Taxation Law: Fringe Benefit Consequences of Car and CG Consequences for Asset Selling

Running head: TAXATION LAW
TAXATION LAW
Name of the Student:
Name of the University:
Author Note:

1
TAXATION LAW
Answer 1:
The present case study involves the issue of analyzing the Fringe Benefit (FB)
consequences of the Car as per operating cost method as well as statutory formula method1.
The Fringe Benefit Tax is dealt in the Fringe Benefits Tax Assessment Act 1986 in
Australia2. FBT is defined as any type of benefit related to an employment and granted by the
employer or associate to an employee or associate in a year at any time out of a bond of mutual
relationship. This is given in section 136(1) of FBTA. Such benefit can comprise any interest,
right, things of value and even things of personal use. The FBT is given in a year. The tax year
usually runs from 1st of April of a particular year to March 31st of the year next. The type 1 class
of benefit forms the fringe benefits over which GST is applicable. For a Financial Year 2019 to
2019, the FBT’s gross rate is 2.0802. The Fringe Tax Benefit for the same financial year is 47
percent.
Sec. 7 is related to FB of cars. It occurs when car is gifted as a benefit to an employee by
an employer to use it privately. There lies two ways for calculating Car Fringe Benefit. One of
the ways is known as statutory formula (SFM) method given in sec. 9(1) in FBTAA. Another is
called the Operating Cost Method given in sec. 10(2) of FBTAA.
In SFM, formula used is simple and can be represented as (0.2 * Car Base Value * day’s
number of the financial year in which CFB is allowed/ total taxable tax)- Recipient’s payment)
The formula, as per Operating Cost Method, can be represented as OC*(100%-B)-RC
1 Hemmings, Philip, and Annamaria Tuske. "Improving Taxes and Transfers in Australia." (2015).
2 The Fringe Benefits Tax Assessment Act 1986.

2
TAXATION LAW
Where Operating Cost in period of use including fuel, insurance, maintenance and registration as
in sec. 10(3)(a), B= business percentage, RC= contribution made by recipient is a financial year.
The rate of depreciation is 25% as given under sections 11, 12. The imputed interest rate
for the current financial year 2018-19 as given in TR according to section 11 is equal to 5.2
percent. Under TR2011/3, it is given that if an employee made contribution to car’s purchase
price, then the CP of employer will get reduced by sum of contribution of employee. In the given
case study, Lucinda contributed 1000 dollars towards the car cost. The base value or BV of car is
equal to 18000 dollars that will be decreased by1000 dollars as contributed by Employee. BV
now is 17000
Deemed depreciation for car is calculated as follows:
Deemed Depreciation Amou
nt
Car Base
Value
18000
Less Employee
contribution
1000 TR
2011/
3
Base Value 17000
Depreciation
rate
25%
Deemed Depreciation
(BV*25%*365)
/365
4250
Operating cost method for calculating FBT of car:
OPERATING COST
METHOD

3
TAXATION LAW
Particulars Amou
nt
Repairing Cost of
Car
3300
Imputed
INTEREST
884
Deemed
Depreciation
4250
cost incurred for
insurance
2200
Fueling cost 990
OPERATING COST
total
PRIVATE
Usage
KILOMETER run in
total
20000
use of car for
WORK
14000
PRIVATE USE of car by
employee
6000
PRIVATE USE
percentage
30
Taxable value of Fringe
Benefit Tax
(TOC*PRIVAT
E USE)
3487.
2
Imputed interest for car:
Imputed
Interest
Amou
nt
Car’s Base
Value
18000
Less Employee’s
contribution
1000 TR
2011/
3
Base Value 17000
Statutory rate of
Interest
5.20% TD
2018/
2