Appropriate treatment for the FBT
Enquiry:
My wife and I have a small family company managed by ourselves. We are the directors of the company. James (our son) helped out in the business on weekends and nights at no costs to the company. The family company paid James’ school fee of $20,000 directly to the private school. Jane (our daughter) studied at UNSW. Her HELP debt of $10,000 was reimbursed by the company. Jane believes that she could deduct the school fees as self-education.
Could you advise us the FBT treatment of these payments?
Explanation:
James is an associate of you and your wife. His parents have the obligation to pay his school fees. School fees whether reimbursed or paid directly to the college on behalf of an employee (or their associate) would be an external expense payment fringe benefit (s 23). The taxable value = $20,000.
Jane is also an associate of you and your wife, who are both employees, therefore payment of the debt is an external expense payment fringe benefit (s 23). The full amount of $10,000 would be the taxable value (s 24).
Jane made a mistake as the otherwise deductible rule does not extend to associates of employees (TD 93/90). Further, HELP debts are specifically denied as a deduction under ITAA97 s 26-20.
Note: GST doesn’t apply to school fees and HELP debt, and accordingly the Type 2 gross-up factor applies in calculating the fringe benefits tax payable.