Fringe benefits tax for non profit

Transcription

1 non profit SEGMENT Non profit organisations AUDIENCE guide FORMAT NAT PRODUCT ID Fringe benefits tax for non profit organisations Help for non profit organisations to understand their fringe benefits tax concessions and obligations. You should use this guide if you are involved in the fringe benefits tax (FBT) administration of a non profit organisation. Tax advisers, employers, treasurers, accountants and staff employed by non profit organisations to look after FBT matters should find this guide a useful reference.

2 Our commitment to you We are committed to providing you with advice and information you can rely on. We make every effort to ensure that our advice and information is correct. If you follow advice in this publication and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we must still apply the law correctly. If that means you owe us money, we must ask you to pay it. However, we will not charge you a penalty or interest if you acted reasonably and in good faith. If you make an honest mistake when you try to follow our advice and you owe us money as a result, we will not charge you a penalty. However, we will ask you to pay the money, and we may also charge you interest. If correcting the mistake means we owe you money, we will pay it to you. We will also pay you any interest you are entitled to. You are protected under GST law if you have acted on any GST advice in this publication. If you have relied on GST advice in this publication and that advice later changes, you will not have to pay any extra GST for the period up to the date of the change. Similarly, you will not have to pay any penalty or interest. If you feel this publication does not fully cover your circumstances, please seek help from the Tax Office or a professional adviser. The information in this publication is current at June We regularly revise our publications to take account of any changes to the law, so make sure that you have the latest information. If you are unsure, you can check for a more recent version on our website at or contact us. Commonwealth of Australia 2006 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney General s Department, Robert Garran Offices, National Circuit, Barton ACT 2600 or posted at published by Australian Taxation Office Canberra June 2006 JS 4610

3 ABOUT FRINGE BENEFITS TAX FOR NON PROFIT ORGANISATIONS You should use this guide if you are involved in the administration of fringe benefits tax (FBT) for a non profit organisation. Non profit organisations include charities, clubs, societies and associations. If you are a non profit organisation this guide will help you: n decide whether you have a fringe benefits tax (FBT) obligation n recognise the FBT concessions that apply to you, and n calculate your fringe benefits liability. We explain how FBT works and the FBT concessions available to certain non profit organisations. We: n detail the fringe benefits most commonly provided n explain how to calculate the FBT payable for these benefits n let you know what records you need to keep in relation to FBT n explain in brief the less commonly provided benefits, and n let you know where you can locate more detailed information. Although we generally refer only to fringe benefits provided to employees by an employer, fringe benefits can also be provided to employees associates (such as a family member). Further, fringe benefits can also be provided by an associate of the employer or a third party by arrangement with the employer. Some technical terms used may be new to you. They are explained in the definitions list on page 89. Where we use the term you, we are referring to your non profit organisation. Fringe benefits tax for non profit organisations iii

4 contents About Fringe benefits tax for non profit organisations iii 01 ABOUT FRINGE BENEFITS TAX 1 What is a fringe benefit? 2 Who pays fringe benefits tax? 3 Do you have employees, volunteers or contractors? 3 Meaning of employee 4 Meaning of volunteer 4 Meaning of contractor 4 What is not subject to fringe benefits tax? 5 Exemptions from fringe benefits tax 5 Minor benefits 5 Types of fringe benefits 6 Common fringe benefits 6 Less common fringe benefits 6 Salary sacrifice or salary packaging 8 GST and fringe benefits 8 Reducing the value of your fringe benefits tax 9 Otherwise deductible rule 9 Employee contributions 9 Reportable fringe benefits 9 02 FBT CONCESSIONS AND ENDORSEMENT 11 Do FBT concessions apply to your organisation? (including table of concessions) 12 Explanation of terms 14 Charity tax concessions 14 Charity 14 Charitable fund 14 Charitable institution 14 Public benevolent institution 14 Health promotion charity 15 Hospitals (public and non profit) 15 Rebatable employer 15 Religious institution 15 Religious practitioner 15 Religious institutions and live in carers 16 Religious institutions and domestic employees 16 Non profit company 16 Exemptions from FBT capping measures 16 Meal entertainment 16 Entertainment facility leasing expenses 16 Car parking 16 Reportable fringe benefits 17 Applying for endorsement 17 iv Fringe benefits tax for non profit organisations

