Fringe Benefit Tax and Income Tax Assessment Act

This article explains the Fringe Benefit Tax Act and Income Tax Assessment Act. It provides a detailed calculation of taxable income and benefits. It also suggests ways to reduce FBT and tax payable. The article includes relevant sections and provisions of the Acts.

Answer 1:
The Section 4-15 of the Income Tax Assessment Act, 1997 lays down the way in which taxable
income is to be calculated for the income year (1st of July to 30th June), as per this section taxable
income = Assessable income – Deductions, Assessable income is as explained in division 6 and
the deductions allowable in division 8 where division 35 prevents losses from non-commercial
business activities that may contribute to a tax loss from being offset against assessable income.
Since the applicability of any special provision does not apply in the present case the income of
the partnership shall be calculated as per section 4-15.
Other applicable divisions and sections like Division 70 – Trading Stock and other information
that is inter alia useful for assessing the income of the partnership is considered further
(Ato.gov.au,2019).
Working papers to assess the taxable income for Brekkie and Lunch and Oz bottle shop:
Calculation of Credit Sales Amount ($)
Debtor balance as on 1st July 2016 3,925.00
Cash Received from debtors 32,800.00
Debtor balance as on 30th June 2017 3,010.00
Credit Sales 31,885.00
Cost of Goods Sold during the year
Cash Paid to creditors 128,678.00
Goods taken away by partners 3,200.00
Opening Balance 6,500.00

Closing Balance 7,010.00
Cost of Goods 125,988.00
Depreciation on assets as calculated by using depreciation calculator given by ATO
(ATO,2016) : 806.20
Assumed that:
 Air condition installation is repair expenditure as there is no asset namely air conditioner,
thus charged to profit and loss account;
 $3,200 of stock taken from the bottle shop is at purchase price;
 Loan is entirely for the business and none of it is used for personal purposes;
 Union fees is completely a business expenditure;
 Bank accounting charges of ANZ bank are completely relatable to the business;
 5600 taken by partners is added to income as this is not allowable as expenditure.
Considering all the information and data given above the net income for partnership for the year
ended 30th June 2017 is 45,068. Also, considering the facts given in the question relating to joint
utilization of business premises and other expenses division 35 of the Income Tax Act,1997 have
been regarded while attributing the joint expenses to the ascertain the net taxable income of the
firm; apportioning only the portions of expenses used to facilitate the business operations;

Computation for the taxable income is as follows:
Particulars Income Expenditure
Sales
Cash 150,170.00
Credit 31,885.00
Air Conditioner Installation 1,200.00
Shop Painting 150.00
Cash Taken by Partners 5,600.00
Cost of Goods Sold 125,988.00
Car Expense (90% for van and 60% SUV) 2,364.00
Mobile Bill (90% allocable to business) 633.6
Electricity bills (80% used for business) 1,176.00
Council Rates (60% allocated) 310.2
Insurance (Completely for business) 1,250.00
Union Fees 284
Account Charges 595
Interest Expense 5,500.00
Repair Expenses 1,350.00
Depreciation 806.20
Loss on sale of asset 980
Total 187,655.00 142,587.00
Net taxable Income as per section 4-15 (total of assessable income less the total deductible
expenses) is: 187,655.00 - 142,587 = 45,068.00

Answer 2:
As defined by the Fringe Benefits Tax Act, 1986 a Fringe benefit (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.
Section 5A of the Fringe Benefits Assessment Act, 1986 outlines the ways and methods in which
the said tax is calculated. The ways of calculating the taxable amount are given in subsections
(1B) and (1C) of the said act that give the following formulae (ato.gov.au):
And
As per section 5C of the Fringe Benefit Assessment Act, 1986 it is quite clear that type 1 fringe
benefits are the benefits against which GST credits are available to the employer whereas type 2
are the benefits against which the said GST credits are unavailable to the employer because of
either of the two conditions: (i) the benefit provided does not attract the payment of GST;

