TAX

Running head: TAX
Tax
Name of the Student
Name of the University
Author Note

TAX1
QUESTION 1
Issue
FBT liability calculation of the car that Spiceco Pty Ltd has provided to Lucinda based on
the assumption of minimisation of the FBT objective during the year 2018/19. The various
methods of FBT computation I also required to be used for the computation to arrive at the
lowest value possible. The suggestion of the best method that can be arrived at.
Rule
Fringe benefit is a benefit that is extended by the employer to his employee or any person
who is associated with the employee or even a third party who is supposed to be extended
with that benefit compliance with the arrangement that has been existing among the employer
and employee to that respect in a particular tax as defined u/s 136 of the FBTAA86. This may
be extended as right or interest that has been extended with respect to a personal or real
property as well as any service facility. The benefits extended can be towards a past, present
or even a future employee (Barkoczy 2016).
Car fringe benefit is considered to be accrued when extended by an employer to an
employee with a car to made the employee use it in personal capacity as husband define u/s 7
of the FBTAA86.
Approaches has been provided in the act for the purpose of calculation of car fringe
benefit.
The Statutory Method of Car Fringe Benefit has been provided under the provision
contained u/s 9(1) of the FBTAA86.
Formula:
[0.2 * BV * (n/ tn)] - A

TAX2
BV = cost of the car
n = no. of days in the FBT year during which the car fringe benefit has been used by the
employee as extended by the employer
tn = no. of days in that income tax year
A = employee’s contribution
The Operating Cost Method of Car Fringe Benefit has been provided under the provision
contained u/s 10(2) of the FBTAA86:
Formula:
[C * ( 100% - BP)] – R
C = operating cost during the period of holding, which includes maintenance, insurance,
registration and fuel.
BP = business percentage
R = employee’s contribution
The FBT will be calculated by applying the benefit availed with the prevailing rate.
Application
Lucinda, an employee of the Spiceco Pty Ltd has been provided with a car for the purpose
of being used in a personal capacity. The cost pertaining to the car $1800, the repairs $3000,
insurance $2200, cost for fuel $900. The travelled distance is 20000km and percentage used
for business is 70%. Lucinda’s contribution towards the cost is $1000. Hence, it needs to be
treated as a fringe benefit. This is because Fringe benefit is a benefit that is extended by the
employer to his employee or any person who is associated with the employee or even a third
party who is supposed to be extended with that benefit compliance with the arrangement that