An employee contribution is assessable income of the employer however, it is not an allowable deduction for the employee. When is a GST credit available? FBT Rate – this is the Fringe Benefits Tax Rate, currently 47%. Employee contributions for FBT purposes and salary sacrifice You pay FBT on the cost of the benefit to the employee, eg the cost of … Hope this helps, JodieH. (B) documentary evidence of those expenses is obtained by the persons incurring the expenses and given to the employer before the declaration date; the amount of those expenses paid by the recipients less any amount paid or payable to the recipients by way of reimbursement of those expenses…’. There are two ways for an employee to make employee contributions being after tax payments The FBT/GST Act deems the consideration for GST purposes to be the amount of the employee’s contribution to the employer. Anything your business spends on food and drink is either a business expense or entertainment. The employee contribution for FBT purposes is the total amount contributed (including GST). therefore be exempt from FBT. Office parties also fall under entertainment-related gifts, so keep in mind that you won't be able to claim your next Christmas party on tax unless it's over $300 a person - and then, you'll be paying FBT. Similarly, employee payments made for benefits with no FBT value, or that are FBT exempt benefits, are also employee consideration for the supply of those benefits. motor vehicle, parking or gym membership) to an employee in lieu of salary. Though you should note that employee contributions may be deemed assessable income to you and subject to GST. The GST-inclusive employee contribution reduces the taxable value of the fringe benefit. The employer will only have to pay FBT on the 25% of the green fees that are not reimbursed. Claiming GST on FBT in the Company GST Return. You can find information on Completing your FBT return 2018 calculation details – taxable employers which explains the GST inclusive nature of ‘taxable value' as: Employee contributions (other than a contribution of services as an employee) are consideration for a taxable supply and you must pay GST on the supply. Entertainment can be subject to FBT if: The employee can choose when to enjoy the benefit or the benefit is enjoyed outside NZ, and the benefit is not received or used in the course of, or as necessary consequence of, the employee’s employment duties. Employee contributions are assessable income to employers and subject to GST; The amount should have been included at Item 6, label “I” of the 2011 Company return. This is different to when you pay money to your employees. The payment of this lump sum can be made in a number of ways. When do the employee contributions need to be received? The term ‘recipient’s payment’ is defined in s. 9(2)(e) and 10(3)(c). In relation to top-up payments and car expenses incurred by an employee (which are not reimbursed), provided the payment of the top-up amount is made, or the car expenses are incurred, before the lodgment due date of the relevant FBT return, they are also treated as recipient’s payment capable of being applied to reduce the taxable value of the car fringe benefit. Employee Contribution per FBT Workpapers Less GST on Contribution Employee Contribution Net of GST D Difference between C and D Checklist of FBT Items* 1. Following this we present our findings and recommendations to the organisations management team. Graham Lawrence provides a useful guide to Fringe Benefit Tax to help businesses avoid making mistakes that could hurt profitability. EMPLOYEE CONTRIBUTIONS Employee contributions are after-tax costs paid by an employee in maintaining a car during the FBT year and are considered when calculating the taxable value of a car for FBT purposes and can reduce the taxable value to nil. Private use percentage: 10%. These amounts will be GST–inclusive as appropriate. In respect of the employee having an obligation under condition (a), paragraph 7 of the Ruling states in part: ‘Consequently, journal entries can only be used for the payment of an employee’s contribution towards a fringe benefit if the employee is obliged to make that contribution. As a starting point, the taxable value of the fringe benefit is the cost of the benefit to the employer (inclusive of GST). So the amount of the FBT equates to the same amount of tax as though the employee had been paid salary and no GST credit was allowed. The employee contributions reduce the FBT taxable value – with the aim to reduce FBT taxable value to nil. So when calculating FBT it is important to ensure that the cost base for each benefit is correct. If the cost for each employee is less than $300 each (including GST), you won't have to pay FBT, but you won't be able to get a tax deduction or GST credit. Whether it is one or the other doesn’t just affect income tax, but also GST and FBT. Sections 9 and 10 of FBTAA provide two alternative methods for calculating the taxable value of a car fringe benefit. Due to s. 136A of the FBTAA, any amount paid in respect of FBT does not constitute consideration for the provision of fringe benefit or any other matter. This is because of the fundamental changes to the rules surrounding short-term charge facilities (e.g. Instead this should be claimed as a tax deduction. Under the proposed remuneration package arrangement an employee could elect for a fully maintained car (or equivalent cash salary in lieu of the car). It is also subject to the same potentially significant penalty and interest charges for … When an employee makes an after tax cash contribution towards a benefit which is subject to FBT, the taxable value of the fringe benefit will be reduced accordingly. This article discusses the timing issues that you need to consider where an employee is required to contribute towards the costs of non-cash benefits provided under an effective salary sacrifice arrangement. FBT - Employee contributions Hi I need to process a pay for the amount to cover FBT for a vehicle (will work this amount out) and include tax and super to be inclued in payment summaries. Private use percentage: 10%. Many businesses will soon be starting to assess all the non-cash benefits provided to employees to determine whether or not Fringe Benefit Tax needs to be accounted for in their March quarter FBT return (due before 31 May). FBT instalments are payable on a BAS or IAS depending on whether you are registered for GST. When it comes to processing payroll there are obvious differences in the way certain items are treated between the two countries, including the method of calculation and the return filing obligations. 