The Fringe Benefits Tax (FBT) applies to remuneration other than salary, provided as goods and services and some cash allowances to the worker.

The method of calculating FBT is designed to make the FBT have the same impact as the top marginal income tax rate plus the Medicare Levy, which is 48.5 per cent.

The fringe benefit legislation is broad in its application. Many items that you may not think of as a benefit are classified by the tax legislation as a fringe benefit. When this happens, the Department of Defence pays FBT at the rate of 48.5 per cent on the “grossed-up” value of the benefit. The grossed-up benefit is simply the value of the benefit in pre-tax dollars. In other words, it is how much you would have to earn to purchase the fringe benefit yourself.

The actual value depends on whether Defence can claim for any GST on the benefit. For example, if you are provided with a fringe benefit that is subject to GST and costs Defence $1000, you would have to earn $2129.20 if you were to purchase the benefit yourself.

Another example of a fringe benefit provided to ADF members is the 50 per cent subsidy on Defence housing. The Department pays FBT on the 50 per cent subsidy.

FBT reporting is a situation where the ADF pays the FBT on a benefit provided to you but is obliged to report the grossed-up taxable value of certain fringe benefits on your payment summary (previously known as a group certificate). The FBT reporting year runs from April 1 to March 31. The value of benefits provided to you will only become reportable if the grossed-up value exceeds $1000 in any FBT reporting year.

Reportable fringe benefits do not affect your income tax but might be included in income tests for government benefits and obligations, such as:

• the Medicare Levy;
• the superannuation contributions surcharge;
• Higher Education Contribution Scheme and Postgraduate Education Loans Scheme repayments; and
• child support obligations.

In addition, the non-grossed-up value of fringe benefits is used to determine certain income-tested government benefits such as the Family Tax Benefit and the parental income test for the Youth Allowance.

The Child Support Agency may include any income, including FBT-reported items, and also FBT reporting exempt items, in assessing your liability to make or receive payments for your children. Problems about child support need to be resolved with the agency at www.csa.gov.au. See Policy Guideline 14/2000 or phone 131 272 for general information.

Items which may be FBT reportable are: air-conditioning allowance, education assistance (if child is not in a critical year of schooling), HECS payment/reimbursement, childcare, remote locality leave travel out of Darwin, Cairns and Townsville, spouse accompanied travel, recreation leave free travel and the Defence Home Owner Scheme loan subsidy where qualification was obtained due to length of service.

The ADF does not have to report all FBT items. Details are in the Defence FBT Manual, available through the Defence web site by clicking on Chief Finance Officer, Defence Taxation Management Office, then the FBT button.

Salary sacrifice is a method, acceptable to the Australian Taxation Office (ATO) in which you forego part of your salary in return for other employer-provided benefits (e.g. superannuation or fringe benefits). In this case you pay the FBT at 48.5 per cent, not the ADF. Generally, people using approved child care centres and those on higher incomes can gain some taxation relief from this scheme. Salary packaging for Defence is managed SmartSalary Pty Ltd, further information can be obtained from the SmartSalary web site at www.smartsalary.com.au (to access the site use Employer Code: ADO).

Defence pays FBT on a range of benefits provided for personnel stationed in remote localities. However, the FBT Assessment Act considers that some of the cities we have called “remote” are non-remote and therefore the benefits we provide for living and working in those cities are reportable fringe benefits.

Defence identifies Darwin, Townsville and Cairns as remote localities but the ATO does not.

The differences of view about what is a remote locality between the ADF and the ATO can be confusing, but the ATO is obliged to act under tax legislation regardless of how the ADF, or a private sector employer, view things. The Defence FBT Manual on the Defence web site explains the situation in more detail.

• By Cmdr David A. Francis,
  Directorate of Entitlements
  

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