Calculating FBT Liability and Reportable Fringe Benefits in Tax Law

This tax law assignment analyzes the FBT liability of Logan Landscapes Pty Ltd for providing a dual-cab vehicle and reimbursing mobile phone expenses to its employee, Jackson. The solution calculates the taxable value of the car fringe benefit using both the statutory formula and the operating cost method, ultimately determining the lower value to be used. It also addresses the mobile phone expense payment, classifying it as an expense payment fringe benefit and calculating its taxable value. The assignment then calculates the total FBT payable, considering gross-up calculations. Finally, it determines whether Jackson has reportable fringe benefits, based on the total value of benefits received and the relevant thresholds, and determines the amount to be included on Jackson’s PAYG payment summary.

Tax Law
30 June 2019
Seminar Number 6 T1 2019
Question 1
Logan Landscapes Pty Ltd purchased a new Dual-cab vehicle for their employee Jackson to
use for both work and private purposes on 1 October 2018. The car cost $32,000 and they
paid an extra $4,600 to have a canopy installed at the time. The car was provided to Jackson
for his use (both work and private) from that date. Jackson was required to keep a logbook.
This showed that 9,000 km were travelled for a twelve week period during 1 October -
31 March 2019, and of these, 4,500 km were for business purposes.
Unfortunately in mid-January Jackson was involved in a traffic accident, which caused a
substantial amount of damage to the vehicle. The repairs cost $2,750 (which was covered by
insurance) and the car was off the road for 14 days while the repairs were being done.
Other expenses incurred by Logan Landscapes Pty Ltd relating to the vehicle were:
 Registration & insurance $1,450 (for 12 months), which was paid on 1 October 2018
 Fuel: $3,600
Jackson paid out $360 for petrol and oil to the local service station in respect of the vehicle,
and is able to substantiate these payments. Jackson also contributed to the car insurance by
paying $280 directly to Logan Landscapes.
Note that Logan Landscapes Pty Ltd is registered for GST and that where relevant the costs
mentioned above include GST.
Logan Landscapes Pty Ltd has elected to use the operating cost basis under section 10
FBTAA for the vehicle.
Logan Landscapes Pty Ltd also pays Telstra directly for Jacksons’ mobile phone expenses
from 1st October to 31 March which equates to $1,800 (inc GST) – as he uses his own mobile
phone for work purposes. Jackson estimates that 40% of his mobile phone use is for work
purposes.
Required:
(1) Work out whether Logan Landscapes Pty Ltd has a FBT liability in respect of
providing the vehicle and reimbursing Jackson for his mobile phone bill. If they
do, calculate how much that liability would be for the 2019 FBT year.
(2) Work out if Jackson would have a reportable fringe benefit in respect of the
vehicle provided to him and the mobile phone reimbursement from Logan
Landscapes.
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Tax Law
30 June 2019
Group One
ISSUE (1) – Is Logan Landscapes Pty Ltd liable for FBT on the vehicle provided to
Jackson?
STEP 1 – Is there a fringe benefit?
‘Fringe benefit’ is defined in s_____136 of ____ FBTAA. There are five elements to a fringe
benefit:
(i) There must be a benefit – (apply to the facts) ______Jackson is able to use car
for private purpose. Hence, benefit accrues to employee _____________________
(ii) Provided during the year – (apply to the facts) __1st October, 2018 to 31st March,
2019_________________________
(iii) By an employer, associate, or third party arranger or other relevant person –
(apply to the facts) Employer, Logan Landscape Pty
Limited___________________________
(iv) To an employee or an associate – (apply to the facts) ______Employee,
Jackson_____________________
(v) In respect of the employment of the employee –(apply to the facts) _______In
respect of employment as Jackson is employee of Logan Landscape Pty Limited
____________________
 Yes or No, a fringe benefit exists.
What kind of fringe benefit is it?
Subsection ______1 of Section 7____ FBTAA a car benefit arises on any day, if:
 In respect of employment
–(apply to the facts) _a car has been held by Jackson for both private and
business use. Further, the car has been provided by
employer__________________________
 A car
“Car” is defined in s ____136_____to mean
_______________________________a motor car, station wagon, panel van, utility
truck or similar vehicle or any other form of road vehicle designed to carry a load of
less than 1 tonne or fewer than 9 passengers.
(Commonwealth Numbered Acts, 2019)
 Is held by an employer or associate or third party provider AND
(apply to the facts) _has been made available for private use of employee, Jackson
during the concerned year.__________________________
 Is applied to or available for the private use of an employee or associate
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Tax Law
30 June 2019
“Private use” includes any use which is _____not used in the course of producing
assessable income _______________________________________________ of
the employee: s 136(1)
apply to the facts) _Car has been used for private purpose by Jackson and not for
exclusive use of business__________________________
___________________________
 Therefore the car provided to Jackson by Logan Landscapes Pty Ltd is a car fringe benefit
as per s7(1) FBTAA 1986 because: _the same is provided by an employer to employee and is
used for private purpose of the employee_____________________________
Group Two
STEP 2 – Calculate the taxable value of the fringe benefit
(i) Check whether the benefit is EXEMPT – –(apply to the facts)
_____________No, the benefit is not exempt as it involves private
use.______________
(ii) Check the SPECIFIC RULES for that type of benefit to see the formula to
work out the TAXABLE VALUE – there are __two____ methods for calculating
the taxable value of a car benefit: the ____statutory method______________in s
_9_____ and the _operating cost method___________in s _____10_. .
(iii) Check whether the recipient (usually the employee) has made any PAYMENT
or CONTRIBUTION towards the benefit – –(apply to the facts)
___________________________
(iv) Check whether the ‘OTHERWISE DEDUCTIBLE’ rule applies – –(apply to the
facts) ____________No_______________.
