Consequences of Fringe Benefit Calculation Methods in Taxation Law

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note

1TAXATION LAW
Answer 1
In the present case study, issue is that the determination of the consequences of fringe
benefit obtained by the method of operating cost and method of statutory cost respectively.
The Fringe Benefit Tax in Australia has been dealt with in the Fringe benefits Tax
assessment Act 1986. As per s136 (1) of the said act, FBT is one of the benefits given to an
associate or an employee at a particular time, once in a year. The said phenomenon takes
place in respect of a financial year beginning with 1st of April to 31st of March of the
following year (Barkoczy 2016). FBT is one of the taxes which needs to be paid by the
employer and its gross up rate for 2018- 2019 financial year is 2.0802 and the rate is 47%.
Type 1 benefit is a benefit in which the Input Tax Credit can be claimed by an employer.
Section 7 of FBTAA throws light to Car Fringe benefits. This occurs when a car is
received by an employee from the employer for personal use.CFB can be found to be
calculated by using two different ways. Firstly, the statutory formula method defined under
the provision enumerated in Section 9(1) of FBTAA and secondly, the method of Operating
Costs enumerated under section 10(2) of FBTAA.
The statutory formula method is (0.2 * Base value of the received car * the total
number of days of year when the employee is provided the CFB / Total Taxable days of the
year)- the total payment amount of the recipient.
Under the method of operating cost; the formula is C * (100%-BP) – R,
where C denotes the cost of operation during the period of hold and it includes fuel
price, maintenance charge, registration fee and insurance payment as per s 10(3)(a). BP
denotes the percentage of business and R denotes the contribution, if any, made by the

2TAXATION LAW
recipient. As per s.11, the Imputed Rate of Interest for the FY 2018-2019 is 5.2 percent as
given by TR 2018/3.
The TR 2011/3 states that when there is a contribution of the employee to the car’s
purchase price, the C.P (Cost Price) is reduced by amount of contribution made by the
concerned employee.
In fact it is seen that Lucinda has contributed $1,000 for the price of the car.
Additionally, the base value of the car amounts to $ 18000. That is to say, the base value
must be reduced by the employee’s contribution of $ 1000. In that regard, it can be said that
the value is $ 17000.
OPERATION COST METHOD OF CALCULATION
OPERATING COST METHOD
Particulars Amount
REPAIRING COST for Car 3300
Imputed INTEREST 884
Deemed value of Depreciation 4250
INSURANCE cost incurred 2200
FUEL cost incurred 990
TOTAL COST OF
OPERATING
PRIVATE USE
TOTAL KM run by car 20000
WORK USE of car by 14000

3TAXATION LAW
employee
PRIVATE USAGE by
employee
6000
PRIVATE USE PERCENTAGE 30
Taxable FBT value
(TOC*PRIVATE USE) 3487.2
Deemeed Depreciation Amount
Cost Value of Car 18000
Employee's constibution 1000 TR
2011/3
Base Value 17000
Depreciation rate 25%
Deemed Depeciation
(BV*25%*365)/365 4250
Imputed Interest Amount
Car Base Value 18000
Less Employee contribution 1000 TR
2011/3
Base Value 17000