Computation of FBT Liability and Net Capital Gain/Loss

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

TAXATION LAW1
Answer 1
Issue
In the present situation the issue that comes up is the several FBT computation methods
that exists under the FBTAA 1986 and computation of the FBT liability for Spiceco Pty Ltd
for the FBT year 2018/19. The suggestion of the most appropriate FBT method based on the
minimization objective of Spiceco Pty Ltd with respect to the car that has been extended to
Lucinda by them.
Rule
Any advancing of subsidy or advantage by the employer in favour of the employee or
other person related with the employee or even a third person depending upon the agreement
between the employer and employee when made by the employer for an assistance which is
to be used in the personal capacity by the employer or any such person is considered as fringe
benefit and has been defined u/s FBTAA 1986. This advantage may come in the form of a
right it or an interest in relation to personal for real property. Any service of facility that an
employer advances towards the personal use of an employee will also be covered under this
form of benefit. A benefit so extended by the employer is required to be included in the
taxable income of the employer and the employer will be imposed with an FBT tax liability
for the fringe benefit he has extended towards the employee. For being included in the tax
liability of the employer the employee to whom the benefit has been extended to may be a
past, a present as well as a future employee.
Fringe benefits may also come in the form of a car advance by the employer towards a
person employed with him as an employee for the purpose of a serving of personal use of the
employee. This form of fringe benefit has been provided u/s 7 FBTAA 1986 and is termed as
car fringe benefit.

TAXATION LAW2
There are two methods for the computation of fringe benefit with respect to a car. The first
method, in this respect, is the statutory method for FBT computation, which has been
provided u/s 9(1) of the FBTAA 1986. The second method for the FBT computation is the
operating cost method as has been provided u/s 10(2) of the FBTAA 1986.
Application
In the instant scenario, Spiceco Pty Ltd has advanced a car to Lucinda for her personal
usage in furtherance of the employment relationship existing between the two. The cost of the
car was $18,000 and $1,000 has been paid by Lucinda. This needs to be treated as a fringe
benefit u/s 136 of the FBTAA 1986 as a benefit has been extended towards Lucinda by the
company she has been employed with for the purpose of her personal usage. Moreover as the
benefit came in the form of a car this needs to be treated as a car fringe benefit u/s 7 of the
FBTAA 1986. An additional expenses relating to the repairs being $3,300, towards the fuel
of $990 and for insurance $2200. 75% of the use that has been made by Lucinda has been
dedicated towards business purpose.
OPERATING COST METHOD
PARTICULARS AMOUNT $ AMOUNT $
Total Operating Cost 11624
Repairs 3300
Interest 884
Fuel 990
Insurance 2200
Depreciation 4250
Private Use