FBT Calculation: Emma's Car, Property, and Loan Benefits

The assignment content discusses the Fringe Benefits Tax (FBT) liability for Emma's employer. The main benefits discussed are car fringe benefit, property fringe benefit, and loan fringe benefit. For the car fringe benefit, a flat statutory rate of 20% is applied to all car fringe benefits. The taxable value of the property fringe benefit depends on whether it is an in-house property or external property. The loan fringe benefit's taxable value is the difference between the interest that can be accrued at the statutory interest rate and the interest actually accrued on the loan. If the employee incurs expenses and the employer reimburses them, it is categorized as an expense payment fringe benefit. The assignment also discusses how the FBT liability will be reduced if the said amount of loan is utilized to purchase shares by Emma herself.

Taxation Assignment
COVER PAGE
 Title of Paper:Taxation Assignment
 Referencing Style: Harvard
 Word Count: 2000
 Date:01 June 2016
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Taxation Assignment
Contents
Capital gains tax case study:......................................................................................................3
Fringe Benefits tax case study:..................................................................................................8
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Taxation Assignment
Capital gains tax case study:
Figures
Main residence and forfeited
deposit
Not taxable due to main residence exemption and
taxation ruling (Refer point a)
Painting $1,10,000 (Refer point b)
Shares of a newly listed
Mining Company
NIL (Refer point c)
Luxury Motor Cruiser NIL (Refer point d)
Gross Capital Gain $1,10,000
Carried forward Capital loss of
previous years
($10,000)
Capital Gain $1,00,000
- CGT Discount ($50,000)
Net Capital Gain of Mr. Dave
Solomon
$50,000
(a) Capital gains tax liability for Mr. Dave Solomon regarding a two-storey house
There will be no capital gains liability on account of sale of the house and forfeiture of
deposit due to following reasons:
Any capital gain/ loss emanating from disposal or sale of a Capital asset that is a dwelling/
main residence or ownership interest in such house/dwelling will not be subject to Capital
gains tax as per Section 118-110 of the Income Tax Assessment Act, 1997 which governs the
regulations with respect to main residence exemption. If a particular dwelling is a main
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Taxation Assignment
residence of the tax payer, then any capital gains due to sale of such main residence is exempt
from tax. (ATO, 2015)A dwelling is defined as anything that is mainly or wholly utilised for
the purpose of residential accommodation.
Hence, the said house which has been utilised by Mr. Dave Solomon as a residence will be
exempt from Capital gains tax as per Section 118-110 of ITAA, 1997.
Treatment of Forfeited deposit: The taxation impact of forfeited deposit will be governed
by the capital asset with respect to which the forfeited deposit has been received. Considering
the facts of the case and the receipt of deposit in relation to the main residence, as per
taxation ruling 1999/19, (austaxpbr, 2001) the said forfeiture will not be considered as a CGT
event due to following reasons:
- As per Section 104-150 of the ITAA, 1997, if a deposit paid in view of a future expected
sale is forfeited by the said depositor and retained by the prospective seller, then it will
amount to being a CGT event H1. (Wolters Kluwer, n.d.)
- Section 118-110 of ITAA, 1997 with respect to main residence exemption also will be
applicable with respect to forfeited deposit regarding the main residence exemption, then
such capital gain/ loss will be disregarded.
- The event of sale of capital asset has happened within 2 years of the act of forfeiture of
deposit, hence, it could be said that it has happened within the continuum of event of
forfeiture.
(b) Painting by Pro Hart
An asset is classified as “collectable” if the said asset is an jewellery, coin, artwork,
postage stamp and such other articles which are utilised or set aside mainly for personal
use or enjoyment of the tax payer himself. Such assets are for personal consumption of
the tax payer. The Capital gains or losses arising from sale of collectable which were
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Taxation Assignment
acquired for a cost of $500 or lower are altogether disregarded. Further, CGT Event A1
with respect to disposal of an asset as per Section 104-10(1) of the ITAA, 1997 will be
deemed to be held as the painting of Pro Hart held by Mr. Dave Solomon was sold at an
auction on 31 May.
But the given painting was acquired for $15000 (more than $500) and hence, capital gains
will be calculated as per following alternate methods and the method which yields lower
capital gains will be opted for by the tax payer:
Figures
A. As per Discount procedure
Proceeds $125,000
- Cost base $15000
Gross Capital Gain $110,000
- 50% discount $55,000
Capital Gains $55,000
B. As per Indexation procedure
Proceeds $125,000
- Indexed Cost base
15000×(68.7/39.7)
$25,950
Capital Gains $99,050
We will choose the adoption of calculation of capital gains as per discount method as
the same leads to lower capital gains as compared to Indexation method.
