Overview of Travel and Fringe Benefit Tax (FBT)
The following may be used as a guide when considering the FBT implications of travel events and the estimation of FBT liabilities. Staff should ensure they have read and understood the University's travel policy and procedures prior to undertaking any travel.
- A travel benefit may arise when the University pays for all or part of an employee's personal travel costs
- Travel benefits give rise to FBT which can almost double the costs involved
- FBT is calculated based on information about the travel event contained in a Travel diary
- Travel diaries are required for:
- all international travel regardless of duration
- all domestic travel longer than 5 nights duration
- Travellers are required to contribute an amount sufficient to reduce the FBT on the personal travel costs to $nil
- Limited exceptions are available for reasonable private travel
What is a Travel Fringe Benefit?
A travel benefit may arise when the University pays for all or part of an employee's personal travel costs. Typically this can occur when the University pays for airline fares and travel insurance on a travel event that includes personal activities, such as a holiday.
When will FBT apply?
FBT will apply when the predominant purpose of the trip is for private activities, ie where the business component of a travel event is determined as being incidental to the whole trip. In order for the predominant purpose to be business-related and not private the University business component of a travel event must be for at least 50% of the total days of the trip.
If the private component is more than 50% of the total trip then those costs paid by the University that relate to the whole trip, such as the airfares and travel insurance, will be apportioned between business and private using the percentage identified. The resulting amount will be used to calculate the potential FBT liability.
Where there is an FBT liability employees are required to make a personal contribution, ie payment to the University, to fully cover the personal component of the travel event. That payment will reduce the FBT value to $nil and result in no FBT being payable by the University.
FBT will also apply on the full cost of a travel benefit provided by the University to any associate of an employee, eg spouse, child.
Assessment of Proposed Travel Event
In order to help identify and avoid potential FBT liabilities Financial Services can assess the FBT consequences relating to proposed travel events in advance. If you wish to have such an assessment made please send a copy of your proposed/planned travel diary to Finserv-Taxation@newcastle.edu.au
How is FBT Calculated?
The legislation that gives rise to FBT is the Fringe Benefits Tax Assessment Act 1986. FBT is a tax levied on employers for benefits provided to employees and their associates and represents a cost in addition to the benefit that was provided. The way FBT is calculated means that the tax levied is approximately equal to the amount of the benefit provided and therefore almost doubles the cost of the benefit. The amount of FBT is calculated by Financial Services and included in the annual FBT return to the Australian Taxation Office.
Business Activitiesare activities undertaken by employees (eg attendance at a meeting, attendance at a conference, field research, speaking at a lecture) that relate to their work as University employees.
Transit Days are those days spent travelling to or from Business Activities except if that travel is to or from locations for personal purposes. Travel to or from locations for personal purposes are treated as a Private Component.
Private Component refers to the number of days when an employee is not undertaking business activities.
Employee Contribution is the amount that employees are required to repay in respect of personal expenses that have been paid for by the University. The purpose of the contribution is to reduce the FBT value to $nil and prevent FBT being payable by the University. Alternatively, if the University has already paid FBT on the personal expenses, the contribution is equal to the amount of FBT that the University actually incurred as a result of paying for those personal expenses.
Limited Exception - 'Reasonable' Private Component
When travelling between locations to attend business activities a 'reasonable' private component of up to 5 days may be permitted in order to avoid the cost and time of returning to Australia and then flying out again. In order to be reasonable, the gap between business activities must be 5 days or less. This exception allows a private percentage of 50% or more without triggering FBT.
Note, however, that this exception is only available if no other private days have been added to the travel event. Should other private days be added to the travel event the 50% test described above will be applied across the whole of the travel event.
For example, if an employee attends a 2 day conference in New York followed by another 2 day conference in London 5 days later and has no business activities during those 5 days, no FBT would arise even though the private days are greater than 50% of the total days.
Further examples are given below.
Travel diaries are required to be completed for all overseas travel plus all domestic travel that is longer than five consecutive nights
The travel diary should include the purpose of the travel, the duration of travel, describe the work-related activities for each day, and identify any personal leave taken during the period of travel. The travel diary must be completed within a few days after the conclusion of the trip.
As stated above, a proposed/planned travel diary may be submitted to Financial Services prior to the travel event in order to assess the likely FBT consequences of a trip where there is some uncertainty regarding the 50% rule and the amount required to be contributed by the employee.
