Income Tax Calculation and FBT

The assignment calculates the net income of a partnership by applying various provisions of income tax, including depreciation and principal and interest amounts. It also calculates Fringe Benefit Tax (FBT) for an employer who provides a child's school fees at a private school and accommodation services to an employee. The report concludes that effective business running requires compliance with laws and regulations.

TAXATION LAW

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1 Calculation of net income of partnership firm.........................................................1
QUESTION 2 Fringe Benefits Tax Consequences of John's Remuneration Package....................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Taxation Law means the assessment by the government authorities relating to income and
expenditure of the businesses and computing the income for the tax purposes. It covers the
policies, rules and laws that involve the charge on estates, transaction, income, property, licenses
and more by government. The given project is divided into two questions. First question involve
the determination of net income for the year ended 30th June, 2017 of Daniel and Olivia Smith
operating business called Brekkie and Lunch and OZ Bottle Shop at 50 York Street Sydney as a
partnership. Second question contains the Fringe Benefits Tax consequences for John who is
senior executive at printing company and receiving various other benefits like child's school fees,
accommodation service along with his remuneration package.
QUESTION 1 Calculation of net income of partnership firm
For calculation of net income for Daniel and Olivia Smith who are operated a mixed
business as Brekkie and Lunch and OZ Bottle Shop, trading and profit and loss account will be
calculated and the net income will be ascertain for the year ended 31th June, 2017. The trading
and P & L A/c will be prepared as under as per the various provisions of income tax laws of
Australia:
Trading and P & L A/c for the Year ended 30th June, 2017
Particulars Amount ($) Particulars Amount ($)
To Opening Stock 9120
By Sales A/c ( Working
Note 1) 182055
To Purchase ( Working Note 2) 160343
To Gross Profit (c/f) 22342 By Closing Stock 9750
Total 191805 Total 191805
To Car Expense A/c ( Working
Note 3) By Gross Profit (b/f) 22342
VAN 1260 * 90% = 1134
SUV 2050 * 60% = 1230 2364
To Electricity Bill A/c ( 1470 *
80%) (W / N 4) 1176
To Council Rates A/c ( 517 * 310
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60%) (W / N 4)
To Business Insurance A/c 1250
To Mobile Bill A/c (704 * 90%)
(W / N 4) 634
To Union Bill A/c 284
To Account Charges A/c (ANZ
Bank) 595
To Repair Expenses A/c 1490
Air condition installation
1200
Shop painting
150
Refrigerator motor replacement
140
To Interest on loan A/c ( W/N 7) 5500
Loan Repayment
8500
Less: Principal amount
3000
To Depreciation ( W/N 5 & 6) 250
New Restaurant freezer
(3500 – 500) / 12 years
To Net Profit 8489
Total 22342 Total 22342
Therefore Net Income of Daniel and Olivia Smith as a partnership firm is $ 8489 and
while preparing the income tax return for their businesses of Brekkie and Lunch and OZ Bottle
Shop, $ 8489 will be considered as net income for their entire businesses.
The working paper of businesses of Daniel and Olivia Smith will contain following
working notes:
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Working Note 1 :
Debtors A/c
Particulars Amount ($) Particulars Amount ($)
To opening Balance 3925 By Bank A/c 32800
To Credit Sales A/c 31885
By Closing Balance 3010
Total 35810 Total 35810
Total Sales Amount ($) = Cash Sales + Credit Sales
= 150170 + 31885
= $ 182055
Working Note 2:
Creditors A/c
Particulars Amount ($) Particulars Amount ($)
To Bank A/c 128678 By Opening Balance 6500
By Credit Purchase
A/c 129188
To Closing Balance 7010
Total 135688 Total 135688
Total Purchase Amount ($) = Cash Purchase + Credit Purchase
= 31155 + 129188
= 160343
Working Note 3: The partnership firm has two cars, for the purpose of tax only the expense
which are related to business are considered. Maintaining expense of 90% for van and 60% for
SUV are for business purpose, therefore only these are considered as allowable expense.
Working Note 4 : Note: The 10% of mobile bills, 20% of electricity expense and 40% of council
rates which relates to Brekkie and Lunch and Bottle shop will be treated as disallowed expense
for tax purpose, since these are used by Daniel and Olivia for personal purpose.
Working Note 5: All the assets are purchase before 27 February, 1992, therefore the useful life of
restaurant freezer ( cost $ 8000 and adjusted value $1480), restaurant refrigeration ( cost $ 14600
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and adjusted value $ 3580), shop fitting structure ( cost $ 7800 and adjusted value $ 2965),
kitchen electrical appliances ( cost $ 3900 and adjusted value $ 754), Van car ( cost $ 16500 and
adjusted value $ 1550) and SUV car ( cost $ 42200 and adjusted value $ 10350) are expired
before the current year ending 30th June, 2017 as per the depreciation rates published by the ATO
