Fringe benefits are benefits that an employee receives from their employers. The benefit may be assigned to someone else. The value of these fringe benefits is included as adjusted fringe benefits regardless of whether they were received in Australia (1.1.A.120) or overseas.
Explanation: Employees may 'sacrifice' an amount of their cash salary and receive the value of the amount as a fringe benefit. In other cases, a fringe benefit may be a fixed part of the employee's salary package.
Note: As part of the Child Support Scheme Reforms, the definition of income for FA was intended to change from 1 July 2008. The change was to move from using the net value to using the grossed up value of 'reportable fringe benefits' in working out FA payments. However, on 19 June 2008 the Government reversed the proposed change and legislation was subsequently passed to maintain the use of the net value (adjusted fringe benefits) for the purpose of FA.
This section covers the following:
Common forms of salary sacrifice or fringe benefits include:
Note: If you salary sacrifice your child care fees, the amount of CCB you will be eligible to receive may be affected.
As the value of the benefit is not recorded as salary for the employee, they do not pay income tax on that amount. Instead, the employer pays FBT on the value of the benefit.
The reportable amount of the benefit is recorded on the employee's payment summary. Only reportable benefits are assessable for the purposes of the FTB, CCB and baby bonus income tests.
Ministers of religion are treated the same as any other employee for the purposes of assessing adjusted fringe benefits.
Explanation: The assessment of adjusted fringe benefits for ministers of religion is also based on the reportable amount of fringe benefits recorded on their payment summary. Certain benefits received by ministers of religion are exempt under section 57 of the Fringe Benefits Tax Assessment Act. These benefits will not appear on their payment summary, and therefore will not be assessed as adjusted fringe benefits.
The FAO is not required to determine whether the minister is employed or self-employed for the purposes of assessing their fringe benefits. If a minister is not sure whether they are employed or self-employed they should contact the ATO for advice.
The FBT assessment year is from 1 April to 31 March. The FBT assessment year corresponds with the financial year that ends in the same calendar year.
Example: The FBT assessment year ending 31 March 2008 corresponds to the financial year ending 30 June 2008. Fringe benefits received from 1 April 2007 to 31 March 2008 will appear on an employee's payment summary for the 2007-08 financial year.
The reportable fringe benefit is the amount that appears on an employee's payment summary. The reportable amount is the 'grossed-up' value of the fringe benefit.
The grossed-up value is calculated using the following formula:
The FBT rate is set out in section 6 of the Fringe Benefits Tax Act 1986. It is the highest marginal tax rate including the Medicare Levy. The FBT rate was last amended in 2006 and for the FBT year ending 31 March 2008 is 0.465. For FTB purposes this applies from 1 July 2007. The rate is expressed as a percentage of 1.
For the FBT year ended 31 March 2006 the FBT rate was 0.485, and for FTB purposes this applied until 30 June 2006.
The value of adjusted fringe benefits for the FTB, CCB and baby bonus income tests is determined using the following formula:
Example: John has received fringe benefits from his employers. The amounts on his payment summaries are $3,883.50 and $5,825.24 giving a total reportable amount of $9,708.74.
John's adjusted fringe benefits = $9,708.74 x (1 - 0.465) = $5,194.18
Note 1: Calculating the adjusted fringe benefits amount has the effect of subtracting the gross-up factor from the employee's reportable fringe benefits total. Only the cash or market value of the employee's fringe benefits is assessed.
Note 2: For the purposes of the baby bonus income test, the adjusted fringe benefit amount is the estimated proportion of the amount that would appear on a payment summary corresponding with the financial year or years in which the 6-month baby bonus income test period falls. As an example, if the baby bonus income test period started in February and ended in August, the estimated proportion of the fringe benefits received or likely to be received in this period should be included in the estimate. However, if the baby bonus income test period ends during the period of April to June, the payment summary for the period from April to June will not apply to the baby bonus income test period as it relates to the following financial year and fringe benefits received during that period should not be included in the estimate.
Where it is difficult for an applicant to estimate fringe benefits likely to be received during the baby bonus income test period in the absence of a payment summary, the applicant should make an effort to provide what evidence is available, such as an agreement with an employer, at the request of the FAO.
Act reference: FAAct Schedule 3 clause 4 Adjusted taxable income - Adjusted fringe benefits total
If the recipient or their partner is receiving fringe benefits, they must include the amount of the reportable fringe benefits they expect to receive for that income year when estimating their total ATI.
Explanation: The fringe benefits amount declared by the recipient in their estimate for FTB and CCB purposes will be adjusted by the FAO from a gross value to a net value before being included in the income test. This means that, if the recipient declares the net value of their fringe benefits, the FAO will use an adjusted value which will be less than the reportable or net value of the benefit.
For the baby bonus income test, the applicant needs to include the amount that they expect to receive for the part of the financial year or years that correspond with the relevant 6-month income test period following the birth of a child or the date the child is entrusted into care. For further details on how the income test period is defined see 4.5.1.
If the employee is unsure of their reportable fringe benefits amount they should contact their employer for advice.
A fortnightly instalment recipient can update their estimate of ATI with the actual amount of reportable fringe benefits once the FBT assessment year has ceased. To do this they must contact the employer to find out the reportable fringe benefits total that will appear on their payment summary.
Example: John is receiving fortnightly instalments and has an estimated taxable income of:
This gives an estimated ATI of $32,000 for the financial year.
On 15 April John contacts his employer and finds out his actual reportable fringe benefits for the year appearing on his payment summary is $17,475.73. John should contact the FAO to update his estimates accordingly.
Note: Estimates for the purposes of the baby bonus income test do not need to be updated, as it is based on the 'best efforts' of the applicant and will not be reconciled with actual income (see 188.8.131.52 Initial Estimate When Making a Claim).
Last reviewed: 11 August 2011