22 December 1999

Fringe Benefits and the GST

The Assistant Treasurer Senator Rod Kemp today announced that the Government will introduce legislation to clarify the interaction between fringe benefits and the GST. Once enacted, the legislation will ensure that the supply of goods and services by an employer to an employee is not subject to GST where the supply is subject to fringe benefits tax (FBT).

GST will apply in circumstances where a recipient makes a contribution or payment to an employer towards the cost of a fringe benefit. The amount paid or contributed will be treated as the price charged for a taxable supply. The GST payable on the taxable supply will be 1/11th of the recipient’s payment or contribution. The GST will be attributed to the tax period in which the recipient’s payment or contribution towards the supply is received.

These rules will also apply to a taxable supply that is an exempt benefit.

The Government will also introduce legislation to give effect to the policy announced in Tax Reform: not a new tax, a new tax system to adjust the FBT gross-up rate to ensure neutrality of treatment between cash salary and fringe benefits following the introduction of GST. In situations where GST input tax credits have been allowed on the acquisition of goods and services provided to employees as fringe benefits, the new GST-inclusive gross-up rate will effectively recover those input tax credits. As announced in the 1999-2000 Mid-Year Economic and Fiscal Outlook, the existing FBT gross-up rate will continue to apply to fringe benefits where no GST is payable, or no input tax credits are claimable, in respect of the acquisition of the goods and services.

CANBERRA
22 December, 1999

Media contacts: David Alexander Tax Reform Unit (02) 6277 6390

Michael Dalton Treasury (02) 6263 2767