Reform of salary sacrificed ‘in-house’ fringe benefits

On 22 October 2012, as part of the Mid-Year Economic and Fiscal Outlook 2012-13, the Government announced reforms to remove the concessional fringe benefits tax (FBT) treatment for in-house fringe benefits accessed through a salary sacrifice arrangement.

The proposed measure applies from 22 October 2012 for salary sacrifice arrangements made after the announcement, and from 1 April 2014 for salary sacrifice arrangements made before the announcement on 22 October 2012.

In-house fringe benefits arise when employees receive goods or services from their employer or an associate of their employer that are identical or similar to those provided to customers by the employer or an associate of the employer in the ordinary course of business. Under the existing FBT concession, the taxable value of in-house fringe benefits is 75 per cent of either the lowest price at which an identical benefit is sold to the public or under an arm’s length transaction, depending on the nature of the benefit, reduced by a further $1,000.

The existing FBT concession was introduced before the widespread use of salary sacrifice arrangements. This measure will return the use of this FBT concession to its original intent.

Under the proposed measure, the taxable value of in-house fringe benefits provided through a salary sacrifice arrangement will be (depending on the nature of the benefit) either:

  • the lowest price that an identical benefit is sold to the public
  • the lowest price under an arm’s length transaction.

 

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