Payroll Q&A – Employer obligations for questions regarding reportable fringe benefits

Question

Each year we get questions from employees regarding Reportable Fringe Benefits disclosed on their Income Statement that we are required to report under Single Touch Payroll and, previously, on their Payment summary. What are our obligations when dealing with these questions?

Answer

Another important year end function for employers is reporting an employee’s ‘reportable fringe benefits’ (RFBs) on their ‘income statement’ (where the employer reports under Single Touch Payroll) or on a ‘payment summary’.

Employees will often ask questions regarding the quantum of RFBs (‘quantum questions’) and/or the implications of having an amount show an a RFB (‘impact questions’).

Quantum questions

The employer can and should respond to an employee’s quantum questions in terms of explaining the composition and calculation basis of an employee’s reported RFBs.

This process may lead to an outcome where it is determined the wrong amount has been reported. In this case the employer may be required to amend the amount originally reported. The rules regarding whether and how a change needs to be made can be viewed at section 5.9 of the ATO’s Fringe Benefits Tax: A guide for employers”.

Common reasons for RFBs being under or over stated include:

• the incorrect gross up rate has been applied (the lower FBT gross up rate applies)
• certain benefits are able to be treated as ‘excluded fringe benefits’ for RFB purposes but may not have been excluded. A common problem is whether an employee’s private use of an employer provided car may be excluded under the ‘shared’ or ‘pooled’ car exclusion (refer section 5.2 of ATO’s Fringe Benefits Tax: A guide for employers
• amounts are shown as RFBs although the employee’s ‘taxable value’ of RFBs (before gross up) is $2000 or less (disclosure is only required where the employee’s taxable value (before gross up) of RFBs is more than $2000)
• section 57A FBT exempt employers may have failed to include ‘quasi’ benefits when calculating an employee’s RFBs (benefits that are exempt from FBT under the section 57A per employee capping rules still need to be considered under RFB rules unless they are ‘excluded fringe benefits’)
• where the taxable value of a benefit must be shared between employees the allocation basis is incorrect/inappropriate

Impact questions

The impact on an employee of having an amount of RPBs included on an income statement or payment summary is determined by the employee’s personal (non-work related) circumstances.

Whilst RFBs do not impact the amount of income tax or Medicare levy an employee will pay it can impact a variety of obligations/entitlements an individual has under other Government programs including:

• Medicare levy surcharge
• private health insurance rebate
• tax offset for eligible spouse superannuation contributions
• government co-contribution for personal superannuation co-contributions the employee made
• Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFSS), Student Start-up Loan (SSL), ABSTUDY Student Start-up Loan (ABSTUDY SSL) and Trade Support Loan (TSL) repayments
• child support obligations
• entitlement to certain income-tested government benefits

On that basis, we recommend an employer should only assist an employee who has an impact question by directing the employee to appropriate external resources.

For example, an employee could be directed to the ATO website at  ‘Consequences of having fringe benefits reported on your payment summary‘

Alternatively the employee could be directed to Services Australia website at ‘What is adjusted taxable income‘ page

Finally, the employee could be referred to a tax agent for assistance although there may be professional costs involved if this course of action is taken.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.