5 03 WHAT TO DO IF YOU PROVIDE FRINGE BENEFITS 19 1 Calculate your FBT liability 20 Public benevolent institutions (other than hospitals) and health promotion charities 20 Public and non profit hospitals and public ambulance services 20 Worked example capping threshold not exceeded 22 Worked example capping threshold exceeded 25 Rebatable organisations 28 Worked example rebate threshold not exceeded 32 Worked example rebate threshold exceeded 36 2 Reportable fringe benefits 41 3 Record keeping 43 4 Register for FBT 43 5 Lodge a return and pay FBT CAR FRINGE BENEFITS 47 What is a car fringe benefit? 48 What is a car? 48 Exempt car benefits 49 How to calculate the taxable value of a car fringe benefit 49 Using the statutory formula method 49 Sample worksheet statutory formula method 52 Worked example statutory formula method 54 Using the operating cost method 56 Sample worksheet operating cost method 58 Worked example operating cost method 60 How to calculate the taxable value of a benefit provided as a vehicle other than a car 62 Special records you need to keep for car fringe benefits 63 Special records you need to keep for vehicles other than cars EXPENSE PAYMENT FRINGE BENEFITS 69 Common expenses reimbursed or paid for by employers 70 Exempt expense payment benefits 71 How to calculate the taxable value of an expense payment fringe benefit 72 Special records you need to keep for expense payment fringe benefits TAX EXEMPT BODY ENTERTAINMENT FRINGE BENEFITS 75 Are you a tax exempt body? 76 Is the benefit entertainment? 76 Do you provide food or drink that is entertainment? 77 Does an exemption apply? 78 Is the benefit a tax exempt body entertainment fringe benefit? 79 Common circumstances in which food or drink is provided 79 Taxable value of food and drink that is tax exempt body entertainment 83 Meal entertainment fringe benefits 83 Do you provide recreational entertainment? 85 If the benefit is recreational entertainment, does an exemption apply? 85 Taxable value of recreational entertainment 86 Keep the appropriate records 86 Reporting requirements 87 Providing a benefit which is not entertainment or tax-exempt body entertainment 87 DEFINITIONS 89 MORE INFORMATION 91 INDEX 92 Fringe benefits tax for non profit organisations v

6 vi Fringe benefits tax for non profit organisations

7 ABOUT FRINGE BENEFITS TAX 01 This chapter outlines fringe benefits tax (FBT) and how it affects non profit organisations, the different types of fringe benefits and which type of organisations need to pay FBT. It also includes a checklist to help you work out if you are providing fringe benefits.

8 01 about fringe benefits tax What is a fringe benefit? A fringe benefit is a payment to an employee but in a different form to salary and wages. According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit provided to somebody because they are an employee. The employee may even be a former or future employee. Non profit organisations that provide non cash benefits to their employees may have fringe benefits tax (FBT) obligations. Benefits include rights, privileges or services. For example, a fringe benefit may be provided when an employer: n allows an employee to use a work car for private purposes n gives an employee a cheap loan n pays an employee s green fees at golf days n provides entertainment by way of food or drink n reimburses an expense incurred by an employee, such as school fees, or n enters into a salary sacrifice arrangement with an employee. Even if your organisation is exempt from income tax, you may still have to pay FBT. The FBT year is different to the income tax year and runs from 1 April to 31 March. A checklist to help you work out if you are already providing a fringe benefit to your employees follows. If you answer yes to any of the following you may have an FBT liability and may need to read all or parts of this guide. YES NO Do your employees take cars home and garage them overnight, even if only for security reasons? Do you make a car or other vehicles owned by the business available to employees for private use? Do you sell cars to employees at below market value? Do any of your employees have a salary package arrangement in place? Have you paid for, or reimbursed, an expense incurred by an employee? Have you provided your employees with goods at a lower price than they are normally sold to the public? Have you provided property, either free or at a discount, to employees? Do you provide a house or unit of accommodation to your employees? Do you provide employees with living away from home allowances? Do you provide entertainment by the way of food, drink or recreation to your employees? Do you provide loans at reduced interest rates to employees? Have you released an employee from an owed debt? 2 Fringe benefits tax for non profit organisations

9 01 about fringe benefits tax Who pays fringe benefits tax? As an employer, you have to pay FBT, even if the benefit is provided by an associate or by a third party under an arrangement with you. For example, you may deal with a supplier who, in turn, provides free goods to your employees. You have to pay FBT if: n you are a sole trader n you are a partnership n you are a trust n you are a corporation n you are a unincorporated association n you are a government body, or n you have to pay other taxes such as income tax. Benefits can be provided by an employer, an associate of the employer, or by a third party under an arrangement with the employer to an employee. An employee can be a current, future or former employee. To help you decide whether a benefit is provided in respect of employment, ask yourself: Would I have provided the benefit if the person had not been an employee? Do you have employees, volunteers or contractors? If your organisation provides a fringe benefit to its employees or to associates of its employees, your organisation may have a fringe benefits tax liability. This is separate from income tax and is calculated on the taxable value of the fringe benefits provided. It is important to determine whether an individual is an employee, volunteer or, contractor of your organisation. This status may affect the tax treatment between the individual and the organisation. You should always consider the facts and circumstances of each individual when determining whether they are an employee, volunteer or independent contractor. For the purposes of FBT, an employee is a person who receives (or is entitled to receive) salary or wages, or a benefit that has been provided in respect of their employment. A volunteer is not paid for work. Reimbursing a volunteer for out of pocket expenses does not cause them to become an employee. Generally benefits provided to volunteers do not attract FBT. If an organisation provides non cash benefits to workers in lieu of salary and wages, FBT can apply. As a general rule: n volunteers do not have to pay tax on payments or benefits they receive in their capacity as volunteers, and n non profit organisations are not liable for fringe benefits tax (FBT) on payments they make, or benefits they provide, to volunteers or independent contractors. To decide if a benefit is provided in relation to employment, ask yourself whether you would have provided the benefit if the recipient had not been an employee. Fringe benefits tax for non profit organisations 3