of Australia. Therefore, there will be no depreciation will be charge in the current year ended 30
June, 2017 for the above fixed assets of business of Daniel and Olivia Smith.
Working Note 6: Useful life of freezer which is purchased during the current year is 12 years,
and the cost of freezer amounting of $3500 on which $500 is permitted on the old unit.
Working Note 7: Principal payment of loan amounting to $3000 will not be allowed as
deduction, whereas only its interest component will be allowed expenses for tax purpose
Working Note 8: Drawing of $ 6000 for cash, $5600 for private purpose and $ 3200 for private
use of owner will be disallowed expense for tax purpose for Daniel and Olivia Smith businesses.
QUESTION 2 Fringe Benefits Tax Consequences of John's Remuneration
Package
John is working as an senior executive with a printing company. John is received a
remuneration package which involve children school fees at private school from his employer @
$ 15000 and accommodation in a apartment of Sydney throughout the FBT year. The employer
of the John pays $ 700 per week as rent for accommodation for John, where John himself paid $
100 per week as rent. Fringe Benefit Tax is a way of attracting the quality of staff. However, if
an organisation is providing the FBT, then they need to aware about the tax obligations. The FBT
is a tax which is payable by the employer for benefits paid to the employees in place of salary or
wages. The organisation for securing the best workers for the business, an organisation have to
entice with non-income related benefits like receiving fringe benefits like car, car parking,
payment of private expenses etc. Now the employer of John must take concern on following:
For Children School Fees
John receives child's school fees for private school amounting to $ 15000. Therefore, the
employer of John will pay the fringe benefit tax on behalf of John as per the provisions of FBT
law. The employer of John will calculate its FTB payable as follows:
Taxable Value $ 15000
Grossed up Value: $ 15000 * 1.9608 = $ 29412
Fringe Benefit Tax = $ 29412 * 49% = $ 14412
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Less: 49% rebate ( $14412 * 49%) = $ 7062
Fringe Tax Benefit Payable = $ 7350
The annual reduction of $ 1000 had been abolished on 22 October, 2012. Therefore, the
employer of John will not receive the reduction of $ 1000 on fringe tax benefit and he will pay
the tax on behalf of his employee (John) of $ 7350.
For Accommodation rent paid by employer of John
A housing fringe benefit may arise if an employer provides an employee with
accommodation rent free, or at a reduced rent, and the accommodation is the employee's usual
place of residence. For the purpose of FBT, accommodation includes:
 A house or flat
 Accommodation in a hotel, motel, guest house etc.
 A mobile or caravan home
 Accommodation on a ship or other floating structure.
Accommodation which is provided by employer to an employee in a remote area may be
exempt from FBT. In the given case, John's employer provide the accommodation service to him
in which market value of rent is $800 per week. John is also paying a rent of $100 per week.
Therefore, Value of FBT will be calculated on $700 per week that is $ 700 * 52 weeks = $
36400.
CONCLUSION
From the above report it is concluded that for the preparation and calculation of the net
income, various provisions of income tax are to be followed. In this project net income of
partnership of Daniel and Olivia Smith are calculated by applying various provisions of income
tax like depreciation, principal and interest amount of loan and Fringe Benefit Tax is also
calculated as for the employer of John who give him FTB for children school fees at a private
school and accommodation service. For effective running of business, it is very essential to
implement the various laws and regulations and comply with it.
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REFERENCES
Books and Journals
Hill, F. R. and Mancino, D. M., 2014. Taxation of exempt organizations.
Faure, M. G. and Weishaar, S. E., 2012. 22 The role of environmental taxation: economics and
the law. Handbook of research on environmental taxation, p.399.
Aprill, E. P., 2012. Once and Future Gift Taxation of Transfers to Section 501 (c)(4)
Organizations: Current Law, Constitutional Issues, and Policy Considerations. NYUJ
Legis. & Pub. Pol'y. 15. p.289.
Fox, W. F., 2012. Retail sales and use taxation. In The Oxford handbook of state and local
government finance.
Alzahrani, M. and Lasfer, M., 2012. Investor protection, taxation, and dividends. Journal of
Corporate Finance. 18(4). pp.745-762.
Sendetska, O., 2014. ECJ Case Law on Corporate Exit Taxation: From National Grid Indus to
DMC: What Is the Current State of Law?. EC Tax Review. 23(4). pp.230-237.
Navez, E. J., 2012. Influence of EU Law on Inheritance Taxation: Is the Intensification of
Negative Integration Enough to Eliminate Obstacles Preventing EU Citizens from
Crossing Borders within the Single Market. EC Tax Rev. 21. p.84.
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