Fringe benefits tax - a guide for employers

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Chapter 17 - Property fringe benefits

Remember, a fringe benefit may be provided by another person on behalf of an employer. It may also be provided to another person on behalf of an employee (for example, a relative).

17.1 What a property fringe benefit is

A property fringe benefit arises when you (the employer) provide an employee with free or discounted property.

For fringe benefit tax (FBT) purposes, property includes:

  • goods (including gas and electricity, unless provided through a reticulation system) and animals
  • real property, such as land and buildings
  • rights to property, such as shares or bonds.

Benefits specifically covered by earlier chapters of this guide are excluded from being property fringe benefits.

17.2 Taxable value - overview of valuation rules

The taxable value of a property fringe benefit depends on which valuation rule applies. Each valuation rule allows you to reduce the taxable value by the amount of any employee contribution. Each rule recognises different circumstances, such as:

  • whether the benefit is an in-house property fringe benefit or an external property fringe benefit
  • if the benefit is an in-house property fringe benefit , whether the property
    • was purchased for resale or was manufactured
    • is identical to, or merely similar to, property sold by you (or another provider) in the ordinary course of business at or about the time the benefit is provided
    • is normally sold directly to the public or to customers who sell to the public
  • if the benefit is an external property fringe benefit , whether the benefit was provided by you or an associate (rather than a third party) and whether expenditure was incurred in providing the benefit.

17.3 Taxable value - in-house property fringe benefits

The Government has announced changes to remove the concessional fringe benefits tax (FBT) treatment for in-house fringe benefits accessed through a salary sacrifice arrangement. The information in this publication about in-house fringe benefits does not take these proposed changes into account because they are not yet law.

If the proposed changes become law, they may impact on any salary sacrifice arrangements made or varied on or after 22 October 2012. For more information about the proposed changes, refer to Reform of salary sacrificed 'in-house' fringe benefits.

An in-house property fringe benefit must satisfy all of the following requirements:

  • where you (or an associate) provide the benefit, the property must be identical or similar to property you sell in the ordinary course of business
  • where you (or an associate) do not provide the benefit, the property must be acquired by the provider from you (or an associate) and must be identical or similar to property sold by both you (or an associate) and the provider in the ordinary course of business at or about the time the benefit is provided
  • the property must consist of goods . For this purpose, goods include such things as animals and non-reticulated gas and electricity, but not such things as real estate, buildings, or shares.

Property which is 'identical' or 'similar'

Property you provide to your employee is identical to property you sell in the ordinary course of business when the differences between the two items are small.

Property you provide to your employee is similar to property you sell in the ordinary course of business where the two items are alike and generally resemble each other.

Goods manufactured or produced by the provider

These valuation rules apply to an in-house property fringe benefit consisting of goods manufactured, produced, processed or otherwise treated by you (or another provider) as part of your business.

The valuation rules differ depending on whether you normally supply the goods on a retail or non-retail basis and whether the goods are identical or merely similar.

Non-retail goods (identical)

These are goods you normally supply to manufacturers, wholesalers or retailers (that is, not directly to the public).

The goods provided as the fringe benefit must be identical to the goods sold in the ordinary course of business at or about the time you provide the benefit.

The taxable value is the lowest arm's length selling price under which your goods are sold or could reasonably be expected to have been sold:

  • at or about the time you provide the benefit
  • reduced by any employee contribution.

Where you provide a discount for early payment, the discounted price is used when determining the taxable value of the goods.

Example

  • A manufacturer of electrical goods provides an item of stock to an employee (that is, an item identical to goods sold to wholesalers). The manufacturer usually sells the item for $1,000, including goods and services tax (GST), to wholesalers. Each invoice provided allows for a discount of 5% for early payment, if the invoice is paid within seven days.
  • If the wholesaler pays within seven days, they will pay $950 for the item. However, if the wholesaler does not pay within seven days, they will pay $1,000 for the item.
  • The lowest arm's length selling price is $950.

Retail goods (identical)

These are goods normally supplied to the public. Where you normally sell goods on both a retail and non-retail basis, value the benefit using the non-retail rules above.

The goods provided as the fringe benefit must be identical to the goods sold in the ordinary course of business at or about the time you provide the benefit.