The signed travel diary should be submitted to Financial Services at Finserv-Taxation@newcastle.edu.au within four weeks of completing the travel event to assess whether FBT is payable. Click here to download travel diary.
Use of Travel Diaries
Travel diaries are legal documents that will be used to identify and calculate FBT. Note that in the event of an Australian Taxation Office (ATO) FBT audit all completed travel diaries will be subject to review.
Completing a travel diary is the responsibility of the employee traveller. In the absence of a travel diary the ATO deems that the whole travel event is private and wholly subject to FBT. As noted above, the University will recover any FBT arising from personal travel from the employee traveller. Financial Services will assess all travel diaries submitted and indentify and communicate all instances where employee contributions are required.
Reportable Fringe Benefits
If the value of travel fringe benefits for you or your associates exceeds $2,000 in a FBT year the University must record the grossed-up taxable value of those benefits (ie, approximately double the cost of the benefit) on your payment summary for the corresponding income tax year. This amount is known as your reportable fringe benefits amount. Inclusion of this amount on a payment summary can only be avoided by employees paying their FBT contribution to the University prior to the end of the FBT year, being 31 March. Note that personal taxation consequences may arise in the event that reportable fringe benefits are shown on the payment summary. These personal taxation consequences include impacts on HECS repayments, family tax benefits, etc. If you have any uncertainties about the impacts on your personal situation you should speak to your tax advisor.
How to make an Employee Contribution
As noted above FBT liabilities will be reduced by employees making personal contributions up to the value of the benefit. University funds, including research grants, can not be used to reimburse personal expenditure.
Employee contributions can be paid via the following methods:
- Payment at the Cashiers located in the Callaghan or Ourimbah Student Services Building using the remittance advice on the University issued invoice.
- EFT payment to the University Bank Account:
Commonwealth Bank of Australia
BSB: 062 831
Account No: 00050016
Reference: Your name - FBT Contribution.
- Payroll Deduction: Contact the Remuneration and Benefits team in Human Resource Services at email@example.com to arrange payroll deductions. The options available are a one-off deduction for the whole amount, or two deductions over two consecutive pay periods. In cases of hardship alternatives may be made, however, further FBT will arise as deferred payment arrangements are classified as a 'loan benefit' under the FBT law.
- A deposit to your University Credit Card via BPAY from a personal bank account or by visiting a NAB branch.
If you require further information relating to travel fringe benefits you can contact Finserv-Taxation@newcastle.edu.au
Examples of Common Travel Events and FBT Implications
Scenario One: International holiday pre/post conference
A University employee attends a five day conference in the USA. The employee also takes a two week private holiday pre / post conference. The University pays for the return airfares, travel insurance, and accommodation and meals whilst attending the conference. The employee pays for all personal expenditure related to the two week holiday.
Is FBT applicable?
Answer - Yes
The predominant purpose of the travel event is private as the 19 day trip had only 5 days relating to business activities, ie the business percentage is less than 50%. FBT is calculated on costs paid by the University, including the airfares and travel insurance. Financial Services will provide assessment of employee contribution required to avoid the incurrence of FBT.
Scenario Two: Two conferences separated by a holiday
An employee attends a five day conference on the west coast of the USA. He is also attending a three day conference on the east coast five days later. The University pays for the return airfares, travel insurance and all work related accommodation expenses. The staff member pays all costs including accommodation during the five days whilst travelling between the conferences.
Is FBT applicable?
Answer - No
The predominant purpose of the travel event is business as the 5 days between conferences is eligible for the reasonable time exemption as it would not be practical for the staff member to fly back to Australia after the first conference and then return again within 5 days.
Scenario Three: Two conferences separated by a holiday
An employee attends a five day conference on the west coast of the USA. She is also attending a two day conference at a University on the east coast two weeks later. During the two weeks between conferences the staff member has a holiday in Hawaii. The University pays for the return airfares, travel insurance and all work related accommodation expenses. The staff member pays for all expenses related to the two week holiday including flights and accommodation costs whilst travelling between the two conferences.
Is FBT applicable?
Answer - Yes
The predominant purpose of the travel event is private as the time between conferences is more than 5 days and the proportion of private days is more than 50%. Financial Services will provide assessment of employee contribution required to avoid the incurrence of FBT.