50/50 split method for entertainment fringe benefits?

    In most cases, an input tax credit is not allowed for acquisitions to the extent that the entity cannot deduct the expense for income tax under Division 69 of the GST Act. Where an employer elects to use the 50/50 split method or the 12-week register method for determining the taxable value of their entertainment fringe benefits, only a corresponding proportion of the entertainment expenditure is deductible under sections 51AEA to 51AEC of the ITAA 1936.

    The GST Act was recently amended so that an acquisition or importation of meal entertainment and entertainment facilities will only be creditable to the extent that it is deductible under sections 51AEA to 51AEC of the ITAA 1936 (subsection 69-5(3A) of the GST Act). The amendments take effect from 1 November 2000 for entities with monthly tax periods and 1 January 2001 for entities with quarterly tax periods.

    Example 13

    Socrates Enterprises is a registered direct marketing company that provides meal entertainment during the FBT year to employees who travel, but also provides weekly meals and alcohol at functions to both employees and clients. Socrates Enterprises has made an election under section 37AA of the FBTAA that it will apply the '50/50 split method' to apportion its fringe benefits tax liability. Socrates Enterprises is not entitled to input tax credits on all of its meal entertainment acquisitions, such as food, alcohol, and catering costs, in providing all of its meal entertainment for the fringe benefit year in which the election was made since Division 69 of the GST Act ensures that Socrates Enterprises' meal entertainment acquisitions is only creditable to the extent that it is deductible under income tax laws.

    End of example

    18.3 FBT/GST-Entitlement to ITC on Motor Vehicle

    Contributed by CPAA

    CPAA queried the treatment where an employee is provided with a motor vehicle for private use - will the employer be entitled to input tax credits on the acquisition of the motor vehicle if the vehicle is used for business purposes?

    ATO response

    An employer who makes an acquisition of a car, say, by way of novated lease arrangement, purely to reward the employee as part of a salary package, can be making a taxable supply of the use of the car to the employee. This is the case even if the employer's enterprise activities are the making of input taxed supplies (for example, making financial supplies).

    Where the acquisition of the car relates entirely to the taxable supply of the car to the employee, it is a creditable acquisition and the employer is entitled to input tax credits on the acquisition. In such cases, where the employer pays the employee an amount for business use (for example, by way of a rate per kilometre allowance) of the employee's vehicle, there is no change in application of the vehicle by the employer for the purpose of Division 129. The payment of an allowance by the employer has not changed the fact that the employer is supplying the vehicle for use at the employee's discretion. Division 129 does not apply.

      Last modified: 22 May 2014QC 28063