EXCESS EMPLOYEE CONTRIBUTIONS - FBT
1 August 2005
If an employee makes contributions to an employer from after-tax salary income, that are in excess of the recipient's payment required to reduce the taxable value of a car fringe benefit to nil those excess amounts can be applied to a fringe benefit provided in a later FBT year.
This type of scenario might arise in the following circumstances:
An employer has a salary sacrifice arrangement (SSA) in place with an employee, under which the employee is provided with the use of a car.
The employer chooses to use the statutory formula method of calculating the taxable value of car fringe benefits for this car.
Under a separate remuneration arrangement the employee agrees to make recipient's payments, being from after-tax salary income, to the extent of reducing the taxable value of any car fringe benefits to nil.
The employee makes contributions to the employer that are in excess of the amount required to reduce the taxable value of the car fringe benefits to nil.
Under the remuneration arrangement the excess amount of contributions paid by the employee are held by the employer until the following FBT year, when they can be applied against the taxable value of the employee's car fringe benefits in that year.
The ATO reached its decision that the excess employee contributions can be set-oss against the FBT value of benefits in future years for these reasons:
The taxable value of car fringe benefits calculated under the statutory formula method, can be reduced by the amount of the recipient's payment. The recipient's payment is the amount of the consideration paid to the employer by the employee in respect of the provision of the car fringe benefits.
Where a remuneration arrangement entered into between an employer and employee requires that the employee makes contributions, from after-tax salary income, to the extent of reducing the taxable value of any car fringe benefits to nil, only these amounts can be regarded as consideration for the provision of the car fringe benefits, due to the remuneration agreement that is in place. Amounts that are paid to the employer in excess of these amounts are not recipient's payments in this year, and can be either refunded to the employee, or dealt with as agreed between the employer and employee, including being set aside for a later FBT year.
Note: Under the valuation rules for most types of fringe benefits, the gross taxable value of a benefit provided to an employee is reduced by the amount of any employee contribution. The principles that apply to car benefits and recipient's payments, as discussed above, could apply to these types of benefits and contributions.