4k, 4.4k or 3.6k . It is also important that the most up to date rate is used when applying the FBT prescribed interest rate to low interest loans. Some charities may no longer be exempt from paying FBT. 5% of an employee’s salary or wages for the year, or, Return any fringe benefits provided by completing an FBT return, and. Div 32 ITAA97 denies any tax deduction for entertainment. Braveheart81. employer contributions to sickness, accident or death benefit funds, specified insurance policies, and superannuation schemes not subject to employer superannuation contribution tax (ESCT). The compliance costs associated with applying the attribution rules are too great. 2. The FBT reviews we’ve undertaken after going through the attribution exercise have resulted in significant net savings for our clients. Entertainment expenses New Zealand is fast becoming a country that relies on importing talent from overseas (mainly Australia) to fill senior positions. Where you pay cash to your employees, you treat the payment as part of the employee's salary or wage and make normal employee deductions, such as PAYE. It is the salary packaging company’s job to ensure the FBT you will pay is less than the income tax you would have paid. The employer pays the green fees of $45 a month, with the employees reimbursing the employer 75% of the fees. GST Q&A – Selling land with a disused building: Is it a taxable supply? This has given the following result: For example, the employer may retain a portion of an employee’s post-tax salary. The term ‘declaration date’ (in sections 9(2)(e) and 10(3)(c) of the FBTAA) is defined as the date the employer lodges the FBT return for the relevant FBT year or such later date as allowed by the Commissioner. Where an employee’s contribution is in the form of their after-tax salary, usually, the amount required to be contributed would be an amount equivalent to the taxable value of the car fringe benefit so as to reduce the employer’s FBT liability to nil. It includes any amount a person That is, the employee must be required to make the payment in return for obtaining the benefit. So when calculating FBT it is important to ensure that the cost base for each benefit is correct. Fringe benefits tax legislation was introduced in 1986 (Fringe Benefits Tax Assessment Act 1986) and the GST legislation dates from 1999 (A New Tax System (Goods and Services Tax) Act 1999). FBT: The prima facie taxable value is $770, that is, the GST-inclusive amount. This is the otherwise deductible rule (ODR). What method was used to calculate Entertainment in the Accounts? Where applicable, employers should ensure that the amount required to be contributed by an employee from their after-tax salary includes the GST component. Employee contribution: $400 . However, if the cost for each employee is over $300 GST inclusive each, a tax deduction and GST credit can be claimed – but FBT is payable at the rate of 47 percent on the grossed-up value. A company cannot claim GST on FBT via the company GST return. Most organisations offer salary sacrifice arrangements as part of remuneration packaging strategies, allowing employees to forgo a portion of their pre-tax salary in return for the employer (or the employer’s associate) providing benefits of similar value. Employee contributions 2. According to both definitions, the amount of the recipient’s payment is the sum of: ‘(i) in a case where expenses were incurred to the provider or employer during the holding period by recipients of the car fringe benefits by way of consideration for the provision of the car fringe benefits—the amount of those expenses paid by the recipients less any amount paid or payable to the recipients by way of reimbursement of those expenses; (ia) in a case where car expenses in respect of fuel or oil for the car were incurred during the holding period by recipients of the car fringe benefits and: (A) the persons incurring those expenses give to the employer, before the declaration date, declarations, in a form approved by the Commissioner, in respect of those expenses; or. An employee contribution is an amount an employee, including a shareholder - employee, pays for receiving a fringe benefit. The GST Act includes in the definition of recipients contribution, amounts that are paid for exempt benefits. The amount that would otherwise be the taxable value of a car fringe benefit can be reduced by the amount of any employee contributions, as well as any running costs incurred or paid by the employee to a third party (e.g. an employee contribution (other than a contribution of services as an employee) may be treated as consideration for a taxable supply for goods and services tax (GST) purposes. Recipient’s contributions can be used to cash out the FBT liability at year end. So when calculating FBT it is important to ensure that the cost base for each benefit is correct. However, an employee can also make an employee contribution towards a car fringe benefit by paying a third party for some of the operating costs (such as fuel) that you don’t reimburse. Site by Terabyte Interactive, Your Fringe Benefit Tax guide to common employee benefit mistakes. Choose the one that best suits your business. This add further support to the above proposition. A common trap. Fringe Benefit Tax (FBT) In short, the FBT is generated when an employer, or an “associate” of the employer, provides a benefit (e.g. If a car is garaged at or near the employee's home, even if only for security reasons, it is taken to be available for their private use regardless of whether or not they have permission to use the car privately. Finally, care should be taken to ensure that the contribution from the employee is towards the costs of the car rather than the FBT liability. an employee, or an employee's associate (eg. Maintenance Review: We review your Fringe Benefit Tax calculations and confirm that the calculations are in agreement with current fringe benefit tax rules. We have noticed cases where FBT is being paid on superannuation when specified superannuation contribution withholding tax (SSCWT) has already been paid, resulting in an overpayment of FBT. 3. Where an employee contribution is in the form of cash, it will be treated as consideration for a taxable supply for GST purposes and the employer is required to remit the GST. Employee contributions can be made in a number of ways including by way of a journal entry. Salary Packaging companies work this out for you and build the cost into your payroll deductions so you do not have to worry about meeting the expense at the end of each FBT year. Graham Lawrence provides a useful guide to common employee benefit mistakes Statutory method ) = 4k to... 47 %, with the post-tax fbt employee contribution gst effectively offsetting the FBT liability rule ( ODR ) to determine which is... Different to when you do your calculation, you don ’ t 4. is the employer will only to... 75 % of the employee makes a contribution fuel incurred means that no FBT is calculated on GST-inclusive –. Provided to employees tax, but also that the original cost is correct, but also the. 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fbt employee contribution gst

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