• Internal Code :
  • Subject Code :
  • University :
  • Subject Name : Taxation Law

Part-1 Solution:

Fringe Benefits Tax

Fringe benefit are those payment made by employer to employee other than by way of salary. Employee means any employee who serve or serving in current, past or future. It also includes director of the company and a person being beneficiary of trust involve in activity in relation to business.

There are different types of fringe benefit can be provided such as providing interest free loan to employee, providing facility for use of car by way of personal purpose, benefits in relation to salary sacrifice arrangements, reimbursement of several expenses on behalf of employees.

The employer is liable to pay tax on such fringe benefit is known as fringe benefit tax. It is in nature of other than income tax.

As mentioned above, allowing employee for use of car for private use is covered under fringe benefit and employer needs to pay fringe benefit tax. Two methods can be used to calculate fringe benefit tax in relation to car fringe benefit which is statutory and operating method. Beneficial method for employers can be used for such calculation.

As per Chapter-7 of Australian Income Assessment Act, Taxable value of fringe benefit under operating cost can be calculated by product of operating cost and percentage of private use reduced by amount of employee contribution.

As per taxation ruling, it is mentioned that where car has been purchased on or after 1st April 2008, 25% depreciation should be taken on car for the purpose of calculation of taxable value.

Hence, Taxable value = $ 13750*40%-1000

                                    = $4500

Operating Cost                                    = $55000*25% = $ 13750 (Depreciation)

Employee contribution                        = $900 (Fuel Cost)

Percentage of private use of car          = 4000/10000 =40%

In accordance with chapter 8, fringe benefit guides to employers, where the employer provided loan to employee at interest rate less than statutory rate, the difference amount of interest calculated at such statutory rate and interest rate at which loan has been given shall be deemed as taxable value of fringe benefit. The statutory rate of interest for loan commenced on April 2018 to March 2019 is 5.20 %. Hence, taxable value of fringe benefit in respect of interest free loan provided to Maria is $13000 ($500000*5.20%*6/12).

The amount of fringe benefit tax is calculated as follows:

Type of Fringe Benefit

GST Credit

Non -GST Credit

Taxable value of fridge benefit

4500

13000

Gross up rate

2.0802

1.8868

Gross up value

9361

24528.4

Total Gross up value

 33889

FBT

15928

Part- 2 Solution:

As per ATO, income arising on sale of rental property shall be includible in assessable income of assesses. Any income on sale of rental property shall be taxed under head of capital gain. Capital gain shall be calculated as the difference between the sale proceeds and cost bases. The cost base is nothing but cost incurred in relation to acquisition, holding and disposing and selling of such asset. It is further included in law that any expenses which is in nature of capital expenses such as valuation fee, stamp fee shall be included as cost base.

In accordance with rental properties guidelines, any cost in relation to interest on loan, principal payment of loan, stamp duty, legal fees have been exclusively disallowed expenses for the purpose of deduction from rental income. It also stated that it is in nature of capital expenses and can be included as cost base. Any repair and expense incurred which is in nature of capital expenses can be included as capital cost base. Any commission on sale of property can be deducted while calculating capital gain.

In instant case, Dominic incurred expenses in relation to fixed door and replacing the entire roof which is nature of capital expenses. Hence It will be included as capital cost base.

As per ATO law, it specifically exempts from capital gain in respect of sale of personal car subject to car has been designed to carry fewer than 9 passenger and 1 tonne. At the same time, it also exempts collectible value of less than $500. Collectible includes the antique clocks.

Sale of shares and securities will attract capital gain provided that any share purchased on before 20 September 1985 is not leviable to tax.

Statement Showing Calculation of net capital gain or net capital loss of Dominic’s for 30 June 2019:

 

Sales Proceeds

Cost Base

Capital Gain

Rental properties

1500000

 

 

less: agent's commission

-2000

 

 

Acquisition cost

 

1200000

 

Interest on home loan

 

60000

 

loan application, valuation fee and legal fee

 

4000

 

stamp fee

 

52000

 

legal fees

 

3200

 

door fixing cost

 

900

 

roof replacing cost

 

35000

 

Capital Gain on rental properties

 

 

142900

Capital Gain Discount @50%

 

 

71450

Net Capital Gain

 

 

71450

Refrigerator

2000

 

 

less: Acquisition cost

 

3000

 

Capital loss on refrigerator

 

 

-1000

BHP Billiton Limited Shares

100000

 

 

less: Cost of acquisition

 

50000

 

Capital gain on sale of shares

 

 

50000

Capital Gain Discount @50%

 

 

25000

Capital Gain Discount @50%

 

 

12500

Net Capital Gain

 

 

12500

Antique clock

4000

 

 

less: Cost of acquisition

 

600

 

Capital gain on sale of antique clock

 

 

3400

Capital Gain Discount @50%

 

 

1700

Net Capital Gain

 

 

1700

Net Capital Gain (Total)

 

 

84650

Part-3 Solution:

As per ATO, any expenses which is incurred in relation to earning income whether directly or indirectly can be claimed as deduction. It is also mentioned as above that any fringe benefit or fringe benefit tax paid by employer can be claimed as deduction under Australian income tax assessment act.  However, no such expenses can be claimed as deduction which is incurred for personal purpose and is in nature of capital expenses.

Any salary and wages paid by employer to employee can be claimed as business expenses and allowed as deduction for the purpose of calculation of the tax.

In the given case, Dominic incurred salary expenses, fringe benefit and fringe benefit tax in relation to wages. In addition to above, He also incurred amount of $55,000 for private health insurance of employee. These are in nature of expenses relatable to earning and accordingly allowed as deduction.

References:

1.https://www.ato.gov.au/General/Property/Residential-rental-properties/Rental-expenses-you-can-t-claim/

2.https://www.ato.gov.au/law/view/document?DocID=SAV/FBTGEMP/00009&PiT=99991231235958/

3.https://www.ato.gov.au/law/view/document?DocID=SAV/FBTGEMP/00008&PiT=99991231235958/

4.https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Occupation-and-industry-specific-guides/Real-estate-employees---income-and-work-related-deductions/?page=2

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Taxation Law Assignment Help

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