(ii) the benefit provided are input taxed, and as per the GST Act, goods or services on which
GST paid is input taxed, that is the GST is included in the price of the service and/or goods, the
credits for GST are unavailable.
Considering the quoted provisions and other relevant text from the Fringe Benefit Tax Act, 1986
it can be clearly stated that the given benefits are not exempt in nature thus, the consequences of
providing fringe benefits to John will be as follows:
Benefit 1: School Fees at a private school for John’s Child.
As per the governing ‘A New Tax System (Goods and Services Tax) Act, 1999 School fees is
exempt from GST whether from a private or public school. Thus this benefit will fall under type
2. In the present case the employer would be liable to pay Fringe Benefit Tax on benefits
provided of $15,000.00.
Benefit 2: Rental accommodation provided in Sydney on concessional rent.
As per the governing ‘A New Tax System (Goods and Services Tax) Act, 1999 Rent on
residential premises is input-taxed that is not separately recovered thus GST credits on the same
are not receivable by the payer of rent making this benefit fall under the type 2 category. Thus
the employer is liable to pay Fringe Benefit Tax on the market value of the residential premises
provided to John as reduced by recoveries made from him, which would be equal to $36,400* for
the Fringe Benefit Tax year (1st April to 31st March).
* It is considered there are exactly 52 weeks in the Fringe Benefit Tax year

Apart from the above you will be required to furnish annual Fringe Benefit Tax returns in April
each year and also required to maintain following information (ato.gov.au):
Information required Explanation
Employee name The name of the employee who was
provided the benefit
Employee's ANU ID The ANU ID number of the employee who
was provided the benefit.
Description of benefit A short description of the benefit
provided.
Date Benefit Provided From Date the employee was first provided
with the housing benefit.
Date Benefit Provided To Date ANU ceased providing the
housing benefit.
Value of the benefit Market value of the accommodation.
Amount of employee contribution
The amount that an employee has
contributed to the cost of the benefit.

There are ways to avoid the Fringe Benefit Taxes, this could be done by the following means as
laid down in the ATO article on “How to reduce the FBT you Pay” (ATO,2016):
 Substitute the fringe benefits by cash pays; that is rather than paying the accommodation
in Sydney at such a nominal rent the employer could either pay cash to John so as to
compensate for his rental expenses or he can recover a higher amount from John so as to
reduce his own Fringe Benefit Tax liability; similarly in case of the school fees
reimbursed, the employer can rather pay an extra amount to John equivalent to the school
fees of his child.
 Alternatively, the employer can also opt to give tax free benefits rather than giving
benefits that are chargeable to Fringe benefit tax, such benefits include, benefits such as
 Provide benefits that are tax deductible, providing benefits that are income tax deductible
would give an edge to the employer as the benefits provided and the taxes paid thereon
would be deducted from the profits of the employer.
 GST credits, employer can provide fringe benefits that are available for GST credits that
are the benefits on which the GST is either payable or not input taxed unlike the
accommodation benefit and the school fees benefit provided to John.
 Providing Cash bonus, as per the Fringe Benefit Tax act, bonuses provided to the
employee do not attract fringe benefits, as when an employee receives fringe benefits it is
the employee who is liable to pay tax on such bonuses received rather than the employer.
Using these alternative means the employer can save on both the compliance requirements of
Fringe Benefit Tax and also the tax payable by him.

References
Australian Taxation Office. (2016, September 28). Calculators and tools_Host. Retrieved
January 17, 2019, from https://www.ato.gov.au/Calculators-and-tools/Host/?
anchor=DCA#DCA/questions/assets (Office, 2016)
Australian Taxation Office. (n.d.). How GST applies to residential rent. Retrieved January 19,
2019, from https://www.ato.gov.au/general/the-sharing-economy-and-tax/renting-out-all-or-part-
of-your-home/how-gst-applies-to-residential-rent/
Australian Taxation Office. (2016, September 28). How to Reduce FBT you Pay. Retrieved
January 17, 2019, from https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/
FBT-and-entertainment-for-small-business/?page=8
Australian Taxation Office. (2015, June 16). Residential premises. Retrieved January 18, 2019,
from https://www.ato.gov.au/Business/GST/When-to-charge-GST-(and-when-not-to)/Input-
taxed-sales/Residential-premises/
GST on Fringe Benefits [Rtf]. (n.d.). Retrieved January 17, 2019, from
http://archive.treasury.gov.au/documents/168/RTF/AppA5.rtf

Office of Parliamentary Council (2018). Federal Register of Legislation – Australian
Government. Retrieved January 18, 2019, from:
https://www.legislation.gov.au/Details/C2013C00327
Office of Parliamentary Council (2018). Federal Register of Legislation - Australian
Government. Retrieved January 17, 2019, from:
https://www.legislation.gov.au/Details/C2013C00049