Calculating the taxable value of the car fringe benefit:
The statutory formula in s 9 automatically applies to calculate the taxable value of the car
fringe benefit, unless the employer elects under s 10(1) to use the operating cost basis in s 10.
To be valid, the election must be properly notified to the Commissioner as per s 10(4). Note an
election to use the operating cost basis is disregarded if the statutory formula gives a lower
value: s 10(5).
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Tax Law
30 June 2019
As Logan Landscapes Pty Ltd made an election to use the operating cost basis method, we
will need to calculate the taxable value under both methods to see which method gives
the lower value.
** Note all figures are rounded up or down for the sake of simplicity **
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Tax Law
30 June 2019
Group Three
Statutory formula method
What is the statutory formula?
0.2* Base Value of Car* (No of days during that year of tax on which the car fringe
benefit were provide by employer/ No of days in the year of tax)- amount if any of
the recipient payment
Base value includes the cost price of the car
‘Cost price’ is defined in s ____136__ and includes __cost of purchase of car as
increased by any additional fitting incurred if any ______________________.
For cars purchased on or after 1 July 2000, the cost price is calculated on a GST
excludes or inclusive basis: TR 2001/2
So the base value will be $32000+ $4600=
$36,600__________________________________
Statutory Fraction
___________20%_______________________.
(Australian Taxation Office, 2019)
The number of days the car was provided (available for private use) would be:
_____________183-14=
169________________________________________________________________
_________________________________________________________
The number of days in the 2019 FBT year is __183_____________days
Recipient’s payment was ________________________________________$ 260+
$280= $ 640___________.
Hence the taxable value under s 9(1) is:
What is taxable value as calculate via the statutory formula?
0.2* (36600*183/366)-640= $3020
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Tax Law
30 June 2019
Group Four
Operating cost method (COST BASIS): s 10___
What is the operating cost formula?
C* (100%- BP)-R
C – Operating cost: s 10(3)
Fuel $____3600__
Registration & insurance $____725__
Deemed interest s11(2) $_36600*5.2%*1/2+
$951.6_____
Deemed depreciation s11(1) $__=36600*25%=
$9150____
Total:
$__14,426.6____
Note: repairs are not included as they were covered by insurance.
BP – is the percentage of _________4500___ kms out of the total kms, which the car
travelled during the holding period.
NB: Logbooks must be maintained for a continuous period of ____12__weeks in the 1st
year the operating cost method is used and are required to be retained for ___5___ years.
The business percentage is calculated as follows:
4500/9000=50%
R – Recipient’s payment was $___640___________________
Hence the taxable value under s 10(2) is:
(14426.6*50%)-640=$6573.3
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Tax Law
30 June 2019
Logan Landscapes Pty Ltd election to use the operating cost method would be
____disregarded______ as the statutory formula gives a lower taxable value:
s_10(5)________:.
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Tax Law
30 June 2019
Group Five
Mobile Phone expense payment
In relation to the mobile phone payment this would be assessable to Jackson as
assessable income.
The mobile phone payment is likely to be an _Expense Payment________Fringe Benefit
section _____20___
The total amount of the expense payment fringe benefit would include GST amount.
The total amount could be reduced by the otherwise deductible amount: section
__24______
The calculation of the taxable value would be $___1800_____ less _720_______ =
$_____1080___
This would be a Type 1 benefit for gross-up purposes.
STEP 3 – Calculate the FBT payable
(1) Gross up the taxable value
The provision of the car and mobile phone payment will be a Type 1 benefit as Logan
Landscapes Pty Ltd would have been entitled to claim the ________GST________ on the
acquisition of the car and payment of the mobile phone account.
$_________3740*2.0802=$7779.948_______________________________
(2) Multiply the grossed up taxable value by the FBT rate
$____________$7779.948* 47%____________________________
Logan Landscapes Pty Ltd has provided a car fringe and expense reimbursement benefit
to Jackson in the 2019 FBT year, and will be liable to pay $______3656.6_____ in FBT.
Logan Landscapes Pty Ltd will or will not be entitled to an income tax deduction under s
___ ITAA97 for the FBT paid.
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Tax Law
30 June 2019
Group Six
(Assume that in respect of the fringe benefits provide to Jackson):
Benefit type Taxable Value Grossed-Up value
Car $2729 $5,677
Phone $1080 $2,247
ISSUE (2) - Will Jackson have a reportable fringe benefit?
To determine whether an individual employee has reportable fringe benefits, the employer
must:-
Step 1: add-up the ____before gross up__ value (i.e. the amount before or after gross-
up) of all the benefits received by the employee (except for some certain benefits)
 _____________________________cark parking fringe benefits, remote area
housing assistance, meal entertainment etc._____________
Step 2: If:
Step 1 > $2,000 then employee has reportable fringe benefits – go to step 3
Step 1 < $2,000 then employee does NOT have reportable fringe benefits –
nothing has to appear on the employee’s PAYG payment summary.
 ____________________________
Step 3: Get total amount in Step 1 and multiply by __$3809_____
 $__3809_____x ____2.0802___= $_7924______
Step 4: Include Step 3 amount on employee’s PAYG payment summary.
 Jackson has a reportable fringe benefit amount of $_____7924__
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Tax Law
30 June 2019
References:
Australian Taxation Office. (2019, April 23). Fringe benefits tax - a guide for employers.
Retrieved from www.ato.gov.au: https://www.ato.gov.au/law/view/document?
DocID=SAV%2FFBTGEMP%2F00008
Commonwealth Numbered Acts. (2019, April 23). Retrieved from classic.austlii.edu.au:
http://classic.austlii.edu.au/au/legis/cth/num_act/fbtaa1986312/s136.html
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