The taxable value is 75% of the lowest selling price you charge the public:

  • in the ordinary course of business
  • at or about the time you provide the benefit
  • reduced by any employee contribution.

Where you provide a discount for early payment, the discounted price is used when determining the taxable value of the goods.

Example:

  • An employer manufactures desks for sale to the public and the lowest selling price of this type of desk to the public is $900, including GST.
  • An employee purchases a desk for $500.
  • The taxable value of the property fringe benefit is

    (75%   x   $900)   -   $500   =   $175

Other goods (similar but not identical)

Where goods are similar but not identical to those sold as part of your business at or about the time you provide the benefit (for example, manufacturing seconds), the taxable value is 75% of the notional value of the goods, reduced by any employee contribution.

'Notional value' (or market value) is the amount the employee could reasonably expect to pay in an arm's length transaction.

Example :

  • A sporting goods manufacturer makes squash racquets for sale by wholesale.
  • Sometimes racquets are damaged in the manufacturing process. Instead of bringing the normal arm's length selling price (including GST) of $50, the damaged racquets have a market value of $30 each.
  • An employee purchases a damaged racquet for $5.
  • The taxable value of the property fringe benefit is

    (75%   x   $30)   -   $5   = $17.50.

Goods purchased and sold as part of the employer's business

These valuation rules apply to an in-house property fringe benefit consisting of goods you purchase for resale as part of your business.

The taxable value is the lesser of the following reduced by any employee contribution:

  • the arm's length purchase price of the goods to you
  • the market value of the goods, where the goods have lost value at the time they are provided to your employee, for example because of obsolescence or deterioration.

Market value is the amount the employee could reasonably expect to pay in an arm's length transaction.

Example:

  • A retailer purchases television receivers for $500 for sale to the public at a retail price of $750. The wholesaler paid sales tax or GST on the sale to the retailer. An employee pays $400 for a receiver under the staff discount purchase scheme.
  • The taxable value of the property fringe benefit is

    $500   -   $400 = $100.

Any other in-house property fringe benefits

This valuation rule applies to any in-house property fringe benefits that do not fall within the preceding categories, that is, goods that are neither purchased for resale nor manufactured or processed.

However, the goods must be of a type that satisfies the in-house property fringe benefit requirements set out at the beginning of section   17.3 .

The taxable value is 75% of the notional or market value of the goods, reduced by any employee contribution. Notional or market value is the amount the employee could reasonably be expected to pay in an arm's length transaction.

17.4 Taxable value - external property fringe benefits

An external property fringe benefit is any property fringe benefit that is not an in-house property fringe benefit.

For example, a property fringe benefit is an external property fringe benefit if the property does not consist of goods that are similar or identical to those you sell in the ordinary course of business.

Benefit provider

Benefit provided

Taxable value

You (or an associate)

Property you purchased under an arm's length transaction at or about the time you provided the benefit

The cost price to you reduced by any employee contribution

You (or an associate) incur expenditure to a provider under an arm's length transaction but you do not provide the benefit

Property

Your expenditure amount reduced by any employee contribution

Where neither of the above rules apply, the taxable value is the amount the employee could reasonably be expected to pay for the property:

  • under an arm's length transaction
  • reduced by any employee contribution.

Where you receive an early payment discount, the discounted price is used for determining the taxable value.

17.5 Reduction in taxable value where expenditure would have been deductible to the employee

You can reduce the taxable value of a property fringe benefit in accordance with the 'otherwise deductible' rule, but only if the recipient of the benefit is the employee. Broadly, this means that you may reduce the taxable value by the amount the employee would have been entitled to claim as an income tax deduction if both:

  • the property had not been provided as a fringe benefit
  • the employee had purchased the property.

For example, if an employee purchased an item of property and used it only to perform employment-related duties, the purchase price would be wholly deductible for income tax purposes. Under the otherwise deductible rule, if you purchased the same item and gave it to the employee to use in performing employment-related duties, the taxable value would be nil, regardless of the amount of the employee contribution you required.

The otherwise deductible rule does not apply to deductions for the decline in value of depreciating assets, except when the cost is less than $301.

There are special rules where the expenditure that would have been deductible to the employee is incurred in relation to a car (refer to section   17.7 ).

