Taxation Law

Running head: TAXATION LAW
Taxation Law
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1TAXATION LAW
Answer No.1:
Issue:
FBT or the Fringe Benefit Tax is the benefit taxable that every employer is required to
supply to his employees in connection to the employment relation. In the present case study,
Lucinda is given car as a fringe benefit by his employer Spiceco pty Ltd. Here the issue to
determine how car will be affecting FBT for Spiceco. The determination is processed by way
of two types of methods called the Operating Cost method and the statutory formula method.
Rules for Fringe Benefit:
The assessment of FBT is provided in the provisions of the rules enumerated in the
Fringe Benefit Tax Assessment Act 1986 (Cth). As per sec. 136(1), the fringe benefit is given
and it has two aspects mainly a positive aspect and a negative aspect. In the event where the
benefit is granted by the employer or an associate to his employee or associate in a financial
year, it can be said to be a fringe benefit as per positive aspect. On the other hand, the
negative aspect regards that the Fringe benefit should not fall from Para F to Para S of the
said section.
Further, FB can be classified into Type 1 and Type 2 benefits. Type 1 benefits
comprises of benefits in which the cost is including GST. The value for FBT in the FY 2018-
2019 is 2.082*47% on these types of benefits. There are several types of fringe benefits and
Car Fringe benefits is one of the types. The Car Fringe Benefits is provided under sec. 7 of
FBTAA. It states that a car fringe benefit occurs when an employer provides a car to his
employee for using it personally. The calculations for Fringe benefit on car is given under
sec. 9(1) and sec. 10(2) where the statutory formula method and the Operation Cost method
are given respectively. It is the statutory formula method that is being generally used by the

2TAXATION LAW
employer to determine FBT but it is in the discretion of the employer to use the Operating
Cost Method that decreases the taxable valuation of FB.
FBT can be calculated by using the Statutory Formula Method by employing the
following formula as given under sec9 (1);
0.2 is the flat rate which SFM uses. The car base value of the car is the car’s purchase
price. But, this base value can be decreased by the amount equal to any contribution made by
the employee to its purchase price. This has been provided in the Taxation Ruling TR 2011/3.
R refers to the payment if any made by the employee for the car as the operating cost like the
fuel charges, insurance payment and others. The cost operating method employs the
following formula to calculate the taxable value of the car;
Where C refers to the Car’s operating cost which is given in the sec. 10(3) of the Act. The
operating cost is the addition of all the expenses incurred as the operating car like fuel charge,
registration fee, insurance policy cost in relation to the car in the period of holding. Usage for
business is made on the basis of reasonable estimate of the number of the kilometres run by
the car during the holding period. R depicts the payment of recipient as per sec. 10(3). It is
defined in similar terms in the manner it is defined in the statutory formula method.