10 01 about fringe benefits tax Meaning of employee The meaning of employee for FBT purposes includes past, present or future employees. Generally, an individual is considered to be an employee if they: n are paid for time worked n receive paid leave (for example, sick, annual or recreation, or long service leave) n are not responsible for providing the materials or equipment required to do their job n must perform the duties of their position n agree to provide their personal services n work hours set by an agreement or award n are recognised as part and parcel of the payer s business, and n do not take commercial risks and cannot make a profit or loss from the work performed. Example: Employee Michele is an employee of a retirement home. She takes residents on outings using the retirement home s car and is entitled to use the car on the weekends for her own private use. Michele has received a fringe benefit being the private use of the car and FBT may be payable in this situation as Michele is an employee of the non profit organisation. Meaning of volunteer There is no legal definition of the term volunteer for tax purposes. The dictionary explanation of a volunteer is someone who enters into any service of their own free will, or who offers to perform a service or undertaking. A genuine volunteer does not work under a contractual obligation for remuneration and would not be an employee or an independent contractor. Meaning of contractor Contractors are those workers who are self employed and have a contract with you to provide services. Generally, an individual is considered to be a contractor if they: n can exercise their own discretion as to how the contracted services are to be performed n are paid on the performance of the contract services n provide their own tools and equipment n can sub contract or delegate the work n perform the services as specified in a contract with the non profit organisation and provides additional services only by agreement, and n bear legal risk in respect of the work. Example: Contractor Brad, an electrician, is contracted to rewire a non profit organisation s new canteen. He is asked by the non profit organisation to complete the work within a short timeframe so that the canteen can be painted. Brad is paid on completion of the work and is given some wine as a thank you gift for completing the work within a short timeframe. No FBT arises on the gift as Brad is not an employee of the non profit organisation. MORE INFORMATION Taxation Ruling TR 2005/16 Income tax: Pay as you go Withholding from payments to employees PAYG withholding guide no. 2 how to determine if workers are employees or independent contractors (NAT 2780) Volunteers and tax (NAT 4612) Example: Volunteer Matthew volunteers his time with a community radio station. He spends time on marketing the radio station around Brisbane. He is reimbursed for his fuel costs and other minor expenses he incurs for the benefit of the station. At Christmas time he is given a hamper worth $150 as a thank you gift. Matthew is not considered to be an employee as the reimbursement he receives does not amount to salary and wages. No FBT will arise on these reimbursements or gift. 4 Fringe benefits tax for non profit organisations

11 01 about fringe benefits tax What is not subject to fringe benefits tax? The following are not fringe benefits. n Payments of salary or wages. n Shares acquired under employee share acquisition schemes. n Employer contributions to complying superannuation funds. n Benefits provided by public benevolent institutions, health promotion charities, public ambulance services, public and non profit hospitals subject to capping thresholds. n Benefits provided by religious institutions to their religious practitioners, in certain circumstances. A number of benefits are exempt from FBT. Exempt benefits are not only exempt from FBT, they are also (with one exception) exempt from income tax in the hands of the employee to whom they are provided. (Refer to chapter 20 of Fringe benefits tax: a guide for employers (NAT 1054) for details of the exception in relation to car expenses) Exemptions from fringe benefits tax Some of the common benefits that are exempt from FBT such as certain work related items, minor benefits and relocation expenses are outlined here. Benefits that are exempt from FBT are exempt for all employers, regardless of your organisation type, are: n a mobile phone or a car phone used mainly in the employee s employment n protective clothing required for the employee s employment n a briefcase n a calculator n a tool of trade n an electronic diary, personal digital assistant (PDA) or similar item n a notebook computer, a laptop computer or a similar portable computer (limited to the purchase or reimbursement of one computer for each employee a year) n from 1 April 2006, portable printers designed specifically for use with a notebook computer, a laptop computer or a similar portable computer n some taxi travel, and n in house health care facilities. Minor benefits Some minor benefits you provide may be exempt from FBT. This is the case where the value of the benefit is less than $100 and it would be unreasonable to treat it as a fringe benefit where: n you provide the benefit infrequently and irregularly n the taxable value of the minor benefit and other similar or identical benefits (if they were treated as fringe benefits) is low n the likely total taxable value of the minor benefit and other associated benefits is low associated benefits are those benefits provided in conjunction with the minor benefit, for example, accommodation, board, electricity and telephone benefits provided as part of an accommodation package n it is difficult to calculate the taxable value of the benefit and any associated benefits, or n the benefit is provided as a result of a contingency (for example, unexpected overtime). The minor benefit exemption is treated differently in relation to entertainment where a tax exempt body organisation is involved. Refer to chapter 6 for more details. The Government has announced that from 1 April 2007, the minor benefits threshold will increase from $100 to $300. Fringe benefits tax for non profit organisations 5

