With the fringe benefits tax (FBT) year ending 31 March 2017, now is the time for business owners to get their FBT affairs sorted.
When calculating FBT liability, employers must gross-up the taxable value of benefits provided to reflect the gross salary employees would need to earn at the highest marginal tax rate (including Medicare levy) to buy the benefits after paying tax.
To calculate fringe benefits taxable amounts, employers must use two separate gross-up rates:
- Type 1: Higher gross-up rate is used where employers (or other benefit providers) are entitled to a GST credit for GST paid on benefits provided to an employee. The type 1 gross-up rate for year ending 31 March 2017 is 2.1463.
- Type 2: Lower gross-up rate is used where there is no entitlement to a GST credit. The type 2 gross-up rate for year ending 31 March 2017 is 1.9608.
The FBT rate for the year ending 31 March 2017 is 49 per cent.
Whether the benefits provided to the employee are type 1 or type 2, only the lower gross-up rate is used for reporting on employees’ payment summaries.