Fringe Benefit Tax

Prior to 2012, employees that were provided with non-cash benefits e.g. housing quarters, company vehicle, free tuition fees at universities, private club membership fees etc.,  had to pay PAYE on the value of the benefit. The value was added to their annual salary and tax applied on the total amount.

Whilst the income tax rates were reduced to 20%, the Law now requires that companies or specifically employers are responsible for the payment of tax on non-cash benefits provided to employees.

Out of the 12,000 businesses registered with FRCA, most businesses provide employees with non-cash benefits and this has to be declared as there is a tax on it that must be paid to FRCA. All employers that provide non-cash benefits are required to register first as an employer and also for Fringe Benefit Tax purpose.

As we draw near to the end of the first quarter for 2017, it is important for employers to be aware of their responsibility to calculate and pay the right amount of Fringe Benefit Tax.

Fringe Benefit Tax is a tax imposed on any non-cash benefit provided by an employer to employees.  This also applies when benefits are provided to an associate of the employee e.g. family members etc.  If the employer’s income is exempt from Income Tax, the employer will still need to pay the Fringe Benefit Tax.

Fringe Benefit Tax at the rate of 20% applies on the employer’s Fringe Benefit value for the quarter.  The value of a fringe benefit is the fair market value of the benefit at the time it is provided to the employee.

The Fringe Benefit Tax payable for the period January to March 2017 is due by the end of April 2017.

Our inspectors are currently visiting employers and will provide advice and assistance on general PAYE and Fringe Benefit Tax matters.  The following are the types of benefits that are subject to Fringe Benefit Tax.

Debt Waiver Fringe Benefit

When an employee owes money to an employer and the employer does not require the employee to repay it, the employer is treated as having granted a fringe benefit to the employee. It is called a ‘debt waiver fringe benefit’. The value of the benefit is the amount of the debt that is waived by the employer.

Example: An employer has lent an employee $10,000 at market interest rates. The employee pays the interest owing under the loan but does not repay any of the capital. After one year, the employer waives the employee’s obligation to repay the loan. The waiver of the debt is a debt waiver fringe benefit and the value of the fringe benefit is $10,000.  If the employee had repaid $5,000 before repayment of the loan was waived, the value of the fringe benefit is $5,000 (i.e. the amount waived).

Household Personnel Fringe Benefit

The provision of the services of a housekeeper, driver, gardener or other household personnel by an employer to an employee is a household personnel fringe benefit. The value of the benefit is the total emoluments paid by the employer to the employee for the household personnel, reduced by any contribution made by the employee for the benefit.

Example: A person employs a housekeeper to work at the residence of an employee for a monthly salary of $1,000. The provision of the housekeeper is a household personnel fringe benefit and the value of the benefit for a quarter is $3,000 ($1,000 x 3). If the employee reimburses the employer for half the salary, the value of the benefit for the quarter is reduced to $1,500.

Housing Fringe Benefit

The provision of accommodation or housing to an employee by an employer is a housing fringe benefit. Accommodation is interpreted broadly and would include, a house, apartment or a flat, and accommodation in a bunkhouse, hotel, guesthouse, or on board a boat or other vessel. (Note: Remote area housing may be an exempt fringe benefit for employees except for executives).

If the employer owns the accommodation or housing, the value of the housing fringe benefit is the fair market rent for the accommodation or housing for the quarter. The fair market rent is the value of the housing fringe benefit if the total rent paid by the employer for the accommodation or housing for the quarter.  In both cases, the value of the benefit is reduced by any payment made by the employee for the accommodation or housing.

Example – An employer rents a furnished house for the benefit of an employee. The employer pays a monthly rent of $600 for the house and the employee makes no contribution to the rent. The employee’s emoluments for the quarter is $12,500. Consequently, the employer has provided the employee with a housing fringe benefit. The value of the benefit for the quarter is $1,800 ($600 x 3).

Motor Vehicle Fringe Benefit

The provision of a motor vehicle by an employer to an employee wholly or partly for the private use of the employee is a motor vehicle fringe benefit.

The term “motor vehicle” is intended to cover, for example, a motor car (including a four-wheel drive vehicle), utility van and motor bike.  Private use includes any use of the vehicle that is not wholly for the business purposes of the employer. This applies when a motor vehicle is provided by an employer for the private purposes of an employee.  A motor vehicle that is garaged at or near an employee’s residence or that is in the employee’s custody or control while not performing his or her duties of employment would be regarded as provided, at least partly, for the private purposes of the employee.  If an employer places a prohibition on an employee’s private use of a motor vehicle but that prohibition is not regularly enforced by the employer, the vehicle may be regarded as provided to an employee for private purposes.

The value of a motor vehicle fringe benefit is computed on a periodic basis by reference to statutory amounts based on the engine size of the vehicle (refer table below). For high value vehicles (i.e. vehicles with a cost in excess of $100,000), the statutory amount is increased by reference to the value of the vehicle.

If the motor vehicle is provided partly for the employee’s private use, 50% of the value of the benefit is apportioned by reference to private use.

A motor vehicle is treated as used for private purposes on a day if it is actually so used or available for such use on that day. A motor vehicle used or available for use on a part of a day is treated as used or available for use for the whole of the day.

If a motor vehicle is used for both work and personal purpose for the whole of a quarter, the value of the benefit computed will be subject to 50%.

Example: Employer provides a car with an engine capacity of 1,800cc to Employee costing $50,000. The car is provided wholly for personal use and, therefore, the provision of the car is a motor vehicle fringe benefit. The value of the benefit for a quarter is $778.

If for a quarter, Employee uses the car 50% of the time for work purposes and 50% of the time for private purpose, the value of the benefit for the quarter is $389 ($778 x 50%).

If the car is used wholly for private purposes but is available only 45 days of the March quarter (90 days). The value of the benefit is $389 ($778 x 45/90).

Suppose that the cost of the car was $125,000 and the car was provided wholly for private use. The value of the benefit for a quarter is $1,583 ($958 + $625 (2.5% of the excess of the cost over $100,000))

Interest on Loan Fringe Benefit

Special or no interest on loan provided by an employer to an employee is a loan fringe benefit. The value of the benefit is the difference between the interest that would have been paid if the loan was made at the market lending rate for the quarter and the actual interest (if any) paid by the employee.  The “market lending rate” for this year 2017 is 7.91%. This is determined by  FRCA in consultation with the Reserve Bank of Fiji.

Example1: Bank provides Employee with a housing loan of $500,000, at an interest rate of 5% pa.  In the quarter, Employee pays Bank $6,250 as interest. With the market interest rate for the quarter is 7.91% pa, the interest paid by Employee to the Bank for the quarter ($6,250) is less than the interest that would have been paid if the loan were at the market rate ($9,887.50). The difference ($3,637.50) is the value of the loan fringe benefit provided by Bank to the Employee for the quarter. If the loan was at a 7.91% interest rate, the interest paid would equal the market interest rate and the value of the benefit would be zero.

Example 2: If, in the example above, Employee had used the loan funds to purchase a rental property, the value of the benefit will be reduced to zero under subsection (3). This is because, if the discounted interest were subject to FBT, Employee would have to be provided with a tax deduction for the discounted interest, otherwise there would be over-taxation in relation to the rental property. Rather than taxing the discounted interest of $3,637.50 under the FBT to the employer and then providing Employee with a notional deduction for the $3,637.50 discounted interest, the value of the fringe benefit is reduced by the part of the loan funds used to derive total income

If Employee had used 50% of the loan funds to purchase a yacht for private use and 50% to purchase a rental property, the value of the fringe benefit is reduced by 50% ($3,637.50/2 = $1,818.75).