12 01 about fringe benefits tax Types of fringe benefits Example: Exempt minor benefit The manager of a non profit organisation gives flowers to Jane, an employee, for the birth of her daughter. The flowers have a taxable value of less than $100. This is an exempt minor benefit. Example: Not exempt minor benefit If the manager gave Jane a pram valued at $350 instead of the flowers, this would not be an exempt minor benefit because the value of the pram is more than $100. The manager of a non profit organisation gives flowers to the organisation s administrative assistant each week. The value of the flowers is $15. Because the flowers are provided on a regular basis, this is not an exempt minor benefit. FBT law identifies various types of fringe benefits and specific valuation rules for each type of benefit. Common fringe benefits We provide you with a detailed chapter about: n cars (chapter 4) n expense payments (chapter 5), and n tax-exempt body entertainment (chapter 6). Less common fringe benefits We provide an overview of each of the less commonly provided benefits. To simplify the descriptions, the following overviews of these types of benefits refer only to employer and employee. However, they can equally apply where the benefit is provided by a third party under an arrangement with the employer, or where the benefit is provided to an associate of the employee. For more information about these types of benefits please refer to Fringe benefits tax: a guide for employers (NAT 1054) Loan fringe benefits You provide a loan fringe benefit if you give an employee a loan and charge no interest rate on it, or a low rate of interest. A low rate of interest is one that is less than the statutory rate of interest which is published by the Tax Office each year, usually in April. If an employee owes money to you or to the business, you may also be providing a loan fringe benefit. For example, if an employee owes you a debt but you don t enforce payment after the debt becomes due, the unpaid amount is treated as a loan to the employee. Such a loan starts immediately after the due date at the rate of interest, if any, at which the interest accrues on the unpaid amount. This does not apply if the employee owes money under the same terms and conditions as an ordinary customer. Debt waiver fringe benefits You provide a debt waiver benefit if you waive or release an employee from the obligation to pay a debt or loan (see above). For example, if you sell goods to an employee and later tell them not to bother about paying the invoiced amount, you have provided a debt waiver fringe benefit. An employee debt that you write off as a genuine bad debt is not a debt waiver fringe benefit. 6 Fringe benefits tax for non profit organisations

13 01 about fringe benefits tax Housing fringe benefits If you give an employee the right to use a unit of accommodation and that unit of accommodation is where the employee usually lives, the right to use the unit of accommodation is a housing fringe benefit. A unit of accommodation includes: n a house, flat or home unit n accommodation in a house, flat or home unit n accommodation in a hotel, motel, guesthouse, bunkhouse or other living quarters n a caravan or mobile home, or n accommodation on a ship or other floating structure. The employee doesn t have to have exclusive use of the accommodation. Board fringe benefits A board fringe benefit may arise if you provide an employee with accommodation and there is an entitlement to at least two meals a day. The meals may be a board fringe benefit. Examples include: n meals provided in a dining facility located on a remote construction site, oil rig or ship, and n meals provided to a live in housekeeper or to resident teachers in a boarding school. Airline transport fringe benefits An airline transport fringe benefit may arise where employees of an airline or travel agent are provided with free or discounted air travel on a standby basis. Living away from home allowance fringe benefits If you pay an employee a living away from home allowance, you are providing a living away from home allowance fringe benefit. For FBT purposes, a living away from home allowance is an allowance you pay to an employee to compensate them for any additional expenses they incur and disadvantages they suffer because they are required to live away from their usual place of residence to do their work. Additional expenses do not include expenses the employee could claim as an income tax deduction. Property fringe benefits A property fringe benefit may arise when an employer provides an employee with property, either free or at a discount. Property includes: n all goods, for example, items of clothing or a cylinder of heating gas n real property, for example, land and buildings, and n other property, for example, shares. Car parking fringe benefits A car parking fringe benefit may arise if an employer provides car parking to an employee and: n there is a commercial car parking station within a one kilometre radius of where the car is parked, and n that commercial car parking station charges a fee for all day parking that is more than the car parking threshold. The car parking threshold is indexed in line with the consumer price index. It is announced each year in a tax determination, usually published in April. Residual fringe benefits Any fringe benefit that is not subject to any of the above categories is called a residual fringe benefit. A residual fringe benefit may arise when you provide an employee with any right, such as a privilege, service or facility, which is not one of the specific types of fringe benefits already mentioned above. Residual benefits could include providing services and assistance such as: n travel n the performance of professional or manual work n the use of property n providing insurance cover (for example health insurance cover under a group policy you take out for the benefit of your employees), and n giving an employee the right to private use of a vehicle that is not classed as a car under FBT law. Generally, where a benefit consists of both goods and services, the goods component (property fringe benefit) and the services component (residual fringe benefit) are valued separately. However, when the person providing the benefit is in a business where goods and services are provided together, for example, carrying out repairs that entail the supply of spare parts, and the benefit is of that kind, it is a residual fringe benefit. Fringe benefits tax for non profit organisations 7

