Calculating Fringe Benefits Tax Liability and Capital Gains/Losses for Super Fund

This document explains the calculation of Fringe Benefits Tax (FBT) liability for Spiceco Pty Ltd and capital gains/losses for taxpayer Daniel's super fund. It includes necessary elements such as depreciation, interest, total operating cost, taxable value, grossed up taxable value of car, and FBT liability. It also discusses the sale of house, painting, private luxury yacht, and BHP shares and their implications on CGT.

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Question 1
Fringe Benefits Tax (FBT) liability of Spiceco Pty Ltd needs to be calculated on the
account of the car provided for personal utilization to one of its employee Lucinda.
There are host of elements which need to be determined in wake of the given
information so as to find the net FBT liability.
List of necessary elements:
 Depreciation
 Interest
 Total operating cost
 Taxable value
 Grossed up taxable value of car
 Fringe benefits tax liability
A brief discussion about each of the above shown elements along with the
necessary variables of computation is shown below.
Element 1: Depreciation
The depreciation in the value of car would be determined through the statutory
formula given in s. 11-1 FBTAA 1986 (Barokoczy, 2018).
Computation
Car is purchased by employer for consideration of $18,000
Effective car life (B) = 8 years (ATO norms)
Depreciation applicable = 25% per annum (ATO norms)
Car issued to Lucinda on April 1, 2018
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Period (C and D) would be same = 365 days assuming that the car was available for
private use for all days of the year.
Depreciation on the car for 2018-2019 = 18000*(0.25)*(365/365) = $4,500
Element 2: Interest
The interest would be determined through the statutory formula given in s. 11-2
FBTAA 1986 (Coleman, 2016).
Computation
Car is purchased by employer for a consideration of $18,000
Statutory rate of interest (B) = 5.20% (Under TD 2018/2)
Depreciation applicable = 25% per annum
Car issued to Lucinda on April 1, 2018
Period (C and D) would be same = 365 assuming that the car was available for
private use for all days of the year.
Interest = 18000*(5.2/100)*(365/365) = $ 936
Element 3: Total Operating Cost
The total operating cost of car would be determined through the statutory formula
given in s. 10-3 FBTAA 1986 (Deutsch et. al., 2016).
Total Operating costs = Repairs + Insurance + Fuel + Depreciation + Interest
Computation
Total Operating costs = $ 3,300 +$2,200 +$990 + %4500 + $936 = $ 11,926
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Element 4: Taxable value of car
Two methods are taken into account to find the taxable value of car. However, the
method which results in lower taxable value of car would be preferable because it
would lower the total FBT liability of the employer.
Method 1: Cost basis
The taxable value of car would be determined through the cost basis method given
in s. 10-2 FBTAA 1986 (Krever, 2017).
Computation
Inputs: C = $11926, R =$1000, BP = 70%
Taxable value of car fringe benefit = 11926*(100%-70%) – 1000 = $ 2,578
Method 1: Statutory Formula
The taxable value of car would be determined through the statutory formula method
given in s. 9 FBTAA 1986 (Reuters, 2017).
Computation
Inputs:
Base value = $18000
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Number of days during year when car was issued to employee for personal use =
365
Number of days in the given FBT year =365
Amount contributed by employee = $1000
Taxable value of the car fringe benefit =(0.2*18,000*(365/365)) - $ 1,000 = $ 2,600
As indicated above, taxable value is lower when cost basis method is applied and
therefore, this method would be considered as most appropriate method.
Element 5: FBT Computation
Grossed up taxable value of car needs to be used to find the net FBT liability on the
part of the taxpayer. The applicable FBT rate would be imposed on the grossed-up
value (Nethercott, Richardson and Devos, 2016).
Grossed up taxable value of car = Taxable value of car fringe benefit * Gross up
factor
Gross up factor is a value which depends on the type of goods in relation to the GST
and the given financial year. Car is a Type I good under GST Act and the value of
gross up factor for FY2019 is 2.0802 and FBT rate is 47% (ATO, 2019).
Grossed up taxable car fringe benefit = 2578 *2.0802 = $ 5,362.34
FBT liability on the employer = $ 5,362.34 * 0.47 = $ 2,520.3
As highlighted above, Spiceco Pty Ltd (employer) has to pay $2520.3 as Fringe
Benefit Tax liability on the account of granted car fringe benefit to Lucinda.
