1.9 What are the GST consequences of providing benefits?

GST (input tax) credits

Acquisitions made to provide fringe benefits have a GST creditable purpose, and you are entitled to GST credits for these acquisitions 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

Where an employee or associate receives a fringe benefit or exempt benefit, and makes a contribution or payment (other than a contribution of services as an employee) to you for supplying the benefit, you have to pay GST on that supply if you are registered or required to be registered for GST purposes.

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

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.

Also, if you are not registered or required to be registered for GST, you would not pay GST on an employee contribution.

During the FBT year ending 31 March 2009, 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 2008, and $1,000 in petrol costs and $500 car insurance during the year ending 31 March 2009. 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

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: 18 Jan 2012QC 17808