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PTA-003v2

Ruling history

Ruling no. PTA-003v2
Status Current
Issue date 1 July 2016
Replaces PTA-003PT-042, PT-043, PT-044, PT-045 and PT-046

This ruling replaces PTA-003 to remove an outdated reference to the gross-up rate.

Preamble

The definition of wages in Part 3 of the Payroll Tax Act 2007 (the Act) includes fringe benefits as defined in the Fringe Benefits Tax Assessment Act 1986 (FBT Act), but does not include tax exempt body entertainment fringe benefits.

This Revenue Ruling addresses the following points:

  • Calculating the value of fringe benefits for payroll tax purposes,
  • Clarifying the treatment of fringe benefits with a nil taxable value and exempt benefits where such benefits also fall within another part of the definition of wages,
  • Explaining the requirements of the alternative method of declaring fringe benefits,
  • Explaining the method of calculating the Victorian component of fringe benefits when they are not readily identifiable, and
  • The adoption of Australian Taxation Office (ATO) fringe benefits tax rulings

Ruling

Value of fringe benefits for payroll tax purposes

The FBT Act categorises fringe benefits into two types, depending on the GST implications. The type 1 fringe benefits for which the employer can claim a GST input tax credit are grossed up by a higher type 1 factor, and type 2 fringe benefits for which the employer cannot claim a GST input tax credit are grossed up by a lower type 2 factor.

Section 15 of the Act requires employers to gross up all fringe benefits by using only the lower type 2 factor. The type 2 factor may be calculated as follows:

1 ÷ (1 - FBT rate)

Fringe benefits with a nil taxable value

Where a benefit has a nil taxable value under the FBT Act, some uncertainty may exist as to whether or not such benefits will be subject to payroll tax where the benefit also falls within another part of the definition of wages under the Act. Fringe benefits which have a nil taxable value under the FBT Act also have a nil taxable value for payroll tax purposes.

Exempt benefits

The FBT Act provides specific exemptions for certain types of benefits. Such exempt benefits are not fringe benefits for the purposes of the FBT Act. Some uncertainty may exist as to whether or not such benefits will be subject to payroll tax where the benefit also falls within another part of the definition of wages under the Act.

Section 14(2) of the Act ensures that exempt benefits are not fringe benefits for payroll tax purposes even where the exempt benefit would also fit within another part of the definition of wages under the Act. Deposits to a Superannuation Holding Account Special Account within the meaning of the Small Superannuation Accounts Act 1995 (Cth) are an exception to this rule, as specified in s14(2) of the Act.

Election for alternative method to declare fringe benefits

Employers are required to declare in their monthly returns the actual value of total fringe benefits (grossed up by the type 2 factor) provided in each month. For administrative ease, s16 of the Act allows employers to make a formal election to adopt an alternative method whereby the amounts declared are based on the FBT returns.

Where such an election is made, employers must include in each monthly payroll tax return from July to May, one-twelfth of the total taxable value of fringe benefits in the FBT return for the year ending 31 March immediately preceding the start of each financial year, grossed up by the type 2 factor.

The annual reconciliation for each financial year should include the total taxable value of fringe benefits declared in the FBT return ending 31 March immediately before the annual reconciliation, grossed up by the type 2 factor.

Example

ABC Pty Ltd made the election to adopt the alternative method of declaring fringe benefits for payroll tax purposes. In the FBT year ended 31 March 2015, the total taxable value of the fringe benefits grossed up by the type 2 factor is $100,000. Accordingly, ABC Pty Ltd would declare $8333 of fringe benefits in each payroll tax return for July 2015 to May 2016 (i.e. 1/12 x $100,000 = $8333).

In its FBT return for the year ended 31 March 2016, the total taxable value of the fringe benefits grossed-up by the type 2 factor is $105,000, which is the amount that would be declared as the fringe benefits amount in the 2015-16 annual reconciliation.

Under the Act, an employer may only take advantage of the formal election where:

  • The employer was liable to pay FBT for a period of not less than 15 months prior to the commencement of the relevant tax year, and
  • The Commissioner of State Revenue (the Commissioner) is notified of the election in the approved form

An employer who does not meet these requirements must return the actual value of the fringe benefits paid during the relevant return period or make a written request for another method for declaring the fringe benefits.