14 01 about fringe benefits tax Salary sacrifice or salary packaging A salary sacrifice arrangement (SSA) is also commonly referred to as salary packaging or total remuneration packaging. It is an arrangement between an employer and an employee where the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer (or someone associated with their employer) providing benefits of a similar value. The employee is likely to place greater value on the benefits provided under this arrangement than its cost to the employer. An effective salary sacrifice arrangement is an arrangement between the employer and the employee detailing the amount of salary or wages income to be sacrificed. The arrangement should be entered into before the work is performed or the employee becomes entitled to be paid. If this occurs after the work has been performed the SSA will be ineffective. Under an effective salary sacrifice arrangement: n the employee pays income tax on the reduced salary or wages n the employer may be liable to pay FBT on the fringe benefits provided, and n salary sacrificed superannuation contributions are classified as employer superannuation contributions (not employee contributions) and are taxed in the superannuation fund under tax laws dealing specifically with this subject. MORE INFORMATION Fringe benefits tax and salary sacrifice arrangements (NAT 7424) Taxation Ruling TR2001/10 (and Addendum) Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements GST and fringe benefits A goods and services tax of 10% applies on most goods and services supplied in Australia and on goods imported into Australia. GST affects the calculation of your FBT liability. To calculate a fringe benefits tax liability, the taxable amounts of fringe benefits provided must be grossed up. Grossing up means increasing the taxable value of a benefit to reflect the gross salary an employee would have to earn at the highest marginal tax rate (including Medicare levy) had they received cash salary rather than the fringe benefit. There are two separate gross up rates: A higher (type 1) gross up rate of This rate is used where the benefit provider is entitled to a GST credit in respect of the provision of a benefit. A lower (type 2) gross up rate of This rate is used if the benefit provider is not entitled to claim GST credits. The FBT rate, currently 46.5%, is then levied on the grossed-up amount of the benefits provided to your employees in order to calculate your FBT liability. Chapter 3 has more details on how to calculate your FBT liability. Regardless of whether the benefits provided are type 1 or type 2, the lower gross-up rate of should be used for reporting on employees payment summaries. Prior to the FBT year 1 April March 2007, the FBT rate was 48.5%. The type 1 gross-up rate was and the type 2 gross-up rate was The lower gross-up rate of should be used for reporting on payment summaries for the income year ending 30 June Fringe benefits tax for non profit organisations

15 01 about fringe benefits tax Reducing the value of your fringe benefits tax There are a range of FBT concessions available to non profit organisations. The concession is a reduction in the taxable value of the fringe benefit that results in a reduced amount of FBT, or even no FBT, being payable. Chapter 2 discusses this in more detail. There are other various ways you can reduce your FBT liability sometimes to nil, by: n replacing the fringe benefits with cash salary n providing benefits that your employees would be entitled to claim as an income tax deduction if they had paid for the benefits themselves n providing benefits that are exempt from FBT, or n using employee contributions. Otherwise deductible rule If you provide something as a benefit to an employee that they would normally be able to claim as an income tax deduction, you can reduce the taxable value of the benefit by the amount they would have been able to claim. This is called the otherwise deductible rule. For example, if an employee incurred a work expense, it would be wholly deductible for income tax purposes. Under the otherwise deductible rule, if you reimburse the employee for all or part of this expense, the taxable value of the expense payment fringe benefit would be zero. Reportable fringe benefits As an employer, you are required to record the value of fringe benefits provided to each of your employees. In addition, you may also have to report the value of certain benefits on your employees payment summaries, including the notional value of certain exempt benefits. It is important to note that even if your organisation is not liable to pay FBT, you may still have to report the grossed up taxable value of benefits provided to your employees in an FBT year (1 April to 31 March) on their payment summaries for the corresponding income year (1 July to 30 June). MORE INFORMATION Chapter 3 of this guide and Reportable fringe benefits facts for employees (NAT 2836) Employee contributions In most categories, if an employee makes a payment to you as a contribution towards the cost of providing a fringe benefit, the taxable value of that fringe benefit is reduced by the amount of the payment. Such a payment is referred to as an employee contribution (or recipient s contribution). Some important points to note about employee contributions are: n an employee contribution may be made only from an employee s after tax income n you cannot use an employee contribution towards a particular fringe benefit to reduce the taxable value of any other fringe benefit n if you are not an income tax exempt organisation you may have to include an employee contribution in your assessable income (as a general rule, the costs you incur in providing a fringe benefit are income tax deductible), and n when calculating the taxable value of either a type 1 or type 2 benefit, you use the full GST inclusive amount of the contribution to reduce the taxable value of the benefit. Fringe benefits tax for non profit organisations 9