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Taxation Assignment
(c) Shares of a newly listed Company
The “other method” of calculation of capital gains/ losses will be utilised in the given
case as the shares are held by Mr. Dave Solomon for a period of lower than 1 year.
Figures
Proceeds $80,000
- Cost base
Cost of Acquisition ($75,000)
Incidental Costs related to the sale of
asset
- Brokerage on sale of shares -
$750
- Stamp duty on purchase of
shares – $250
($1000)
Reduced Cost base ($76000)
If the capital proceeds are lower than the cost base of the said asset under
consideration, however such capital proceeds are higher than the reduced cost base,
there will be no capital gain/ loss.
(d) Luxury Motor Cruiser
The luxury motor cruiser utilised by Mr. Dave Solomon will be treated as personal asset
as it is utilised for personal purpose by him.
As per Section 108-20(2) of ITAA, 1997, any Capital gains on personal assets which are
apart from collectibles is to be disregarded if the cost of acquisition of the said asset was
lower than $10,000. However, the capital gains/ loss will be considered as the said asset is
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Taxation Assignment
acquired for $110,000. The proceeds of $60,000 less the reduced cost base of $100,000
gives rise to a capital loss of $50,000.
As per Section 108-20(1) of ITAA, 1997, in case there is a capital loss from sale of a
personal asset, such capital loss is to be disregarded.
(e) Proceeds from Capital gains
Any individual tax payer could contribute to a superannuation fund for the purpose of
providing super annuation benefits to himself and claim a deduction for such contribution
as a deduction from his assessable Income as per Section 290 (150) of the ITAA, 1997.
(austlii, n.d.)
All self-employed persons can claim deduction for personal contributions to super
annuation funds.
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Taxation Assignment
Fringe Benefits tax case study:
(a) In Australia, Employers have to pay a fringe benefits tax on the value of benefits that
are provided to their employees, the family of employees as well as other associates.
There are various categories of Fringe benefits viz., Car fringe benefit, Board fringe
benefit, entertainment and fringe benefit, loan fringe benefit etc.
Note for calculation of Fringe Benefit tax liability:
Calculation of FBT Liability:
Figures
Type 1 benefits × 2.146
= (270 [Car fringe benefit]+650[property
benefit])×2.146
1975
Type 2 benefits × 1.960
=(550 [employee payment fringe benefit]
+3500 [loan fringe benefit])×1.960
7941
Fringe Benefits taxable amount 9916×49% (FBT rate)
Liability amount 4,859
FBT Consequences arising out of the given information and calculation of FBT Liability:
a. Car
If an employer provides an owned or a leased car for the private use of the
employee, then it will amount to a Car fringe benefit and the FBT will be payable
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Taxation Assignment
on the same. A car is said to be available for private use of an employee on the
day he actually uses the car for his private use or the said car is available for his
private use.
In order to find the taxable value of the car fringe benefit, the tax payer can use
the statutory formula method or the Operating cost method (whichever method
yields the lowest taxable value for him). To use the operating cost method, the
employer must maintain adequate records. In view of less information provided,
we will use the following Statutory Formula method (A × B × C ) / D – E
where A is base value of car, B is the statutory percentage,(In case of all car
fringe benefits provided after 10 May 2011, a flat statutory rate of 20% is applied
to all car fringe benefits ) C is the number of days when the car was available for
private use of the employee, D is the number of days and E is defined as the
amount of Employee contribution i.e. (33000×20/100×15 days)/366 days – 0 i.e.
$270
The employee contribution is not taken into account as the said expenses has been
reimbursed by the Employer. (ATO, 2015)
Property Fringe Benefit
Property fringe benefit arises when the employer provides a product / property to his
employee for free or at a discounted rate.
The word property means real property, goods and right to the property such as securities
including bonds and shares.
