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TAXATION - Fringe Benefit Tax (FBT)

   

Added on  2019-10-30

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TAXATIONIssueThe key issue in the given case is to determine the Fringe Benefit Tax (FBT) liabilities thatwould arise on account of the information about the potential fringe benefits which have beenoffered and are applicable for the year ending June 30, 2017.Relevant RuleFringe benefits are referred to as those non-cash benefits which tend to private in nature andthe taxation of these benefits is governed by the relevant provisions of the Fringe Benefit TaxAssessment Act, 1986(Cth.) (also called as “FBTAA86”). Although a variety of benefitsextended to employees can be termed as fringe benefits, but one of the most common fringebenefits that is extended is known as car fringe benefits (Barkoczy, 2017).Car Fringe BenefitThe basic requirement for this fringe benefit is that the car should be owned by the employerand must be extended to employee for personal or private use. It is noteworthy that extensionof car for professional usage does not amount to car fringe benefits being extended. Thevarious steps involved in the computation of FBT liability on account of car fringe benefit arehighlighted below in accordance with TR 96/26 (Gilders et. al., 2016).Step 1: Determining the duration of private use of car or vehicle in the given year Hence, it becomes essential to determine the date on which the private usage of vehiclebegins. This would essentially happen in one of the following two situations (Section 7,FBTAA86) (Deutsch et. al., 2016).Actual usage of car by the employee for personal or private purposeThe car becomes available for personal use of the employee irrespective of whetherthe employee uses it or not.Also, in case of an employer owned car which is garaged at the residence of an employee, itis assumed that the concerned employee can use the car for private purpose irrespective ofwhether any explicit permission for the same has been given by the employer or no. Besides,in instances where the residence and office are essentially the same, there is an implicitassumption that the car is available for private or personal use (Section 7, FBTAA86).Additionally, as a general understanding, the commutation of the employee from home to

TAXATIONwork and vice-versa in the employer owned car is taken to be the private usage of the vehicleand attracts car fringe benefits (CCH, 2013).The car is assumed to be not available for private usage only when it goes to the garage orworkshop for some extensive repairs which may be expected after some accident or anincident causing significant damage to the vehicle. However, if the car is in workshop forsome maintenance issue or regular servicing, then the vehicle would be assumed to beavailable for private use by the employee (Sadiq et. al., 2016).Step 2: Computation of the taxable benefits associated with car fringe benefitIn order to compute the same, there is a choice with regards to the method deployed. Oneoption is the statutory formula method while the other option is the operating cost method. Inthe statutory formula method, the taxable value of the fringe benefit associated with the carusage is determined on the basis of the statutory rate which is multiplied by the base value ofthe car(Section 9, FBTAA86). On the other hand, the operating cost method pegs the taxablevalue in relation to car fringe benefit to the total operating cost which have been incurred inthe current year for which the FBT needs to be computed (Woellner, 2014). The percentageof operating cost chosen depends on the amount of private use by the employee and thuslower the private usage by the employee, the percentage chosen would also be lower (Section10, FBTAA86). With regards to the method used, choice is available and the taxpayer is freeto choose the method which leads to lower FBT liability. However, unless elected at the timeof extension of vehicle for private usage, the statutory formula method is the most commonand preferred approach for computation of taxable value (Barkoczy, 2017).The formula to be use under this approach is highlighted below (Section 9, FBTAA86).Taxable value (Car Fringe Benefit) = (Car base value * Statutory percentage applicable*Portion of year for which car is used for private purpose) – Contribution from employeeThe various terms outlined in the formula above are briefly explained below.The base value of the car would include cost price paid (excluding any stamp duty orregistration cost), non-business accessories cost, delivery charges of dealer along withany GST that may be applicable (Section 9, FBTAA86). Also, even thoughdepreciation is incurred but the same is not reflected in the base value of the car on an

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