16 01 about fringe benefits tax 10 Fringe benefits tax for non profit organisations

17 FBT CONCESSIONS AND ENDORSEMENT This chapter outlines the concessions available to particular types of non profit organisations and provides information to help you determine if a concession applies to your organisation. This chapter also provides information regarding endorsement requirements. For the purposes of this chapter we have grouped non profit organisations into categories. 02

18 02 FBT CONCESSIONS AND ENDORSEMENT Do FBT concessions apply to your organisation? Few tax concessions apply to all organisations in the non profit sector they tend to apply to particular types of non profit organisation. An endorsed charity s details are recorded on the Australian Business Register at so that the charity s endorsements for tax concessions can be viewed by the public. Charities that want to access FBT concessions from 1 July 2005 must be endorsed by the Tax Office to access the FBT exemption or FBT rebate. A summary of FBT concessions available to non profit organisations is in the following table. Explanations of the terms used in the table and other terms necessary are provided after the table. FBT CONCESSIONS AVAILABLE TO NON PROFIT ORGANISATIONS Type of organisation, entity or employer Charitable funds refer to page 14 Fbt concessions No FBT concessions available Endorsement for fbt No FBT endorsement required. Charitable institutions refer to page 14 Public benevolent institution (other than public hospitals) refer to page 14 Health promotion charities refer to page 15 Public hospitals refer to page 15 Non profit hospitals refer to page 15 Public ambulance service FBT rebate (capped at $30,000) Qualifying employers are entitled to have their liability reduced by a rebate equal to 48% of the gross FBT payable (subject to a $30,000 capping). If the total grossed up taxable value of benefits is more than $30,000 a rebate cannot be claimed for the FBT liability on the excess amount. FBT exemption (capped at $30,000) As a PBI or health promotion charity benefits you provide to your employees are exempt from FBT where the total grossed up value of certain fringe benefits for each employee during the FBT year is $30,000 or less. If your employees receive grossed up benefits above this threshold you are liable for FBT on the excess (or the aggregate non exempt amount). FBT exemption (capped at $17,000) Benefits provided by public and non-profit hospitals and public ambulance services are exempt from FBT if the grossed up taxable value of certain benefits provided to each employee is $17,000 or less. The $17,000 threshold will apply regardless of whether the organisation is also a PBI. Endorsement required from 1/7/05 to access the FBT rebate subject to a capping threshold of $30,000. Endorsement required from 1/7/05 to access the FBT exemption subject to the capping threshold of $30,000. No FBT endorsement required These entities will not need to apply for endorsement to access this concession as they are not charities 12 Fringe benefits tax for non profit organisations

19 02 FBT CONCESSIONS AND ENDORSEMENT Type of organisation, entity or employer Certain non government and non profit organisations also referred to as rebatable employers eg. public education institutions; employer associations refer to page 15 Religious institutions refer to page 15 Non profit company refer to page 16 Fbt concessions FBT rebate (capped at $30,000) Qualifying employers are entitled to have their liability reduced by a rebate equal to 48% of the gross FBT payable (subject to a $30,000 capping). If the total grossed up taxable value of benefits is more than $30,000 a rebate cannot be claimed for the FBT liability on the excess amount. FBT rebate (capped at $30,000) In addition, religious practitioners and certain employees of religious institutions may be entitled to other types of concessions as listed on page 16: No FBT concessions available If your activities include caring for elderly or disadvantaged people, you can provide exempt benefits to live in carers. The condition for exemption is the same as for religious institutions listed on page 16. Endorsement for fbt Endorsement required from 1/7/05 to access the FBT rebate subject to a capping threshold of $30,000. Religious institutions that are not charities do not have to be endorsed by the Tax Office to access the FBT rebate concession. However, religious institutions that are charities will require endorsement from 1/7/05 to access the FBT rebate concession. No FBT endorsement required. Fringe benefits tax for non profit organisations 13