Applying the otherwise deductible rule produces different results depending on whether any employee contribution was intended to be for the private element of the property fringe benefit. This is because the employee is:

  • entitled to an income tax deduction for expenditure incurred on the portion of the property used to derive assessable income
  • not entitled to an income tax deduction for expenditure incurred on the portion used for a private or domestic purpose.

You can apply the otherwise deductible rule using the following steps:

Step

Action

1

Disregard any employee contribution and calculate the taxable value of the property fringe benefit as if there was no employee contribution.

2

Now suppose that the employee had purchased the property for an amount equal to the amount of the taxable value calculated in step   1. How much of this hypothetical purchase price would have been income tax deductible to the employee?

3

Now look at the actual fringe benefit situation. If the employee has made a contribution towards the property fringe benefit, how much of this contribution is allowable as an income tax deduction to the employee? That is, how much of the employee contribution relates to the business use component of the property fringe benefit?

4

Subtract the actual deductible amount (step   3) from the hypothetical deductible amount (step   2). The result is the amount by which the taxable value of the fringe benefit may be reduced.

Therefore, where the otherwise deductible rule applies, to work out the taxable value of a property fringe benefit, you:

  • subtract the amount of any actual employee contribution from the amount that would have been the taxable value if no employee contribution had been made, then
  • subtract the amount obtained at step   4 of the otherwise deductible rule.

Example

  • An employee is provided with goods to the value of $500. The employee contribution of $250 is set without regard to how the employee intends to use the property.
  • The employee uses the goods 80% for employment-related (and income tax deductible) purposes and 20% for private purposes.
  • The taxable value of the property fringe benefit (without the otherwise deductible rule) is $250 (that is, $500 reduced by the employee contribution of $250).
  • Apply the otherwise deductible rule as follows:

Step

Action

Result

1

Disregard any employee contribution and calculate the taxable value of the property fringe benefit as if there was no employee contribution.

$500

2

Now suppose that the employee had purchased the property for an amount equal to the amount of the taxable value calculated in step   1. How much of this hypothetical purchase price would have been income tax deductible to the employee?

$500   ×   80%

= $400

3

Now look at the actual fringe benefit situation. If the employee has made a contribution towards the property fringe benefit, how much of this contribution is allowable as an income tax deduction to the employee. That is, how much of the employee contribution relates to the business use component of the property fringe benefit?

$250   ×   80%

= $200

4

Subtract the actual deductible amount (step   3) from the hypothetical deductible amount (step   2). The result is the amount by which the taxable value of the fringe benefit may be reduced.

$400   -   $200

= $200

5

Finally, the taxable value of $250 may be reduced by $200.

$250   -   $200

= $50

Example:

  • An employee is provided with goods to the value of $500. The employee intends to use the property 50% for employment-related (and income tax deductible) purposes and 50% for private purposes.
  • The employee contribution of $250 is set by the employer after considering how the employee intends to use the goods. That is, the employer knows that under the otherwise deductible rule there will be no FBT liability on that part of the fringe benefit used to produce income. So the employer calculates an employee contribution that is sufficient to avoid incurring FBT on that part of the fringe benefit used for private or domestic purposes.
  • At the end of the FBT year the employee finds that the goods have been used 80% for employment-related (and income tax deductible) purposes and 20% for private purposes.
  • The taxable value of the property fringe benefit (without the otherwise deductible rule) is $250 (that is, $500 reduced by the employee contribution of $250).
  • Apply the otherwise deductible rule as follows:

Step

Action

Result

1

Disregard any employee contribution and calculate the taxable value of the property fringe benefit as if there was no employee contribution.

$500

2

Now suppose that the employee had purchased the property for an amount equal to the amount of the taxable value calculated in step   1. How much of this hypothetical purchase price would have been income tax deductible to the employee?

$500   ×   80%

= $400

3

Now look at the actual fringe benefit situation. If the employee has made a contribution towards the property fringe benefit, how much of this contribution is allowable as an income tax deduction to the employee. That is, how much of the employee contribution relates to the business use component of the property fringe benefit?

If the employer, in setting the amount of the employee contribution, had not allowed for the intended use of the goods, the employee would have:

  • paid a contribution of $500
  • been entitled to a deduction for business use.

$500   x   80% business use

=   $400

 

However, the:

  • employer calculated the amount of the employee contribution after taking into account the intended business use
  • the otherwise deductible rule applies.

