Taxation Law: Tax Consequences of Providing a Car to an Employee

This assignment discusses the tax consequences of providing a car to an employee. It explains the fringe benefit tax and the different formulas used to calculate car fringe benefits. It also provides recommendations for calculating the car fringe benefit and discusses the tax liability. The assignment is related to taxation law and is a case study for a specific employer.

Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

Table of Contents
Answer to question 1:...................................................................................................3
Answer to question 2:...................................................................................................5
Answer to A:.................................................................................................................6
Answer to B:..............................................................................................................7
Answer to C:..............................................................................................................8
References:..................................................................................................................9

Answer to question 1:
Issues:
The principle issue that will be discussed in the current case will be the tax
consequences of providing the car to the employee.
Rule:
The fringe benefit is regarded as the regime that principally imposes tax on
the wide range of benefits that is given to the employee by the employer. The
provision of the fringe benefit tax is given in the “FBTAA 1986” (Barkoczy 2016). As
denoted in the “s136(1), FBTAA 1986” a fringe benefit happens when the benefit is
given to the employee during the year by the employer in relation to the employment
of the employee. The definition fringe benefit explains that there should be a pivotal
relation with the employment of the employee for the fringe benefit to happen. The
benefit must be provided to the employee by the employer, associated parties and
the third party arranger under the arrangement of the employer.
The court of law in “J & G Knowles & Associates Pty Ltd v FCT (2000)”
held that there must be a material and sufficient relationship between the benefit and
the employment of the employee (Woellner et al. 2016). Under the “s7 (1), FBTAA
1986” a car fringe benefit happens when the car is given to the employee by the
employer for the purpose of employee’s private usage. “Sec 136 (1)”, denotes that
the private use of the car implies that car is not exclusively in the course of
generating assessable income.
To compute the car fringe benefits there are two important formulae that is
existent. This includes the statutory formula given under the “s9, of the FBTAA
1986” and the cost basis formula given in the “s10, FBTAA 1986”. The statutory
formula is applied in general cases however a cost basis formula is only applied
when the employer decides to make use of the cost basis (Cooper 2017). The
statutory formula mainly involves the cost base of the car less the employee
contributing multiplied by the statutory rate. On the other the cost basis generally
involves the log book records and the odometer records that are maintained by the
taxpayer. One must denote that the fringe benefit tax is paid by the employer and not
employee.
Application:
The case facts suggest that Spiceco Pty Ltd provided its employee Lucinda
with the car that was exclusively for the private of the employee. By referring to the
“sec 7 (1), FBTAA 1986” it can be stated a car fringe benefit has occurred for the
employer Spiceco Pty Ltd (Braithwaite 2017). Denoting the legislative reference of
“sec 136 (1)”, the car was provided to Lucinda by Spiceco Pty Ltd during the year in
relation to the employment of the employee.
By referring to the explanation that is made in the case of “J & G Knowles &
Associates Pty Ltd v FCT (2000)” there was a material and sufficient relationship
between the benefit and the employment of the Lucinda. The car was given to
Lucinda exclusively for making the private use (Nolan 2018). To compute the car
fringe benefit for Spiceco Pty Ltd, statutory formula has been considered under that
is given in “s9, FBTAA 1986”.

Statutory Formula:
Cost basis or the Log Book Method:
On the basis of the above stated computation it is noticed that the taxable
amount of fringe benefit under the log book method is less than the taxable value of
fringe benefit that is computed under the statutory method (Visser 2017). So it is
advised that the Spiceco Pty Ltd must make use of the log book method to calculate
the car fringe benefit.

Deemed Depreciation:
Deemed Interest:
Fringe benefit tax liability:
Conclusion:
The case study here can be concluded by stating that providing the car to
Lucinda for the year amounts to car fringe benefit under the “s7(1), FBTAA 1986”.
This is because the car was provided to Lucinda out of employer and employee
relationship. The benefit satisfies the satisfactory nexus with the employment of
Lucinda. Spiceco Pty Ltd would be required to fringe benefit tax on the total value of
car fringe benefit.
Answer to question 2:
As it has been explained under the “s 100-25 (1) of ITA Act 97” there is a
restriction of the assets on which the regimes of capital gains tax are applied on or
following the 20 sep 1985 (Teo, Barros and Hinchliffe 2016). The taxpayer must
denote that the real gains that are made under the capital gains tax regimes is
allowed for capital gains tax. The assets must be purchased on or after the 20 sept
1985 for the capital gains regimes to be applicable. The capital gains are taxable as
the statutory income under the legislation of the “s6-10” and it is included into the
taxable earnings of the “s102-5(1)”. The central operative provision of the CGT
regime is the “s102-5(1)”. It takes into the consideration the net amount of CGT in
the assessable earnings.

