Calculation of Net Income and Fringe Benefit Tax

The provided assignment involves two main parts: calculation of net income for the partnership of Daniel and Olivia Smith, and calculation of Fringe Benefit Tax (FBT) for the employer of John who provides him with a taxable value of AUS $ 15000 for children's private school fees and accommodation rent. The assignment requires applying relevant tax laws and regulations to determine the FBT payable by the employer on behalf of John.

Taxation Theory, Practice
and Law

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1 Calculation of net income of partnership firm.........................................................3
QUESTION 2 Fringe Benefits Tax Consequences of John's Remuneration Package By its
Employer..........................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The taxation law means the law focuses on an link and association between the country
and its citizen. The taxation law contains all the laws which are directed by the government
authorities of the country for ascertaining tax payable and order of payment of tax. Taxation law
covers rules, regulations, policies etc. which governs the taxation system of the country
involving the charge on estates, transaction, income, property, licenses and more by government.
The given project contains two questions which are concerned with the taxation of Australia.
First question contains the calculation of net income of Daniel and Olivia Smith for the year
ended 30th June, 2017 for operation of their business called Brekkie and Lunch and OZ Bottle
Shop at 50 York Street Sydney as a partnership firm. Second question involve the Fringe
Benefits Tax laws for the employer of John. John is a senior executive at printing company who
receives child's school fees for private school for his children, accommodation service along with
remuneration package received by John.
QUESTION 1 Calculation of net income of partnership firm
In the calculation of net income for the partnership firm of Daniel and Olivia Smith, for
businesses of Brekkie and Lunch and OZ Bottle Shop, profit and loss account with trading
account is prepared and the net income is ascertained for the year ending 31st June, 2017 and this
trading and profit and loss account is created as per the taxation laws applicable them so that tax
can be calculated as per the Australian income tax law. The Trading and P&L A/c for their
partnership firm are as follows:
Trading and P & L A/c for partnership firm for the year ended 30th June, 2017
Particulars Amount (AUS $) Particulars Amount (AUS $)
To Opening Stock 9120
By Sales A/c ( Working
Note 1) 182055
To Purchase ( Working Note 2) 160343
To Gross Profit (c/f) 22342 By Closing Stock 9750
Total 191805 Total 191805
To Car Expense A/c ( Working
Note 3) By Gross Profit (b/f) 22342
VAN car 1260 * 90% =
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1134
SUV car 2050 * 60% =
1230 2364
To Electricity Expenses A/c
( 1470 * 80%) (W / N 4) 1176
To Council Rates A/c ( 517 *
60%) (W / N 4) 310
To Business Insurance
Expenses A/c 1250
To Mobile Bill Expenses A/c
(704 * 90%) (W / N 4) 634
To Union Bill Expenses A/c 284
To Account Charges A/c
( ANZ Bank) 595
To Repair Expenses A/c 1490
Air condition installation 1200
Shop painting 150
Refrigerator motor replacement
140
To Interest on loan A/c ( W/N
7) 5500
Loan Repayment 8500
Less: Principal amount 3000
To Depreciation A/c ( W/N 5
and 6) 250
New Restaurant freezer
(3500 – 500) / 12 years
To Net Profit 8489
Total 22342 Total 22342
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The net income of the partnership firm of Olivia Smith and Daniel is AUS $ 8489 for all
of their businesses of OZ Bottle Shop and Brekkie and Lunch and while preparing return of
income tax for their partnership firm, AUS $ 8489 will be considered as taxable income as per
Australian tax laws.
The Daniel and Olivia Smith will prepare their working paper of businesses and consists
the following notes in it:
Working Note 1 : Calculation of Total Sales Amount of Olivia Smith and Daniel businesses
Particulars Amount AUS $
Amount Received from Debtor 32800
Closing Balance 3010
Less: Opening Balance 3925
Total Credit Sales 31885
Total Cash Sales 150170
Total Amount of Sales 182055
Working Note 2: Calculation of Total Purchase Amount of Olivia Smith and Daniel businesses
Particulars Amount AUS $
Payment to Creditors 128678
Closing Balance 7010
Less: Opening Balance 6500
Total Credit Purchase 129188
Total Cash Purchase 31155
Total Amount of Purchase 160343
Working Note 3: The Olivia Smith and Daniel businesses has two cars and for income tax
purpose only car maintenance expense which is used in business are considered. During the year
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ended June, 2017, maintaining expense which are used business purpose are 90% for van and
60% for SUV car, therefore only this portion is considered as allowable expense in income tax.
Working Note 4 : The mobile bill expense, electricity bill expenses and council rates expenses
are related to the personal and business purpose both. Therefore 10% of mobile bills, 20% of
electricity expense and 40% of council rates are disallowed as expense because they are used for
personal purpose as calculated in profit and loss account.
Working Note 5: In the given question, all the fixed assets of the business of Olivia Smith and
Daniel are purchased before 27 February, 1992, therefore the useful life of restaurant freezer
