• 1.6 What are the GST consequences of providing benefits?

    GST (input tax) credits

    You are entitled to GST credits for acquisitions made to provide fringe benefits if you are registered or required to be registered for GST. However, there are some exceptions to this general rule, such as where the acquisition relates to a GST-free or input taxed supply.

    If you are entitled to a GST credit in providing a fringe benefit, you use the higher gross-up rate (called type 1) to calculate the FBT payable. For more on calculating FBT payable, refer to Calculating fringe benefits tax.

    GST on employee contributions

    If the fringe benefit or exempt benefit you provide is a taxable supply for GST purposes, and your employee makes an employee contribution towards that benefit, you have to pay GST on the consideration received.

    The contribution or payment (excluding recipient's rent - refer to Housing fringe benefits) is the price of that supply. Therefore, the GST you have to pay is 1/11th of that amount.

    Where an employee makes a contribution by paying a third party - for example, they purchase fuel or oil in respect of a car fringe benefit - you don't have to pay any GST. In such cases, GST has already been paid when the third party made the sale to the employee or associate.

    Contributions related to GST-free or input taxed supplies are not taxable supplies and, therefore, no GST is payable on any contribution towards these supplies.

    If you are not registered or required to be registered for GST, you will not pay GST on an employee contribution.

    Example

    During the FBT year ending 31 March 2017, a hardware retailer provides their employee, Derek, with a car benefit. The FBT value of the benefit is $7,000. Derek pays $5,500 to his employer on 15 April 2016, and $1,000 in petrol costs and $500 car insurance during the year ending 31 March 2017. Because the total employee contribution of $7,000 equals the FBT value of $7,000, the FBT taxable value of the benefit is zero.

    As Derek has contributed $5,500 directly to his employer, the employer is liable for GST of one-eleventh of $5,500 - that is, $500. Derek's payments of $1,500 to third parties are not a contribution for the supply of the benefit for GST purposes and his employer does not have to remit one-eleventh of this contribution GST and the value of fringe benefits.

    End of example

    When calculating the taxable value of a benefit, the value of the fringe benefit is the GST-inclusive value where applicable.

    Where the otherwise deductible rule applies, you reduce the taxable value of a fringe benefit by the hypothetical income tax deduction the employee would have been entitled to if they had incurred the expense. In these situations, you take into account the GST-inclusive value where applicable.

      Last modified: 04 May 2017QC 17808