20 02 FBT CONCESSIONS AND ENDORSEMENT Explanation of terms Charity tax concessions Charities are required to be endorsed by the Tax Office to access the following concessions. n Income tax exemption. n GST charity concessions. n FBT rebate (subject to $30,000 capping threshold). n FBT exemption (subject to either $17,000 or $30,000 capping thresholds). Charity A charity is an entity established for altruistic purposes that the law regards as charitable. The Tax Office does not set the criteria to decide whether or not an organisation is a charity. Criteria for deciding what is a charity have been established by case law. Charities include most religious institutions, aged persons homes, homeless hostels, organisations relieving the special needs of people with disabilities and societies that promote the fine arts. The characteristics of a charity are: n it is an entity that is also a trust fund or an institution n it exists for the public benefit or the relief of poverty n its purposes are charitable within the legal sense of that term n it is non profit, and n its sole or dominant purpose is charitable. A charitable purpose is one which the law regards as charitable. Charitable purposes are any of the following purposes: n the relief of poverty or sickness or the needs of the aged n the advancement of education n the advancement of religion n other purposes beneficial to the community, and n the provision of child care services on a non profit basis. A statutory extension to the meaning of charity applies from 1 July The provision of child care services on a non profit basis is accepted as a charitable purpose from this date. Many community organisations are not charities. An entity is not a charity if: n it is primarily for sporting, recreational or social purposes, or n it is primarily for political, lobbying or promotional purposes. Government departments and instrumentalities carrying out the ordinary functions of government are unlikely to be charities. For more information to help you determine whether your organisation is a charity see our publication Income tax guide for non-profit organisations (NAT 7967). Charitable fund To be this entity type your organisation must be a charity. A charitable fund is a fund established under an instrument of trust or a will for a charitable purpose. The purposes set out in the will or instrument of trust must be charitable. Charitable funds mainly manage trust property, and/or hold trust property to make distributions to other entities or people. In contrast, if the trustee mainly carries on activities that are charitable, the fund will be treated as a charitable institution and not as a charitable fund. Charitable institution To be this entity type your organisation must be a charity. A charitable institution is an establishment, organisation or association that is instituted and operated to advance or promote a charitable purpose. An organisation s purposes can be found in its governing document/s and from its activities, history and control. A charitable institution will carry on charitable activities while a charitable fund mainly manages, and/or holds trust property. Public benevolent institution A public benevolent institution (PBI) is a non profit institution organised for the direct relief of poverty, sickness, suffering, distress, misfortune, disability or helplessness. The characteristics of a PBI are: n it is set up for needs that require benevolent relief n it relieves those needs by directly providing services to people suffering from them n it is carried on for the public benefit n it is non profit n it is an institution, and n its dominant purpose is providing benevolent relief. Organisations that may be PBIs include: n hostels for the homeless n disability support services n hospitals and medical clinics n disaster relief organisations, and n refugee relief centres. A PBI is distinct from a charitable institution. An institution with charitable activities, but not having as its principal objects the relief of poverty, sickness, suffering, distress, misfortune, destitution or helplessness, is not a PBI. A charitable institution may qualify as either a rebatable employer (see page 15) for FBT purposes or as exempt from FBT if it is a health promotion charity. 14 Fringe benefits tax for non profit organisations

21 02 FBT CONCESSIONS AND ENDORSEMENT Health promotion charity A health promotion charity is a non profit charitable institution whose principal activity is promoting the prevention or control of diseases in human beings. The characteristics of a health promotion charity are that: n its principal activity is promoting the prevention or control of diseases in human beings, and n it is a charity which is a charitable institution. Examples of activities that can promote the prevention or control of diseases include: n providing relevant information to sufferers of a disease, health professionals, carers and the public n researching how to detect, prevent or treat diseases, and n developing or providing relevant aids and equipment to sufferers of a disease. Hospitals (public and non profit) A hospital is an institution in which patients are received for continuous medical care and treatment for sickness, disease or injury. The provision of accommodation is integral to a hospital s care and treatment. Clinics that mainly treat ambulatory patients who return to their homes after each visit are not hospitals. However, day surgeries that provide beds for patients to recover after surgery may be hospitals. Homes to provide nursing care for feeding, cleanliness and the like are not hospitals. However, nursing homes for people suffering from illness are accepted as hospitals. Hospices for the terminally ill will generally be hospitals. Minor outpatient and nursing care will not prevent an institution being a hospital. Non profit hospitals include those run by churches and religious orders. Rebatable employer Rebatable employers are certain non government, non profit organisations. Those that qualify for an FBT rebate include: n certain religious, educational, charitable, scientific or public educational institutions n trade unions and employer associations n non profit organisations established to encourage music, art, literature or science n non profit organisations established to encourage or promote a game, sport or animal races n non profit organisations established for community service purposes n non profit organisations established to promote the development of aviation or tourism n non profit organisations established to promote the development of Australian information and communications technology resources, and n non profit organisations established to promote the development of the agricultural, pastoral, horticultural, viticultural, aquacultural, fishing, manufacturing or industrial resources of Australia. Religious institution Your organisation will be a religious institution if it is an establishment, organisation or association that is instituted to advance or promote religious purposes. An institution may have the legal structure of an unincorporated association or a corporation. However, incorporation is not enough, on its own, for an organisation to be an institution. Its activities, size, permanence and recognition will be relevant. An organisation that is established, controlled and operated by family members and friends would not normally be an institution. Example A corporation is set up and controlled by a family. Its object is to spread the gospel. The only activities are holding assets and arranging for the father of the family to speak at churches on some Sundays. The corporation is not an institution. An institution will be a religious institution if: n its objects and activities reflect its character as a body instituted for the promotion of some religious object, and n the beliefs and practices of the members constitute a religion. The term religion is not confined to major religions such as Christianity, Islam, Judaism, but also extends to Buddhism, Taoism, Jehovah s Witness, the Free Daist Communion of Australia and Scientology. The categories of religion are not closed. Nonetheless, to be a religion there must be: n belief in a supernatural being, thing or principle, and n acceptance of canons of conduct that give effect to that belief, but that do not offend against the ordinary laws. Religious practitioner A religious practitioner is someone who is: n a minister of religion n a student at an institution who is undertaking a course of instruction in the duties of a minister of religion n a full time member of a religious order, or n a student at a college conducted solely for training people to become a member of a religious order. Subject to certain requirements, benefits provided by religious institutions to religious practitioners are exempt if they relate Fringe benefits tax for non profit organisations 15