This means the employee's income tax deduction is limited. To calculate the amount:

  • work out the amount that would have been allowed as a deduction to the employee if no allowance had been made for the income-producing purpose for which the property was to be used
  • subtract the amount of the allowance that was made.

($500   x   80%)   -   ($500   x   50%)

= $400   -   $250

= $150

4

Subtract the actual deductible amount (step   3) from the hypothetical deductible amount (step   2). The result is the amount by which the taxable value of the fringe benefit may be reduced.

$400   -   $150

=   $250

5

Finally, the taxable value of $250 may be reduced by $250.

$250   -   $250

=   0

17.5A The otherwise deductible rule and jointly provided property fringe benefits

As described at section   17.5 , 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 property 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.

If

then

the property 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 property 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.

Previous law

An employer could reduce the taxable value of a property 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).

Amended law

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

In this calculation:

  • 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 is
    • the property
    • applied or used for the purpose of producing assessable income of the employee.

Example: Previous law applies

An employer provides an employee with curtains worth $250 for their rental property. The rental property is:

  • owned jointly by the employee and their spouse for the full FBT year
  • rented during this time and the curtains are an external property benefit.

There is no employee contribution.

If the curtains were provided on 1   April 2008, the otherwise deductible rule would apply and the taxable value can be reduced to nil.

Example: Amended law applies

If the curtains were provided on 1   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 $250   x   50% =   $125. The taxable value of the property benefit would therefore be $250   -   $125 =   $125.

17.6 Substantiation requirements

Where you use the otherwise deductible rule, you must have documentation to substantiate the extent to which the purchase price of the property would have been 'otherwise deductible' to the employee. You must obtain the documentation from the employee before lodging the relevant FBT return. Where the documentation is a Property benefit declaration by the employee, it must be in a form approved by the Commissioner of Taxation (refer to Declarations ).

Travel diary

A 'travel diary' is a diary or similar document that must be obtained from the employee where the property is provided for either of the following:

  • for travel within Australia for more than five consecutive nights, not exclusively for performing employment-related duties. The fact that business travel requires the employee to stay away over a weekend does not, in itself, mean the trip is not undertaken exclusively in the course of their employment
  • for travel outside Australia for more than five consecutive nights.

In determining whether a travel diary needs to be kept, you need to look at the number of nights the employee is away from home. The number of nights away from home includes transit time.

A travel diary shows the nature of each work or business activity, where and when it took place, the duration of the activity and the date the entry was made.

The requirement to obtain a travel diary is waived where both of the following apply:

  • the employee is performing duties of employment as a member of an aircrew travelling outside Australia
  • the property provided is food or drink, or is for accommodation, or otherwise incidental to the travel.

Employee declaration

You must obtain a Property benefit declaration in the form approved by the Commissioner of Taxation (refer to Declarations ), except where any of the following apply:

  • the property (other than property used in respect of a car owned or leased by the employee) is used exclusively in the course of performing employment-related duties (for example, protective clothing, tools of trade)
  • there is a requirement to keep a travel diary
  • the requirement to keep a travel diary is waived because the employee is a member of an international aircrew
  • the provision of the fringe benefit is covered by a recurring fringe benefit declaration.

Recurring fringe benefit declaration

The requirement to obtain an employee declaration is waived if the provision of a fringe benefit is covered by a Recurring property benefit declaration (refer to Declarations ).

A fringe benefit is covered by a recurring fringe benefit declaration if:

  • it is provided no later than five years after the day on which the declaration was made
  • the deductible proportion of the benefit is not significantly less than the deductible proportion of the benefit for which the declaration was first provided (a difference of more than 10% is significant)
  • it is 'identical' to the fringe benefit for which the declaration was first made.

Benefits are identical if they are the same in all respects except for any differences that:

  • are minimal or insignificant
  • relate to the value of the benefits
  • relate to the deductible proportion of the benefits.

A recurring fringe benefit declaration is automatically revoked by a later recurring fringe benefit declaration made for an identical benefit. This means that the earlier declaration applies to the first benefit and to any identical benefits provided before the later declaration was made. The later declaration applies to the benefit for which it was provided and to any identical benefits provided subsequently.

The declaration must be in writing in a form approved by the Commissioner of Taxation. The employee must give you the declaration before the due date for lodging your FBT return or, if you are not required to lodge a return, by 21   May.

