Taxation Law: Fringe Benefit Tax and Capital Gains Analysis

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

1
TAXATION LAW
Answer 1
The issue to be determined in this part of the assignment is the consequences out of
Fringe Benefit related to car by considering both the statutory formula method and Operating
Cost method.
The Fringe Benefit Tax is discussed under the Fringe Benefits Tax Assessment Act 1986
in Australia. Section 136 (1) of FBTA defines FBT as a benefit given to the employee or an
associate by the employer or his associate by mutual arrangement between the employer and his
employee at any time in a year (Woellner et al. 2016). This benefit may include any right,
benefits or personal property. The FBT is a type of tax which has to be given by the employer.
The tax year is calculated from 1st April of a year to 31st March of the next year. The type 1
benefits are the fringe benefits on which GST can be claimed and input tax credit can also be
claimed by the employer. The gross rate of FBT for the financial year 2018- 2019 amounts to
2.0802 and the rate of FBT is 47%.
Sec. 7 of FBTAA relates to Fringe Benefits of Cars. This happens when an employer
gives a car to his employee to use it for private purpose. There are 2 methods by application of
which CFB is calculated. One of the methods is given by section 9(1) under FBTAA and this
method is called as statutory formula method. The second one is known as operating cost method
and it is defined in section 10 (2) of the same Act.
The formula used in Statutory formula method is simple and it is formulated as
(0.20*Base value of Car * (number of days of the year when CFB given to the employee/ Total
days of tax)- payment from recipient)
On the other hand, as per the Operating Cost method, the formula is C * (100%- BP)-R,

2
TAXATION LAW
Where C= operating cost for holding period including fuel, insurance, maintenance, registration
which is given under section 10 (3)(a),
BP= percentage of business.
R= recipient’s contribution.
The depreciation rate as per sections 11 and 12 is 25 percentages. The imputed rate of
interest for the year 2018-2019 as per section 11 equals to 5.20 percentages as found in TR
2018/2. Though it has been stated in TR 2011/ 3 that when an employee has made contribution to
the purchase price of the car, the employer’s cost price is reduced by the amount paid by the
employee. In the given case, it is seen that Lucinda has contributed 1000 $ to the car cost. The
base value of the car is 18000. It indicates that the base value is lessen by contribution made by
employee which equals to 1000 $. Hence, the base value equals to 17000. The deemed
depreciation of the car is calculated as follows:
OPERATING COST
METHOD
Particulars Amou
nt
Amou
nt
REPAIRING COST for
Car
3300
CALCULATED Imputed INTEREST 884
CALCULATED Deemed
Depreciation
4250
COST OF INSURANCE 2200
COST OF FUEL 990
TOTAL OPERATING
COST
11624
PRIVATE USE

3
TAXATION LAW
TOTAL Km run 20000
CAR USE FOR WORK by
employee
14000
PRIVATE USE OF CAR by
employee
6000
% OF PRIVATE
USE
30
Taxable value of FBT
(TOC*PRIVATE
USE)
3487.
2
Deemed Depreciation Amou
nt
Car’s Base
Value
18000
Less Employee’s
contribution
1000 TR 2011/3
Base Value 17000
RATE OF Depreciation 25%
Deemed Depreciation
(BV*25%*365)/
365
4250
Imputed
Interest
Amou
nt
Base Value OF
CAR
18000
MINUS Employee
constibution
1000 TR
2011/
3
Base Value 17000
STATUTORY RATE OF
INTEREST
5.20% TD
2018/
2
Deemed
Interest
(BV*5.2%*365)/
365
884