22 02 FBT CONCESSIONS AND ENDORSEMENT Exemptions from FBT capping measures principally to the practitioners pastoral duties or other duties relating to the practice, study, teaching or propagation of religious beliefs. Religious institutions and live in carers Where your activities include caring for elderly or disadvantaged people, certain benefits you provide to employees are exempt. The exemption relates to live in carers where the carer resides with the elderly or disadvantaged person in residential accommodation you provide. The benefits that may be exempt include the employees live in accommodation, residential fuel, meals or other food and drink. Religious institutions and domestic employees Benefits you provide to live in and non live in domestic workers are exempt in certain circumstances. For a live in employee, the employee s duties must principally involve domestic or personal services for religious practitioners and the practitioners relatives residing with them. The benefits that may be exempt include the employees live in accommodation, residential fuel, meals or other food and drink. For a non live in employee, the employee s duties must also principally involve domestic services for religious practitioners and the practitioners relatives residing with them. The exempt benefits are limited to food and drink consumed by the employee while carrying out employment related duties. Certain employers are entitled to an exemption from FBT for the following types of benefits. Meal entertainment The provision of benefits that constitute the provision of meal entertainment are exempt from FBT when provided by PBIs, health promotion charities, public hospitals, non profit hospitals and public ambulance services. Entertainment facility leasing expenses Entertainment facility leasing expenses are exempt from FBT when incurred by PBIs, health promotion charities, public hospitals, non profit hospitals and public ambulance services. Car parking You are exempt from FBT in relation to car parking fringe benefits and car parking expense payment fringe benefits if you are one of the following employers: n a non profit scientific institution n a religious institution n a charitable institution n a public educational institution, or n a government body where the employee is exclusively employed in, or in connection with, a public educational institution. Non profit company For your organisation to be a non profit company: n it must be a company that is not carried on for the purposes of profit or gain to its individual members, and n its constituent documents must prohibit it from making any distribution, whether in money, property or otherwise, to its members. Your organisation can be a non profit company and still make a profit. Any profits it makes must be used to carry out its purposes. The profits must not be distributed to the members. The prohibition on distributions applies while the organisation is operating and on its winding up. If it permits the organisation s members to transfer the assets to themselves on winding up, it is not a non profit company. A non profit company can make payments to its members as bona fide remuneration for services they have provided to it, and as reasonable compensation for expenses incurred on behalf of the organisation. Organisations carried on for the joint or common benefit of their members can qualify as non profit companies. An example would be a professional association established to advance the professional interests of its members. 16 Fringe benefits tax for non profit organisations

23 02 FBT CONCESSIONS AND ENDORSEMENT Reportable fringe benefits If the value of certain fringe benefits provided to your employees or their associates exceeds $1000 in an FBT year you must record the grossed up taxable value of those benefits on their payment summaries for the corresponding income year. This requirement applies even if your organisation is not liable to pay FBT. Refer to chapter 03 for more information. The Government has announced that from 1 April 2007, the fringe benefits reporting exclusion threshold will increase from $1000 to $2000. Applying for endorsement Charities that are not currently endorsed as income tax exempt charities and that want to access charity tax concessions will need to apply for endorsement using the Application for endorsement as a tax concession charity (NAT 10651). These charities can indicate on their application form that they want to be endorsed for some concessions and not others. An endorsed charity s details are recorded at MORE INFORMATION For more information about public benevolent institutions and health promotion charities, refer to our publication Giftpack for deductible gift recipients & donors (NAT 3132). For more information about applying for endorsement refer to the Instructions for endorsement as a tax concession charity (NAT 10652). For more information on reportable fringe benefits refer to our publication Reportable fringe benefits facts for employees (NAT 2836). Fringe benefits tax for non profit organisations 17