Calculating Fringe Benefit Tax Liability for Spiceco Pty Ltd

TAXATION LAW
STUDENT ID:
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Question 1
The focus is to compute the Fringe Benefit Tax (FBT) liability for employer Spiceco
Pty Ltd with respect to the provided car fringe benefit to Lucinda. Further, the FBT
liability would be determined for Spiceco Pty Ltd for FBT year 2018/19.
Calculation of depreciation
The depreciation of the car would be determined through the following formula stated
in “s. 11-1, Fringe Benefit Tax Assessment Act 1986” (Krever, 2017).
Depreciation= ABC
D
Where,
A = (a) When car is purchased by person; Car value at the beginning of tax year –
depreciated value of car at that moment
(b) In any other case;Cost price of car
B = Amount worked for person and for car computed through subsection 1AA
C = Car usage days for fringe benefit tax year for employee
D = Total days in fringe benefit tax year
It is noteworthy that an effective car life is assumed as 8 years and the diminishing
depreciation is considered as 25% per annum. Spiceco Pty Ltd has provided car to
Lucinda on April 1, 2018 which represented that variable C and D would be 365 days
only. The variable A would be same as $18,000 i.e. cost of car and B would be 0.25.
Depreciation of car for FY 218 /19= ABC
D = 18000∗0.25∗365
365 =$ 4500
Calculation of interest
Depreciation= ABC
D
All the above shown variables would be same as earlier except variable B. Here, the
B represent the statutory rate of interest of car for the given FBT year. According to
TD2018/2, the applicable interest rate would be 5.20% (Barkoczy, 2018).
Depreciation of car for FY 2018 /19= ABC
D = 18000∗5.2 %∗365
365 =$ 936
Operating costs
Operating costs of car for FY 2018/19 is computed through ss. 10-3 FBTAA 1986
and is shown below.
Repairs cost $3300
Insurance cost $2200
Fuel cost $990
Depreciation amount $4500
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Interest amount $936
Operating cost = 3300+2200+990+4500+936
= $11,926
Taxable value of car
Two approached which are used to find the taxable value of the car fringe benefit
(Reuters, 2017).
Approach 1: Cost basis under the highlights of ss. 10-2 FBTAA 1986
Approach 2: Statutory formula concept under the highlights of s. 9 FBTAA 1986
 Taxable value via approach 1
Taxable value of car = {C * (100% - BP)} – R
C = operating cost of car = $11,926
BP: (a) Nil, when section 10 A or section 10 B is applicable and employer is not
liable for reduction in the total operating cost during business usages
(b) Other cases, percentage of business purposes with regards to car= 70%
R = Recipient’s payment = $1000
Now,
 Taxable value via approach 2
Statutory formula
Base value of car paid by employer = $18,000
Recipient payment contribution = $1000
Available days and total FBT year days would be same = 365 days
Taxable value of car = {0.2*18000*(365/365)}-1000 = $2600
It is apparent that taxable value from approach 1 comes out to be lesser than the
taxable value resulted from approach 2. Therefore, “Cost Basis Method” would be
more appropriate.
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