Answer to A:
As understood from the case information of Daniel he is presently in aging in
late 50s and he is planning for his retirement. He has decided to make a contribution
for the super fund prior to the end of this year. Presently, Daniel has different variety
of asset that worth’s around $1 million and he is looking forward to make further
contribution in to his superannuation fund. As the part of his retirement plan there are
some of the assets that are sold by Daniel and the capital gains tax consequences
for the asset is given below;
Sale of house in Melbourne:
Daniel has reported that he has a house that is located in the suburbs of
Melbourne. He has lived in that property for around 30 years and now he is planning
to sell it. The taxpayer here Daniel has formed a contract to sell the house for
$865,000 which he has sold in auction. A property developer has paid Daniel a sum
of $85,000 as the deposit for his Doncaster house. However, following the fourteen
days of the contract the buyer decided against the sale of house and cancelled the
contract. The deposit money was eventually forfeited to Daniel.
Notably in “s104-150” a CGT event H1 occurs when the deposit is forfeited.
This kind of event generally happens when the deposit in a perspective transaction is
not proceed (Meidner, Hedborg and Fond 2017). Similarly, in the case of Daniel the
forfeiture of deposit must be viewed as CGT event H1 under “s104-150”. The
amount of $85,000 is a capital gain for Daniel less the agent fees that is paid for the
failed transaction.
Sale of Painting:
The regimes of the CGT is only applied on the asset that is purchased on
20/9/85. A CGT event A1 occurs under “s104-10” on those transactions that is
acquired following 19/9/85. The CGT asset also include the collectables that is given
in the “s108-10(2)” (Harding and Marten 2018). The example of collectable
comprises of the antiques, artwork paintings, jewellery etc. This kind of asset is
generally kept by the taxpayer for their own enjoyment purpose and making personal
use of it.
During the income year Daniel has reported that he has sold an artistic
painting of Margaret Preston. The painting was originally purchased on sept 1985 by
paying an acquisition price of $15,000. The painting was sold by Daniel for a cost of
$125,000 in an auction. It can be said that A CGT event A1 occurs under “s104-10”
on sale of painting since the painting was purchased by Daniel following 19/9/85.
The artistic painting is a collectable under “s108-10(2)” which was kept by the
taxpayer for his own enjoyment purpose (Alpanda and Zubairy 2016). Upon selling
the painting a capital gains tax has happened. The capital gains are taxable as the
statutory income for Daniel under the legislation of the “s6-10” and it is included into
his taxable earnings based on the provision of “s102-5(1)”.
Sale of Luxury Yacht:
Accordingly, under the “s108-20” there are other types of CGT asset is
defined. This asset is known as personal use asset that is largely kept by the
taxpayer for his personal use but ignores the assets such as collectables (Fairfield
and Jorratt De Luis 2016). The common examples of the collectables include the

boats, racehorse, furniture vehicles etc. There are some noteworthy rules regarding
capital gains or loss made from the personal use asset. This includes that the capital
loss that is made from the personal use asset must be simply disregarded under the
provision “s108-20(1)”.
As Daniel wants fund for his retirement, he has a luxury yacht that he has sold
it for $60,000. The yacht was actually purchased by Daniel for $110,000. The luxury
yacht under the provision of “s108-20” has been categorized as the personal use
asset. As disposal yacht has led to capital loss for Daniel, more importantly denoting
the provision of “s108-20(1)” the capital loss that is made from the personal use
asset must be simply disregarded by Daniel.
Sale of Shares:
The CGT assets also includes the shares in the units or a public listed
company (Auerbach and Hassett 2015). Evidently, Daniel has the shares in the
mining company named BHP which has he has sold for 80,000. In addition to this he
has paid the stamp duty on the purchase of shares and brokerage fee while selling
the shares. The stamp duty forms the part of shares cost base while the brokerage
fees is cost of selling the shares which is subtracted from the total sales. Daniel upon
selling the BHP shares made capital gains. However, he also reports a carry forward
capital loss of $10,000 from the AZJ shares in the current year of tax. There was no
other capital loss for 2017 except the AZJ shares. It must be noted that Daniel can
reduce his capital loss from shares by offset from the capital gains made from BHP
shares. While the rest of the capital loss must be carry forward to next year by Daniel
which is only allowed to offset from future capital gains that will be earned from
shares.

Answer to B:
From the assets that were sold by Daniel for the year capital gains were only
made from the forfeited deposit from the house that was located in suburbs of
Melbourne and capital gains from the artistic painting being a post-CGT asset. It is
recommended that in a bid to plan for his retirement the capital gains that is made by
Daniel must be invested in his superannuation fund.
Answer to C:
Daniel has reported a loss from the luxury yacht sale and capital loss from the
shares AZJ shares. It is recommended that the capital loss must be carry forward to
next year by Daniel which is only allowed to offset from future capital gains that will
be earned from shares.

References:
Alpanda, S. and Zubairy, S., 2016. Housing and tax policy. Journal of Money, Credit
and Banking, 48(2-3), pp.485-512.
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first
century. American Economic Review, 105(5), pp.38-42.
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Cooper, R., 2017. How to tax cellphones in the workplace. Tax
Professional, 2017(29), pp.22-23.
Fairfield, T. and Jorratt De Luis, M., 2016. Top Income Shares, Business Profits, and
Effective Tax Rates in Contemporary C hile. Review of Income and Wealth, 62,
pp.S120-S144.
Harding, M. and Marten, M., 2018. Statutory tax rates on dividends, interest and
capital gains.
Meidner, R., Hedborg, A. and Fond, G., 2017. Employee investment funds: An
approach to collective capital formation. Routledge.
Nolan, M., 2018. Income Tax and Transfer Policy Changes in Australia: 1988-2013.
Teo, E., Barros, C. and Hinchliffe, S.A., 2016. Clash of the Deeming Provisions: Pre-
Capital Gains Tax Concessions, Tax Consolidation and Policy in the Federal Court.
Visser, A., 2017. Tax and employee transport. Tax Breaks Newsletter, 2017(376),
pp.8-8.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian
Taxation Law 2016. OUP Catalogue.