Question 2
(a) According to the given case factors, it is apparent that taxpayer Daniel has made
several transactions involving capital assets disposal in order to derive capital for
super fund. The aim is to find the capital gains or capital losses which have
resulted through the transaction of disposal of the assets for FY2019.
Daniel sold his house
The disposal of the house would be first analysed under the highlights of Sub-
division 118- B as the capital gains or losses resulting from the main residence
disposal would not be considered for CGT implication. This provision is categorised
as main residence exemption. The 100% exemption will be applicable only when the
house would be treated as main residence of the taxpayer for the total duration of
ownership under ss. 118-10(1) (b) ITAA 1997 (Deutsch et. al., 2016). Also, it is
imperative that house should not be used by taxpayer for generation of assessable
income. Daniel has resided in the house for the entire ownership period i.e. 30 year.
Also, he has not derived any kind of assessable income from house and thus, both
the necessary conditions are fulfilled. It can be concluded that the house is the main
residence place of Daniel which mean Sub-division 118- B would be effective and
CGT implication would not be applicable here (Krever, 2017). Hence, the payment of
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transaction i.e. $8500 that would result capital gains to Daniel will not attract any
CGT liability.
Daniel sold his painting
In accordance with ss. 149-10 ITAA 1997, CGT liability will not be imposed on the
capital gains or losses which has been derived from the disposal of pre-CGT asset
(purchased before September 20,1985) (Austlii, 2019a). Painting is classified under
the asset category called “Collectibles” under the provisions of ss. 108-10(15) ITAA
1997 and collectibles are termed as CGT assets (Austlii, 2019b). The transaction
incurred in context of disposal of such asset is A1 CGT event in accordance with ss.
104-5 ITAA 1997. Further, the process of determination of capital gains or capital
losses is described in ss. 104-10 ITAA 1997. It comprises two main factors which are
sale proceeds and cost base of asset. The difference of these two factors results in
capital gains or losses from the disposal of capital asset (Barkoczy, 2018). Daniel
has purchased the painting well after September 20, 1985 which implies that it is not
classified under pre-CGT asset. The net capital gains/losses are calculated as given
below.
Sale proceeds (painting) = $125,000
Cost base (painting) = $15,000
Capital gains realised on painting disposal = $125,000 - $15,000 = $ 110,000
Further, only half of the capital gains would be used to find the CGT liability when the
capital gains is categorised as long-term asset of taxpayer in accordance with
Discount method stated in Division 15 ITAA 1997. This can easily be determined by
considering the holding period of the respective asset. If the asset’s holding period
exceeded 1 year then the derive capital gains would be classified as long-term. Also,
it is noteworthy that the capital losses (current or unadjusted from past year) must be
balanced with the derived capital gains before applying the discount method
(Wollner, 2014).
Daniel sold his private luxury yacht
If the taxpayer has not realised the underlying asset for business purposes and has
used it for personal use and enjoyment, then it would be considered as personal use
asset under ss. 108-20(1) ITAA1997. Capital losses derived through the sale of a
personal use asset of taxpayer do not attract CGT liability on the taxpayer. Also, it is
essential to note that capital gains would be subjected for CGT implication when the
personal use asset has been acquired for more than $10,000. Hence, it is a pre-
requisite to determine whether the asset would be a private use asset of taxpayer or
not (Reuters, 2017). Further, the process of determination of capital gains or capital
losses is described in ss. 104-10 ITAA 1997. It comprises that the difference of sale
proceeds and cost base of asset would give capital gains or losses. Daniel has
purchased a yacht after September 20, 1985 which implies that it is not pre-CGT
asset and also, never use it for business purposes with the intent of deriving
assessable income and thus, it is a personal use asset of Daniel. Also, the price
exceeds $10,000 which means the necessary condition is also fulfilled. The
computation of capital gains or losses is represented below.
Sale proceeds (yacht) = $60,000
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Cost base (yacht) = $110,000
Capital losses realized from Yacht disposal = $60000 - $110000 = -$50,000
Clearly, yacht has resulted capital losses to Daniel from the disposal of personal use
yacht and therefore, the losses of tune -$50,000 will be ignored. As a result of this,
no CGT liability will be validated on Daniel for this transaction of sale.
