18.7A The otherwise deductible rule and jointly provided residual fringe benefits
As described at 18.7, the 'otherwise deductible' rule only applies if the recipient of a benefit is the employee. The FBT law also contains a design feature so that residual fringe benefits provided jointly to an employee and an associate are deemed to be provided solely to the employee. In cases where the otherwise deductible rule also applies, it will only apply to the employee's share of any deductible amount and specifically excludes the associate's share of any deductible amount.
the residual fringe benefit was provided or a salary sacrifice arrangement relating to the benefit was entered into before 7.30pm (AEST) on 13 May 2008
the previous law will continue to apply until 1 April 2009.
the residual fringe benefit was provided or the salary sacrifice arrangement relating to the benefit was entered into from 7.30pm (AEST) on 13 May 2008
the amended law applies.
An employer could reduce the taxable value of a residual fringe benefit provided jointly to an employee and their associate in relation to an income producing asset owned by both the employee and their associate, to the extent that the asset is applied to produce assessable income by both persons (unadjusted notional deduction).
You must adjust the taxable value of a fringe benefit determined under the previous law (unadjusted notional deduction) by only allowing the employee's share of the deduction.
That is, the otherwise deductible amount is calculated as:
unadjusted notional deduction x employee's percentage of interest
- the unadjusted notional deduction is the deduction calculated as if the amended law did not apply
- the employee's percentage of interest is the employee's (not the associate's) interest in the asset that
- the residual fringe benefit relates to
- is applied or used for the purpose of producing assessable income of the employee.
Example: previous law applies
An employer provides an employee with tradesman services (not in-house) worth $2,000 to do repairs on their rental property. The rental property is owned jointly by the employee and their spouse for the full FBT year and is rented during this time. The tradesman services are an external period residual benefit. There is no employee contribution.
If the tradesman services were provided in April 2008, the otherwise deductible rule would apply and the taxable value can be reduced to nil.
Example: amended law applies
If the tradesman services were provided in June 2008, the otherwise deductible rule would still apply, but the taxable value could only be reduced by the employee's share in the income producing asset - that is $2,000 x 50% = $1,000. Therefore, the taxable value of the property benefit would be $2,000 - $1,000 = $1,000.
End of example