Taxation Law: Fringe Benefit Tax and Capital Gains Consequences

Running head: TAXATION LAW
TAXATION LAW
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1TAXATION LAW
Question 1
In this case the main issue is the determination of the consequences of Fringe Benefit of
the Car using both the method of operating cost and the method of statutory formula.
The provisions relating to the Fringe Benefit Tax in Australia can be found in the Fringe
Benefits Tax Assessment Act 1986. A Fringe Benefit Tax can be defined under the section 136
(1) of the FBTAA as a benefit that is given by the arrangement of an employer to an employee or
an associate in respect to the employee’s employment (Barkoczy 2016). The benefit can be
including any rights, interests or personal properties. The tax year for FBT is considered to be
from 1st April to 31st March. Tax credit inputs can be seen to be claimed by the employers under
the type 1 benefits. The 2018-19 gross up rate of the fringe benefit tax is 2.0802 and the rate for
the fringe benefit tax is 47%.
The Fringe Benefits of Car can be found in the provisions of section 7bof the Fringe
Benefit Tax Assessment Act and can be seen to be taking place when an employee is given a Car
by the employer for the use of private purpose. The fringe benefits of a car can be calculated in
two ways mentioned under the FBTAA. The first way or the statutory formula method can be
seen to be defined under the section 9 (1) of the Act while the second way that is the cost
operating method can be seen to be defined under the section 10 (2) of the FBTAA.
The statutory formula for the calculation of the CFB is very simple. It is given as [CFB=
0.20 * Base value of the car * (number of days in year the employee received CFB/total tax
days) – payment received]
The formula of CFB under the cost operating method is C * (100% - BP) - R

2TAXATION LAW
Where, C is defined under section 10 (3) (a) as cost of operating for holding period,
maintenance, insurance, fuel and registration and BP = business percent and R = contribution of
the recipient. Under section 11 and 12 of the FBTAA the rate of depreciation is 25% and under
section 11 the rate of imputed interest is 5.20% (TR 2018/2).
In the TR 2011/3 it can be seen to be mentioned that the employer’s price of cost would be
reduced in case of contribution of the employee towards the price of purchase of the car.
In this case it can be seen that $1,000 was contributed by Lucinda towards the car’s cost and the
car’s base value is $18,000. Therefore by Linda’s contribution the reduction in base value will
amount to $17,000.
The depreciation of the car would be
Depreciation Amoun
t
Base Value of the
car
18000
contribution of the employee 1000 TR
2011/3
Base Value of the
car
17000
Depreciation rate
mentioned
25%
Depreciation deemed
(BV*25%*365)/
365
4250
The car’s imputed interest would be
Imputed Interest Amount
Actual Base Value of
theCar
18000
Employee’s contribution 1000
adjusted Base Value of
the car
17000
Statutory Interest rate 5.20%
Interest Deemed
(BV*5.2%*365)/365 884

3TAXATION LAW
In the statutory method the FBT of the Car can be found
STATUTORY FORMUAL METHOD
Details Amoun
t
actual Value of the Car Base 18000
Employee’s contribution 1000
adjusted Base Value of the car 17000
Statutory rate 20%
private use of the car 365%
Number of Days 365
Taxable value
(BV*20%*(PU/TD) 3400
The FBT of the car under the operating method is
OPERATING COST METHOD
Particulars Amount Amount
REPAIRS for the
Car
3300
INTEREST that is
Imputed
884
Depreciation Deemed 4250
INSURANCE 2200