Monumental changes proposed to fringe benefits tax, according to DeloitteDOWNLOAD
Sunday 2 May 2010 : Professional services firm, Deloitte, has warned employers and employees to expect a monumental change to fringe benefit tax (FBT) reporting if the Henry recommendations are implemented by the Federal Government.
The review has recommended sweeping changes of FBT law by proposing the taxing of benefits in the hands of employees under the PAYG system, but some benefits would remain taxable to the employer at the highest marginal rate of tax.
Frank Klasic, Deloitte Employment Taxes partner, said the proposed recommendation, if adopted, would mirror the FBT regime in other developed tax systems around the world.
“These recommendations also add a significant layer of complexity as some benefits would still remain taxable in the hands of the employer. Where a benefit is easily valued and attributable to a particular employee, it would be taxed in the hands of the employee,” Mr Klasic said.
Mr Klasic said the current formula for valuing cars would be replaced with a single statutory rate of 20% regardless of kilometres travelled if the Government adopted the FBT recommendations.
“This would be a welcome change, as it would reduce the record-keeping requirement of maintaining odometer readings each FBT year.
“It will also be welcomed by environmental lobbyists, as it would stop employees driving excess kilometres to reduce their tax bill.
“The impact of a flat 20% statutory rate could, however, affect the tax effectiveness of a company car. The benefit of the current FBT rules is that there are two lower statutory rates of 7% and 11%, which provide for generous tax savings in providing an employee with a car fringe benefit.”
Other recommendations by the Henry Review include simplification of the valuation rules, the review of all current FBT exemptions and the abolition of the current FBT exemption for childcare.
Mr Klasic said the current FBT exemption is limited to childcare provided on an employer’s business premises.
For benefits taxable in the hands of the employer, a minimum threshold would apply, which could vary depending on the number of employees in the organisation.
No response to the recommendations above has yet been provided by the Government.
The removal of FBT concessions for the not-for-profit sector was also proposed by Henry, but this has been rejected by the Government.