whose cost is $ 8000 and adjusted value is $1480, restaurant refrigeration (cost $ 14600 and
adjusted value $ 3580), shop fitting structure ( cost $ 7800 and adjusted value $ 2965), kitchen
electrical appliances ( cost $ 3900 and adjusted value $ 754), Van car ( cost $ 16500 and adjusted
value $ 1550) and SUV car ( cost $ 42200 and adjusted value $ 10350) are expired before the
current year ending 30th June, 2017 as per the provisions of depreciation of the Australian tax law
and rates which are published by the ATO of Australia government. So, no depreciation will be
charged on the on these assets because whole of its useful life is expired in the current year
ended 30 June, 2017 for partnership business of Daniel and Olivia Smith.
Working Note 6: As per the depreciation rule of ATO, useful life of freezer will be 12 years and
therefore depreciation will be charged in the year ended 30 June, 2017 by taking useful life as 12
year which start in current year 30 June, 2017 on AUS $ 3000 only because $500 is permitted on
the old unit in purchase of new one.
Working Note 7: AUS $ 3000 which is an principal amount of loan taken for business purpose.
As per income tax rules only interest will be allowed as deduction, therefore, $3000 will not be
allowed as deduction, whereas only its interest component will be allowed expenses for tax
purpose
Working Note 8: Drawing of $ 6000 for cash, $5600 for private purpose and $ 3200 for private
use of owner will never be allowed as deduction for Daniel and Olivia Smith businesses. So,
these expenses are disallowed.
QUESTION 2 Fringe Benefits Tax Consequences of John's Remuneration
Package By its Employer
John is received a remuneration package which involve child's school fees at private
school from his employer @ $ 15000 and also receives accommodation in a apartment of
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Sydney. John is working as an senior executive with a printing company. John received AUS $
700 per week as rent for his accommodation by his employer, in this John is also paying AUS $
100 per week as rent. The Fringe Benefit Tax is a tax which is payable by the employer for
benefits provided by his employer paid to the employees in place of salary or wages. RBT is
given to employees for encouraging the staff's quality. The organisation for securing the best
workers for the business, an organisation have to entice with non-income related benefits like
receiving fringe benefits like car, car parking, payment of private expenses etc. If the
organisation provides Fringe Benefit Tax to its employees, then tax tax on these benefits are paid
by the employer only and therefore, it is necessary that employer must be aware about the tax
obligations. Now the employer of John must take concern on following FBT:
For Children School Fees
The employer of John will pay the fringe benefit tax on behalf of John as per the
provisions of FBT law. AUS $ 15000 is received by the John from its employer for children
private school. The following calculation is to be made by the employer of John for the purpose
of FTB:
Particular Amount AUS $
Taxable Value 15000
Value ( Gross up) AUS $ 15000 * 1.9608 29412
FTB AUS $ 29412 * 49 % 14412
Less: 49 % Rebate ( AUS $ 14412 * 49 %) 7062
Fringe Tax Benefit Payable 7350
The annual reduction of $ 1000 had been abolished on 22 October, 2012. So, the John
employer will not receive the reduction of $ 1000 on fringe tax benefit and he will pay the tax on
behalf of his employee of $ 7350.
For Accommodation rent paid by employer of John
If an accommodation rent is given to the employee by the employer, then the provisions
of FBT are applicable for accommodation rent free, the accommodation is the employee's usual
place of residence or at a reduced rent. For FBT accommodation means a flat or house, hotel,
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motel, caravan home, accommodation on ship etc. John pays a rent of $100 per week. Value of
FBT will be calculated on $ 700 per week, $ 36400 annually.
CONCLUSION
From the above report it is concluded that for the calculation of the net income provisions
of income tax are to be followed. In this project net income of partnership of Daniel and Olivia
Smith are calculated and Fringe Benefit Tax is also calculated as for the employer of John who
give him FTB for children school fees at a private school and accommodation service.
REFERENCES
Books and Journals
Hill, F. R. and Mancino, D. M., 2014. Taxation of exempt organizations.
Faure, M. G. and Weishaar, S. E., 2012. 22 The role of environmental taxation: economics and
the law. Handbook of research on environmental taxation, p.399.
Aprill, E. P., 2012. Once and Future Gift Taxation of Transfers to Section 501 (c)(4)
Organizations: Current Law, Constitutional Issues, and Policy Considerations. NYUJ
Legis. & Pub. Pol'y. 15. p.289.
Fox, W. F., 2012. Retail sales and use taxation. In The Oxford handbook of state and local
government finance.
Alzahrani, M. and Lasfer, M., 2012. Investor protection, taxation, and dividends. Journal of
Corporate Finance. 18(4). pp.745-762.
Sendetska, O., 2014. ECJ Case Law on Corporate Exit Taxation: From National Grid Indus to
DMC: What Is the Current State of Law?. EC Tax Review. 23(4). pp.230-237.
Navez, E. J., 2012. Influence of EU Law on Inheritance Taxation: Is the Intensification of
Negative Integration Enough to Eliminate Obstacles Preventing EU Citizens from
Crossing Borders within the Single Market. EC Tax Rev. 21. p.84.
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