Daniel sold BHP Shares
Sale of shares also attracts CGT liability on generated capital gains or losses in
terms of A1 CGT event under ss. 104-5 ITAA 1997. Further, the process of
determination of capital gains or capital losses is described in ss. 104-10 ITAA 1997.
It comprises that the difference of sale proceeds and cost base of asset would give
capital gains or losses. Five key factors will be used to determine the cost base of
asset which are described in details in s. 110-25 ITAA 1997 (Deutsch et. al., 2016).
 Price paid to acquire asset
 Incidental cost paid such as legal fees, stamp duties and so forth (mainly during
selling or buying process)
 Capital expenses paid in the process of retaining the title of asset
 Capital expenses paid in the work of increasing the net worth of asset
 Cost paid so as to retain the ownership of asset such as various taxes and
interest payments
Daniel also sold BHP shares that he has purchased after the commencement of
CGT (September 20, 1985) and therefore, these shares would not be classified
under the pre-CGT asset of Daniel.
Sale proceeds (shares) = $80,000
Cost base (shares) = $75,000 + $250+$750+$5000 = $81,000
Where, $250 and $750 are incidental cost, $75000 basic purchasing cost of shares
and $5,000 as the cost paid to retain the ownership in the form of interest.
Capital losses realised on shares disposal = $80,000 - $81,000 = -$1000
Final computation of capital gains or losses from all the given transaction of
sales of Daniel
Summary table
Capital gains /losses House No (Exempted)
Capital gains Painting $110,000
Capital losses Yacht -$50,000 (Ignored)
Capital losses Shares -$1000
Capital gains/losses =$110000-$1000 =$109,000 (Capital
Gains)
Daniel also has unadjusted previous years capital losses from the sale of AZJ shares
(FY2018) of tune $10,000 which needs to be adjusted with the current year’s capital
gains.
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Capital gains/losses = $109000 - $10,000 = $99,000 (Capital Gains)
The capital gains are long-term because the holding period of the asset is more than
12 months which implies that 50% rebate would be used on capital gains (Coleman,
2016).
Taxable capital gains for Daniel in 2018-2019 = (50/100)*99,000 = $ 44,500
(b) If after the relevant computations, net capital gains are derived, then capital gains
tax would be levied on the same. The tax for the same would be same as the
marginal tax rate applicable for Daniel. In this regards, the capital gains
computed can be revised to a lower value through the use of two methods
namely the discount method and cost indexation. Both methods have their own
conditions to be fulfilled so as to applicable. The application of discount method
has been demonstrated for Daniel since all the asset are essentially long term
assets (Barkoczy, 2018).
(c) In case of capital losses, then the same must not be adjusted against any
revenue receipts that the taxpayer receives in the same year or future tax years.
These must necessarily be adjusted against the capital gains realised from the
sale of assets which may be done in the current year or in future years. However,
for certain asset classes, there are special norms. One of these is that any capital
losses related to personal use assets ought to be ignored. Additionally, for
collectible assets, the losses can be offset only against collectible based capital
gains (Nethercott, Richardson and Devos, 2016).
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References
ATO (2019) Fringe benefits tax – rates and thresholds, [online] Available at
https://www.ato.gov.au/Rates/FBT/[Assessed May 31, 2019]
Austlii (2019a) , INCOME TAX ASSESSMENT ACT 1997 - SECT 149.10, [online]
available at http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
s149.10.html[Accessed May 31, 2019]
Austlii (2019b) , INCOME TAX ASSESSMENT ACT 1997 - SECT 105.10, [online]
available at http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
s105.10.html [Accessed May 31, 2019]
Barkoczy, S. (2018), Foundation of Taxation Law 2018, 9thed.,NorthRyde: CCH
Publications
Coleman, C. (2016) Australian Tax Analysis. 4th ed. Sydney: Thomson Reuters
(Professional) Australia
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016), Australian
tax handbook 8th ed., Pymont: Thomson Reuters,
Nethercott, L., Richardson, G. and Devos, K. (2016), Australian Taxation Study
Manual 2016, 4th ed., Sydney: Oxford University Press,
Krever, R. (2017) Australian Taxation Law Cases 2017.2nd ed. Brisbane: THOMSON
LAWBOOK Company,
Reuters, T. (2017) Australian Tax Legislation (2017).4th ed. Sydney.THOMSON
REUTERS,
Woellner, R (2014), Australian taxation law 2014, 7th ed., North Ryde: CCH Australia
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