Fringe Benefits Tax (FBT) and Goods and Services Tax (GST) – GST Fact sheet 11
Fact sheet
Introduction
From 1 July 2000, GST will be payable of most goods and services provided in Australia. However, most exports of goods and services from Australia will be GST-free.
How to calculate an employer’s taxable value
Under the current FBT legislation, RMIT University is liable for FBT on the aggregate taxable value of fringe benefits that RMIT provides to employees during the FBT year. The aggregate taxable value is calculated as the total of the taxable values of fringe benefits provided to individual employees.
With the introduction of the GST, this calculation will change. For the 2000/01 and subsequent FBT years, RMIT will calculate their fringe benefits taxable value by using the following formula. The current rate of FBT will be applied to this taxable value.
|
RMIT’s Type 1 aggregate benefits amount |
X |
New gross up formula |
+ |
RMIT’s Type 2 aggregate benefits amount |
X |
Existing gross up rate |
+ |
Aggregate non-exempt amount |
As illustrated above, RMIT must apply two different gross-up rates in order to determine the overall fringe benefits liability. The new gross-up formula is:
FBT rate + GST rate divided by (1-FBTrate)(1+GST rate)FBT rate
Why is the second gross up required?
The new gross-up rate is designed to recoup any input tax credits that can be claimed by RMIT University in respect for the provision of fringe benefits. This means that the overall, or net cost to RMIT of remunerating an employee with fringe benefits will remain after the introduction of the GST.
The current grossing-up rate is still required because, RMIT will not be entitled to an input tax credit, and use of the new rate in such cases would distort RMIT’s liability for FBT.
Choosing which gross-up rate to apply
The new gross-up rate can only be applied to RMIT’s “Type 1 aggregate fringe benefits amount”.
RMIT’s “Type 1 aggregate fringe benefits amount” means the sum of the taxable value of all fringe benefits provided to employees in respect of which RMIT was entitled to an input tax credit at the time when the benefit was provided.
The existing gross-up rate will continue to apply to RMIT’s “Type 2 aggregate fringe benefits amount”.
A “Type 2 aggregate fringe benefits amount” means the sum of the taxable value of all fringe benefits that fall within one of the following categories:
- The fringe benefit is GST – free (eg. Payment of a health insurance policy, or a child’s education expenses);
- The employer did not purchase the goods and services provided in the benefit. Therefore, the employer did not pay GST on the acquisition price (eg. Goods manufactured by the employer);
- The fringe benefit was provided by an unregistered entity which does not charge GST and is not entitled to claim any input tax credits; or
- The activity is input taxed. Therefore, no GST is charged and no input tax credit is available to the employer.