Jack, a long serving employee is retiring and upon his departure his employer decides to provide him with ownership of a car from the fleet. The car was previously part of a salary sacrifice arrangement with Jack and it was felt giving him the car as a gift would be a nice parting gesture.
Has a property fringe benefit arisen? If so, how is the value of this benefit determined?
Typically the transfer to an employee of an asset of the employer for less than market value will result in a taxable property benefit arising for FBT purposes. The taxable value will be the market value less any relevant employee contribution towards the transfer.
However, where the transfer occurs as part of the employees termination arrangements, the transfer is generally considered to be an employment termination payment (ETP) by the ATO.
An ETP is essentially a payment received by a person in consequence of the termination of their employment.
Subsection 27A(8) of the ITAA 1936 provides that where a transfer of property has been made to a person for the purposes of making an ETP, the transfer is deemed to be payment of an amount equal to the value of the property immediately before the transfer. The market value of the property immediately before the transfer is generally accepted as the value for the purposes of this provision.
Subsection 136(1) of the FBTAA defines the term ‘fringe benefit’. Paragraph (k) of that definition specifically excludes payments that are ETPs. Consequently, the transfer of the car to be made to the individual would not be considered a fringe benefit as it represents an ETP.
Does the employer have a PAYGW obligation?
It should be noted that relevant PAYGW will be required from the ‘payment’. The time of the payment will be when the car is transferred to Jack.
Assuming Jack is over age 55 at the time of receipt of the ETP, and assuming all his service is post-June 83, the ETP will be taxed at a maximum rate of 15% plus Medicare levy & Temporary Budget Repair Levy up to the ETP cap amount. The amount over the ETP cap amount is taxed at top marginal rate plus Medicare levy & Temporary Budget Repair Levy. The ETP cap amount for the 2017FY is $195,000.
Allowance should be made by the employer for this PAYGW by grossing up the value of the car to arrive at a gross ETP amount due to Jack such that the value of the car represents the “net” amount of the ETP.
The relevant payment summary should disclose the gross payment and relevant PAYGW amounts.