17.7 Reduction in taxable value where property that would have been deductible to the employee is provided in relation to a car

Special rules apply where you provide a property fringe benefit in relation to a car owned or leased by the employee. You must use these special rules to determine how much (if any) of your expenditure would have been 'otherwise deductible' to the employee.

These special rules are actually three different methods of calculating the amount of the expense that hypothetically would have been income tax deductible to the employee (that is, step   2 in the four-step procedure explained in section   17.5 ). The differences arise from the:

  • extent to which the car is used for business or employment-related purposes
  • type of evidence available to substantiate that use.

The first method is substantiated by means of log book records and/or odometer records. The second and third methods are substantiated by an employee declaration only. For full details and the appropriate declaration, refer to Employee cars - applying the 'otherwise deductible' rule . The employee declaration shown in section   17.6 is not suitable for an expense incurred in relation to a car.

17.8 Other reductions in taxable value

A number of fringe benefits attract concessional treatment. The concession is a reduction in the taxable value of the fringe benefit that results in a reduced amount of FBT, or even no FBT being payable.

You calculate the taxable value of a property fringe benefit in accordance with the valuation rules explained in sections   17.2 to 17.4 . Where the otherwise deductible rule applies, you then reduce the taxable value as explained in section   17.5 .

If the fringe benefit is of a type that attracts any of the concessions listed below, you may then further reduce the taxable value. In some instances, special conditions must be satisfied before the concession applies, for example, keeping certain records.

The following is a list of reductions that may apply to property fringe benefits:

  • remote area residential fuel
  • remote area housing assistance
  • relocation - meals
  • in-house fringe benefits - tax-free threshold
  • living away from home - food provided.

For more on the reductions, refer to Reductions in fringe benefit taxable value .

17.9 Exempt property benefits

Payments to worker entitlement funds

Property fringe benefits arising from contributions you make to worker entitlement funds are exempt from FBT, provided the conditions in section   20.6 of Fringe benefits tax exempt benefits are met.

Property provided and consumed on employer's premises

Property you provide to an employee is an exempt benefit if the property is both provided and consumed on your premises on a working day (if you are a company, the premises may be those of a related company). For example, there is no FBT on bread given to bakery employees for consumption at work.

This exemption does not apply to:

  • employers that are exempt from income tax where entertainment arises as a result of providing the property benefit (refer to Tax-exempt body entertainment fringe benefits )
  • employers who choose to use the meal entertainment provision and calculate the taxable value under the 50:50 split method or the 12-week register method (refer to Fringe benefits tax and entertainment )
  • meals provided under a salary sacrifice arrangement after 7.30pm AEST on 13   May 2008. Existing balances on meal cards as at 7.30pm on 13   May 2008 remained eligible for the exemption provided they were used by 31   March 2009. Any increase of balances after 7.30pm AEST on 13   May 2008 will be subject to FBT.

Remote area - certain meals provided to employees in primary production

Property benefits arising from providing non-entertainment meals to an employee employed in a primary production business located in a remote area are exempt benefits (refer to section   20.7 of Fringe benefits tax exempt benefits ).

More information

For more information, refer to:

  • Taxation Determination TD   93/90 - Income tax: does the 'otherwise deductible' rule apply to reduce the taxable value of fringe benefits provided to associates of employees?
  • Taxation Ruling TR   2007/12 - Fringe benefits tax: minor benefits.

Changes and updates

The following tables detail any major changes and updates made to this chapter.

February 2010

Section

Changes and updates

17.3 Taxable value - in-house property fringe benefits

Addition of information explaining what is meant by property which is 'identical' or 'similar'.

17.5A Special rules under new law for the otherwise deductible rule and jointly provided property fringe benefits

Included information about the new law for the otherwise deductible rule and jointly provided property fringe benefits.

17.6 Substantiation requirements

Changed information regarding when a travel diary needs to be obtained for consistency with other sections of the guide.

Included information about transit time and nights away from home.

17.9 Exempt property benefits

Updated information under 'Property provided and consumed on employer's premises' to include information about when the exemption doesn't apply.

More information

Removed reference to   TR   1999/5.

Added reference to   TR   2007/12.

Last Modified: Monday, 20 May 2013

ATO references:
NO NAT 1054

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