Computation of FBT Consequences and CGT Implications

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

1TAXATION
Answer 1
The concern arising from the given situation is the computation of FBT consequences
following the providing of a car to Lucinda by the Spiceco Pty Ltd under the statutory
method as well as the operating cost method in a FBT year.
The Fringe Benefit Tax Assessment Act 1986 has been enacted for the purpose of
regulating fringe benefit tax in Australia. Section 136 of the Act contains the definition of
fringe benefits. It implies a benefit that is advanced towards an employee by his employer or
to any person related to the employee including any third party as has been agreed between
the employer and employee in the furtherance of the relation of employment. Such an amount
will be taxable in the hands of the employer. This benefit may include any interest or right or
a personal property. The gross up rate for FBT is 2.0802 and the rate of FBT is 47% for FBT
year 2018-19 (Barkoczy 2016).
A car fringe benefit is said to have accrued when a car has been extended towards an
employee by an employer for being used to serve personal purpose of the employee as
defined under section 7 of the Act. The employer will be imposed with the taxation that will
be charged upon such a fringe benefit. There are two methods for the computation of fringe
benefits pertaining to the car. The statutory method of calculating fringe benefit has been
provided under section 9 (1) of the Act. The operating cost method of calculating the fringe
benefit of a car husband provided under section 10(2) of the Act (Barkoczy 2016).
Statutory method:
[0.2 * BV * (n/ tn)] - A
BV = Base value
n = no. of operating days

2TAXATION
tn = no. of days in the year of income
C = contribution of the employee
Operating cost method:
[C * ( 100% - BP)] – R
C = operating cost during the period of holding, which includes maintenance, insurance,
registration and fuel.
BP = business percentage
C = contribution of the recipient.
Depreciation rate = 25%
Interest rate = 5.20%
In the present case base value of the car is 18000. Lucinda has contributed $1000. The
reduced value of will be 18000 – 1000 = $17000.

3TAXATION
STATUTORY METHOD
STATUTORY METHOD
PARTICUALRS AMOUNT$ AMOUNT $
Car BV 18000
(-) Contribution of Lucinda 1000
Reduced BV 17000
Rate 20%
No. of days used privately 365
No. of days in an FBT year 365
Taxable value [0.2 * BV * (n/ tn)] - A 3400
OPERATING COST METHOD
OPERATING COST METHOD
PARTICUALRS AMOUNT $ AMOUNT $
Repairs 3300
Insurance 2200
Fuel 990
Deemed Depreciation (WN 1) 4250