3.2.3 Adjusted Fringe Benefits Total

Introduction

Fringe benefits are benefits that an employee receives from their employer, which could include expense payments, the use or ownership of something or the enjoyment of a privilege. The benefit may be assigned to someone else, such as a spouse or child. The value of these fringe benefits is included in an individual's adjusted fringe benefits total, 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.

In relation to ATI, an individual's adjusted fringe benefits total for an income year is the amount worked out using the following formula from 1 January 2017:

  • ((Exempt employer fringe benefits total) x (1 - Applicable fringe benefits tax rate)) + Non-exempt employer fringe benefits total

An individual's exempt employer fringe benefits total is the sum of reportable fringe benefits the individual receives from employers who are identified under the Fringe Benefits Tax Assessment Act 1986 section 57A. An individual's exempt employer fringe benefits total is adjusted for the purposes of the FTB, SBP, DAPP, PPL and CCB income tests (see below). This means that fringe benefits amounts derived from these employers will not be fully counted towards the income test. Payment recipients are required to include the full reportable amount in their income estimate and DHS automatically adjusts the amount by multiplying it by 1 minus the applicable FBT rate.

Examples of employers which are identified under the Fringe Benefits Tax Assessment Act 1986 section 57A include registered public benevolent institutions, registered health promotion charities, some hospitals and public ambulance services.

An individual's non-exempt employer fringe benefits total is the sum of reportable fringe benefits the individual receives from all other employers. An individual's non-exempt employer fringe benefits total is not adjusted for the purposes of the FTB, SBP and CCB income tests. The total amount is the same as the sum of the reportable amounts from these employers. Payment recipients are required to include the reportable amount in their income estimate and DHS makes no adjustment to that amount.

Individuals do not need to include a fringe benefit amount when reporting to the ATO if the total of their fringe benefits amount is under the relevant ATO fringe benefits threshold. If the value of the individual's fringe benefits is under the relevant ATO threshold, they will not have a reportable amount. If an individual includes a fringe benefit amount in their income estimate which is under the relevant ATO threshold, DHS will treat the amount as nil.

Act reference: FAAct Schedule 3 clause 4 Adjusted fringe benefits total

Fringe Benefits Tax Assessment Act 1986 Part III section 57A Exempt benefits-public benevolent institutions, health promotion charities, some hospitals and public ambulance services, Part XIB section 135P Employee's reportable fringe benefits amount-general rule, Part XIB section 135Q Reportable fringe benefits amount for some employees of certain institutions

Summary

This section covers the following:

  • salary sacrificing and fringe benefits,
  • FBT year,
  • reportable fringe benefits,
  • FBT rate,
  • adjusting the exempt employer fringe benefits total,
  • effect of fringe benefits on the SBP income test,
  • FTB/CCB instalment individual, SBP individual - estimating fringe benefits, and
  • actual amounts of fringe benefits used in estimate - FTB and CCB only.

Salary sacrificing & fringe benefits

Common forms of salary sacrifice or fringe benefits include:

  • leasing of vehicles,
  • investments,
  • expense benefits,
  • housing assistance,
  • low interest loans, and
  • child care.

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 may pay FBT on the value of the benefit.

The reportable amount of the fringe benefit is recorded on the employee's end of financial year payment summary and identifies whether or not the income is an exempt benefit from an employer described in the Fringe Benefits Tax Assessment Act 1986 section 57A. Only reportable fringe benefits are assessable for the purposes of the FTB, SBP and CCB income tests.

If an individual (1.1.I.90) is not sure whether a benefit they receive from their employer is a reportable fringe benefit, they should contact their employer or the ATO for advice.

Policy reference: FA Guide 2.6.1 CCB Eligibility Criteria for Individuals, 2.12.1 SBP Eligibility Criteria

FBT year

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 2017 corresponds to the financial year ending 30 June 2017. Fringe benefits received from 1 April 2016 to 31 March 2017 will appear on an employee's payment summary for the 2016-17 financial year.

Reportable fringe benefits

The reportable fringe benefit is the amount that appears on an employee's end of financial year payment summary. The reportable amount is the 'grossed-up' value of the fringe benefit. A grossed up value of both non-exempt and exempt employer fringe benefits totals will appear on the payment summary.

The grossed-up value is calculated using the following formula:

  • Reportable fringe benefit = Total taxable value of fringe benefit divided by (1 - FBT rate)

FBT rate

The FBT rate is set out in the Fringe Benefits Tax Act 1986 section 6. It is the highest marginal tax rate including the Medicare Levy and the Temporary Budget Repair Levy. The applicable FBT rate can be found on the ATO's website.

Adjusting the exempt employer fringe benefits total

The value of exempt employer fringe benefits total that Centrelink uses for the purposes of the FTB, SBP, DAPP, PPL and CCB income tests is adjusted using the following formula:

  • DHS-adjusted exempt employer fringe benefits total = Exempt employer reportable fringe benefit × (1 - FBT rate)

Example: During the 2016-17 year, John has received fringe benefits from 2 employers which are identified as exempt 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 notifies this amount to Centrelink.

Centrelink then adjusts John's exempt employer fringe benefits total = $9,708.74 × (1 - 0.49) = $4,951 (rounded to the whole dollar).

Note: Adjusting the exempt employer fringe benefits total has the effect of subtracting the gross-up factor from the employee's reportable fringe benefits total for income received from exempt employers. Only the cash or market value of these fringe benefits are assessed.

Effect of fringe benefits on the SBP income test

For the purposes of the SBP income test, the adjusted fringe benefit total 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 income test period falls. As an example, if the SBP 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 SBP 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 SBP 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 individual to estimate fringe benefits likely to be received during the SBP income test period in the absence of a payment summary, the individual should make an effort to provide what evidence is available, such as an agreement with an employer, at the request of Centrelink.

Act reference: FAAct Schedule 3 clause 4 Adjusted fringe benefits total

FTB/CCB instalment individual, SBP individual - estimating fringe benefits

If the individual 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. The individual must identify reportable fringe benefits amounts from exempt employers and non-exempt employers separately.

Explanation: If a fringe benefit amount received from an exempt employer is declared by the individual in their estimate for FTB and CCB purposes, the amount will be adjusted by Centrelink before being included in the income test. If a fringe benefit amount received from a non-exempt employer is declared by the individual in their estimate for FTB and CCB purposes, the amount will not be adjusted by Centrelink and the 'grossed up' amount will be included in the relevant income test.

For the SBP income test, the individual 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 and identify reportable fringe benefits amounts from exempt employers and non-exempt employers separately. For further details on how the income test period is defined see 4.15.1 for SBP.

If the employee is unsure of their reportable fringe benefits amount or whether their employer is an exempt employer identified under the Fringe Benefits Tax Assessment Act 1986 section 57A, they should contact their employer for advice.

Actual amounts of fringe benefits used in estimate - FTB & CCB only

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 and whether their employer is an exempt employer.

Example: John is receiving fortnightly instalments and has an estimated taxable income of:

  • $20,000 + $7,000 non-exempt employer fringe benefits total plus,
  • a total net investment loss of $5,000.

This gives an estimated ATI of $32,000 for the financial year.

On 15 April John contacts his employer and finds out his actual non-exempt employer fringe benefits total for the year appearing on his payment summary is $17,475.73. John should contact Centrelink to update his estimates accordingly.

Note: An estimate for the purposes of the SBP income test does not need to be updated, as it is based on the 'best efforts' of the individual and will not be reconciled with actual income (see 3.2.8.10).

Last reviewed: 3 January 2017