Question

The question is related to the Australian tax 2018.

Discuss when a fringe benefit arises, and explain the meaning of the ‘otherwise
deductible rule’.

Answer 1

Fringe Benefits Tax (FBT) is a tax payable by employers for benefits paid to an employee (or an employee's associate e.g. a family member) in place of salary or wages. This is separate to income tax and is calculated on the taxable value of the fringe benefits provided.

The taxable value of an expense payment benefit may be reduced by the ‘Otherwise Deductible’ rule. A benefit is ‘Otherwise Deductible’ if the employee would have been entitled to claim an income tax deduction if the employer had not paid for the expense. Generally, to determine if the employee would have been entitled to claim an income tax deduction, the expense must be incurred in the course of gaining or producing assessable income.