The valuation of fringe benefit liability is dependent to two factors i.e. In-house property
fringe benefit or external property fringe benefit. If it is an in-house property fringe benefit,
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Taxation Assignment
then the same will depend whether such an item was purchased for resale or was internally
produced/ manufactured by the employer, whether the said property was identical to, or only
similar to property sold by the employer in the ordinary course of business at or whether the
property is normally sold directly to the public or to customers who sell to the public
If the said property under consideration is manufactured by the employer, then the FBT value
will hinge on whether the good are sold in retail market or non-retail market. The taxable
value will be 75% of the lowest selling price at which the goods are sold to the general
public, if the goods are traded by the company on a trade basis and identical good is provided
to the employee. Further, the FBT value will also be reduced by the actual price at which the
goods are sold to the employee i.e. consideration received by the employee, if any. The FBT
taxable value in this case will be $2,600×75% = 1950 – 1300 (amount received from the
employee) = $650 (ATO, 2015)
Loan fringe benefits
An employer provides a loan fringe benefit to his employee if he provides a sum of money as
a loan to his employee and charges less interest or no interest at all. As per ATO, the
benchmark interest rate for the FBT year ending is 5.65% per annum. (ATO, n.d.)
The taxable value of the loan fringe benefit will be the difference between the interest that
can be accrued at the statutory interest rate applicable for 2016 and the interest that actually
accrued on the said loan by the said employer as per Section 18 of the Fringe Benefits
Assessment Act, 1986.
Hence, the taxable value will be $3500 i.e. Difference between the following amounts.
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Taxation Assignment
$500,000 × 5.65%×7/12 16,479
$500,000 × 4.45%×7/12 12,979
FBT value 3500
Expense payment fringe benefit:
The said benefit will be categorised as an expense payment fringe benefit if the employee
incurs certain expenses and the employer either reimburses the said expenses or pays to a
third party for the said expenses. The said expenses will need to be incurred by the employee
irrespective of the purpose of such expense.
The value of expense payment fringe benefit is $550 i.e. the taxable value of expense
payment fringe benefit is the amount that is reimbursed by the employer. (ATO, 2015)
(b) FBT liability if purchase of shares by Emma herself
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Figures
Type 1 × 2.146
= (270+650)×2.146
1974
Type 2 × 1.960
=(550+2202)×1.960
5394
Fringe Benefits taxable amount 736
849%
Amount of FBT 3,610

Taxation Assignment
If the said amount of loan is utilised to purchase shares by Emma herself, then the FBT
liability shall be reduced by the Interest attributable to the deduction of such amount as is
an allowable deduction under Section 8-1 of ITAA, 1997. As per ATO Ruling 2004/ 294,
the taxable value of an expense payment fringe benefit would be reduced as per section
24 to the extent the 'otherwise deductible' rule is applicable. The said rule applies when
the recipient of the benefit is the employee himself and none other. (AustaxPBR, 2015)
Hence, the taxable value of loan fringe benefit will be $2202 i.e. $3500 –
($50,000×4.45%×7 months/ 12 months.
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Taxation Assignment
References
ATO, 2015. Is the dwelling your main residence?. [Online]
Available at: https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Is-the-
dwelling-your-main-residence-/
[Accessed 31 May 2016].
ATO, 2015. Expense payment fringe benefits. [Online]
Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-
benefits/Expense-payment-fringe-benefits/
[Accessed 29 May 2016].
ATO, 2015. Property fringe benefits. [Online]
Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-
benefits/Property-fringe-benefits/
[Accessed 01 June 2016].
ATO, 2015. Working out the taxable value of a car fringe benefit. [Online]
Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-
benefits/Car-fringe-benefits/Working-out-the-taxable-value-of-a-car-fringe-benefit/
[Accessed 26 May 2016].
ATO, n.d. FBT Benchmark Interest Rate. [Online]
Available at: https://atotaxrates.info/businesses/fringe-benefits-tax/fbt-benchmark-interest-
rate/
[Accessed 30 May 2016].
austaxpbr, 2001. CGT-treatment of a forfeited deposit. [Online]
Available at: https://austaxpbr.com.au/document/PBR_8191
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Taxation Assignment
[Accessed 29 May 2016].
AustaxPBR, 2015. FBT. [Online]
Available at: https://austaxpbr.com.au/document/PBR_1012788527239
[Accessed 31 May 2016].
austlii, n.d. INCOME TAX ASSESSMENT ACT 1997 - SECT 290.150. [Online]
Available at: http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s290.150.html
[Accessed 27 May 2016].
Wolters Kluwer, n.d. INCOME TAX ASSESSMENT ACT 1997, SECTION 104-150 Forfeiture
of deposit CGT event H1. [Online]
Available at: http://www.iknow.cch.com.au/#!/document/atagUio695860sl24365276/income-
tax-assessment-act-1997-section-104-150-forfeiture-of-deposit-cgt-event-h1
[Accessed 25 May 2016].
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