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  • New body created

    When a new body is created, the state or territory may need to take the three steps listed below.

    Step 1: Determine the date the body was created

    If the body was created prior to 21 May in the relevant FBT year, the state or territory can nominate the body as an employer in the year it is created (see How to make a nomination).

    Where the body is created on or after 21 May, the state or territory cannot nominate the body as an employer in the year it is created. As the state or territory will be the employer – from the date the employees were transferred to the new body until the body is nominated – it will need to complete steps 2 and 3.

    Step 2: Undertake specific checks

    If fringe benefits were provided to the employees in the period between 1 April and the date on which the new body was created:

    • make sure these fringe benefits are included in the FBT return of the body that was the employer prior to the change occurring
    • work out if the employees had a reportable fringe benefits amount for the period prior to the change.

    The change may affect the calculation of the taxable value of any fringe benefits provided to employees. For example:

    • If the provider of the car fringe benefits changes with the transfer of the employees, you may need to obtain odometer readings when the change occurs, or ensure operating costs can be allocated between the two periods.
    • If a different method will be used to calculate the taxable value of benefits (such as meal entertainment, car parking or housing), make sure that affected staff are aware of the change.

    You will also need to work out if a section 135X agreement is needed (see Consider a section 135X agreement).

    Step 3: Allocate the notional tax to the state or territory

    The state or territory must lodge an FBT return for any fringe benefits provided during the period it is the employer. It will be liable to pay any instalments relating to the transferred employees for the period after it became the employer.

    To enable the state or territory to pay the instalments, the notional tax will need to be allocated to the state or territory. The arrangements for this depend on whether the state or territory was paying instalments prior to the creation of the state or territory body.

    State or territory was paying instalments

    If the state or territory was paying instalments prior to the creation of the state or territory body, the state or territory will need to vary the FBT instalments shown on its next activity statement – to include the notional tax that relates to the transferred employees.

    To do this, complete labels F2, F3 and F4 on the activity statement.

    The revised notional tax of the state or territory body, which is shown at label F2, is calculated using the following formula:

    Notional tax of the state or territory + Notional tax of the ceased body − (Instalments paid by the ceased body − Previous credits claimed by the ceased body)

    The amount of the varied instalment for the quarter is shown at label F3. This is calculated using the following formula:

    F2 amount × Relevant percentage − (Instalments paid − Previous credits claimed)

    The relevant percentage depends on the FBT quarter in which the changes occur. The percentages are:

    • 25% for the quarter ending 30 June
    • 50% for the quarter ending 30 September
    • 75% for the quarter ending 31 December
    • 100% for the quarter ending 31 March.

    The reason for the variation is inserted at label F4. The relevant code to use is 22.

    Example: Variation of instalments following creation of body

    On 1 October 2018, the state or territory government abolished two departments and created New Department. The functions and employees of the abolished departments were transferred to New Department.

    As it was after 21 May 2018, New Department cannot be nominated as an employer for the year ended 31 March 2019. Instead, the state or territory will be the employer of the employees undertaking their duties in New Department for the period from 1 October 2018 to 31 March 2019.

    The state or territory had lodged an FBT return for the year ended 31 March 2018 for the fringe benefits provided to employees who did not undertake duties for a nominated body. Based on this return, the notional tax of the state or territory for the year ended 31 March 2019 was $800,000.

    The total notional tax of the two abolished departments is $600,000. Prior to being abolished, the former departments had paid two instalments totalling $300,000.

    To reflect the changes, the state or territory body will vary its final two instalments by completing labels F2, F3 and F4 on its activity statement for the quarter ending 31 December 2018.

    The amounts to be inserted are calculated as follows:

    F2 1,100,000 = (Amount actually assessed) + (Notional tax of the abolished departments) − (Instalments paid by the abolished departments)

    1,100,000 = (800,000) + (600,000) − (300,000)

    F3 425,000 = F2 amount × Relevant percentage − (Instalments paid − Previous credits claimed)

    425,000 = 1,100,000 × 75% − (400,000 − 0)

    F4 22

    In varying the instalments, the state or territory needs to consider whether there has been a change in the amount of fringe benefits being provided to employees.

    End of example
    State or territory did not have a notional tax amount

    If the state or territory had devolved all of its FBT responsibilities to nominated bodies, it will not have a notional tax amount at the time the body is created.

    Where the state or territory does not have a notional tax amount at the time it becomes an employer, it must advise the ATO of the allocation of the notional tax to the state or territory by completing parts B, C and D of Fringe benefits tax: Nominate or revoke an eligible state or territory body.

    Part B requests details of the bodies that are ceasing to be an employer.

    Part C requests details of:

    • the total amount of instalments the ceased body was required to pay during the FBT year (column (c))
    • the amount of instalments paid by the ceased body during the FBT year (column (d)).

    The state or territory will become liable to pay the remaining instalments calculated in column (e).

    Part D requests details of the amount of tax that is to be allocated to the state or territory.

    When allocating the notional tax as a result of a body ceasing to exist, the total of column (e) in Part C (the amount of unpaid instalments) must equal the total notional tax of Part D (the total instalments to be paid for the remainder of the year by the state or territory).

    Example: Allocation of notional tax following creation of body

    This example uses the facts from the previous example

    If the state or territory did not have a notional tax amount, it will advise the ATO of the transfer of instalments to the state or territory by completing parts B, C and D of the form Fringe benefits tax: Nominate or revoke an eligible state or territory body. The form should be completed as follows:

    Part B: Nominated bodies ceasing to be an employer

    Name

    Tax file number

    Date on which nomination ceased

    Old Department

    insert applicable TFN

    1 October 2018

    Ex Department

    insert applicable TFN

    1 October 2018

    Part C: Tax paid by the state or territory and/or the bodies that have ceased to be an employer

    (a) Name

    (b) Tax file number

    (c) Notional tax

    (d) Instalments paid

    (e) Balance

    Old Department

    insert applicable TFN

    400,000

    200,000

    200,000

    Ex Department

    insert applicable TFN

    200,000

    100,000

    100,000

    Total notional tax

    600,000

    Total balance

    300,000

    Part D: Allocation of notional tax

    Name

    Tax file number

    Notional tax

    State or territory

    insert applicable TFN

    300,000

    Total notional tax

    300,000

    End of example
      Last modified: 06 Dec 2019QC 20311