Once an election is made, an employer must use the alternative method for declaring fringe benefits in their payroll tax returns, unless the Commissioner gives approval to revert back to using the actual value of fringe benefits. Furthermore, the alternative method must be used for declaring the value of all fringe benefits (i.e. an employer is not permitted to use the alternative method for declaring the value of some fringe benefits and the actual value for declaring the value of other fringe benefits).

Employers seeking such approval must lodge an application in writing which explains why termination of the election is sought (e.g. the employer has provided fewer benefits during the current financial year compared with the previous FBT year).

Where an employer ceases to be liable for payroll tax, regardless of whether or not the election has been made, the amount of fringe benefits declared in the employer’s final payroll tax return is to be: 

  • The actual value of the Victorian component of fringe benefits paid or payable by the employer for the period from the preceding 1 July to the cease date, grossed up by the type 2 facto, less
  • The value of the Victorian component of fringe benefits declared in payroll tax returns during that period

Determination of Victorian component of fringe benefits

Existing FBT record-keeping systems may not allow an employer who employs in more than one state to identify the Victorian component of the fringe benefits.

In such circumstances, the Victorian component of the fringe benefit amount may be declared on an apportionment basis, calculated in accordance with the approved method.

The approved method of estimating the Victorian component of the total value of fringe benefits is only available where:

  • Existing records do not allow the identification of the actual fringe benefits which relate to Victoria, and
  • The employer has formally elected to declare fringe benefits based on the alternative method

The approved method of calculating the Victorian component of total fringe benefits involves two steps.

Step 1 — July to May monthly returns

The amount to be declared in each of the monthly returns July to May, is one twelfth of the total value of the fringe benefits declared in the FBT return for the year ending 31 March (immediately preceding the current financial year) grossed up by the Type 2 factor, adjusted by the ratio of total Victorian taxable wages, to total Australian taxable wages, for the full financial year (immediately preceding the current financial year).

Step 2 — Annual reconciliation

The amount to be declared in the annual reconciliation is the total value of fringe benefits declared in the FBT return for the year ending 31 March, immediately preceding the annual reconciliation grossed up by the type 2 factor, adjusted by the ratio of Victorian taxable wages to Australian taxable wages, for the current financial year.

The Victorian taxable wages and the Australian taxable wages in the above two steps should not include fringe benefits.

Example

The value of fringe benefits of XYZ Pty Ltd in its 31 March 2015 FBT return after grossing up by the type 2 factor is $120,000. XYZ Pty Ltd paid a total of $600,000 (excluding fringe benefits) in taxable wages for the 2014-15 financial year, of which $300,000 (excluding fringe benefits) were Victorian wages.

Step 1

($300,000 ÷ $600,000) x $120,000 = $60,000 estimated Victorian fringe benefits

Therefore, $60,000 ÷ 12 = $5000 of fringe benefits is to be declared in each monthly Victorian payroll tax return from July 2015 to May 2016.

The value of fringe benefits of XYZ Pty Ltd in its 31 March 2016 FBT return after grossing up by the type 2 factor is $180,000. The total Australian taxable wages for the 2015-16 financial year were $800,000 (excluding fringe benefits), of which $600,000 (excluding fringe benefits) were Victorian taxable wages.

Step 2

($600,000 ÷ $800,000) x $180,000 = $135,000

The Victorian component of fringe benefits to be declared in the 2015-16 annual reconciliation is $135,000.

Employers who are unable to calculate the actual Victorian component of fringe benefits and are unable to adopt the approved method or believe they would be disadvantaged by adopting the approved method, should make a written submission to the Commissioner detailing another method.

Adopting the ATO fringe benefits tax rulings

The Commissioner will adopt all rulings issued by the ATO which relate to fringe benefits tax (with the exception of rulings relating to employee share schemes) in order to follow, as closely as possible, the effect of the FBT Act.

This Revenue Ruling is effective from 1 July 2016.

Please note that rulings do not have the force of law. Each decision made by the State Revenue Office is made on the merits of each individual case having regard to any relevant ruling. All rulings must be read subject to Revenue Ruling GEN.001