TAXATION 10: Fringe Benefit Tax and Income Tax Calculations

This assignment addresses key aspects of Australian taxation, focusing on fringe benefits tax (FBT) and income tax assessment. The first part of the assignment analyzes a case study involving an employee provided with a car, calculating the taxable value of fringe benefits (TVFB) using both the statutory formula method (SFM) and the operating cost method (OCM). Calculations for deemed depreciation and interest are also included. The assignment then assesses additional fringe benefits, such as car hire and accommodation costs. The second part of the assignment examines income tax implications for individuals engaged in business and non-business activities, including the tax treatment of gifts and the introduction of a barter system. It explores indicators for distinguishing between business and non-business activities, referencing relevant legislation such as the Income Tax Assessment Act 1997 (ITAA) and the Goods and Services Tax (GST) provisions. The assignment concludes by analyzing the tax implications of the barter system. The assignment is contributed by a student to Desklib, a platform which provides all the necessary AI based study tools for students.

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

1TAXATION
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................7
Section A......................................................................................................................................7
Section B......................................................................................................................................8
Section C......................................................................................................................................8
Section D......................................................................................................................................9
References:....................................................................................................................................10

2TAXATION
Answer 1
The Fringe Benefit tax Assessment Act 1986 (FBTA) defines a fringe benefits as those benefits
which are paid by the employer to the employee in addition to the compensation provided to
them in form of salary and wages. In order to identify a fringe benefit an employment
relationship between those who are paying the benefit and those who are receiving the benefit
has to be established. The provisions provided by the FBTA in relation to tax liability would be
applicable in situation where an employment relationship is identified between the parties (Gale
and Samwick 2014).
The FBTA through Section 7 sets out rules in with respect to fringe benefits provided in form of
a car. The provisions of the aforementioned section states that in situation where a car whose
owner or leaser is the employer is given to an employee in form of fringe benefits and the
employee puts such car to personal use there would be a liability on the employee of paying
fringe benefit tax. In addition where it is provided that the car can be used by the employee for
personal work or any other person associated with them, although the employee does not use the
car for such purpose there would be a liability on the employee of paying fringe benefit tax
(Braverman, Marsden and Sadiq 2015).
There are two forms of methods which can be put in place to calculate the Taxable Value of
Fringe Benefits (TVFB) towards a car. These methods are namely the operating cost method and
the statutory formula method. The rules with respect to the statutory formula method towards
calculating the TVFB of the car are provided through section 9 of the FBTA. According to the
provisions in order to calculate the TVFB of the car the cost has to be taken into consideration.

3TAXATION
On the other hand the FBTA through its subsection 10A and 10B provide provisions which can
be applied to determine the TVFB of the car under the operating cost method (Barkoczy 2017).
The section states that the car’s operating cost have to be taken into consideration in order to
calculate the TVFB of the car under this method. As stated by Akins et al. (2014). the methods
which provided a lower value has to be put in place in order to determine the fringe benefit tax.
The situation
It has been provided through the case study that the employer (Shniny Homnes Pty Ltd) has
provided the employee (Charlie) a four wheel drive sedan which is to be considered as “the car”
for this paper. Through the facts provided in the case study it can be evidently said that the
employer had provided the employee with the car and made it available for private use as well as
using it for work. Thus as there is an employment relationship and the car has been provided for
private use it is liable to be taxed under fringe benefits.
The aforementioned methods of calculating the TVFB of the care can therefore be applied in the
situation. When it comes to the SFM there is a statutory rate of 20% which has to be applied to
determine the TVFB of the car. This value is used subsequent to the budget of 2011 towards all
cars within the country. Therefore the statutory rate of 20% is multiplied with the base value of
the car in order to determine the TVFB under SFM. SFM does not take into consideration the
difference between private and personal use of the car towards the calculation of TVFB. On the
other hand when it comes to the OCM there is a proportionate segregation done between private
and work use of the car under two different categories towards determining TVFB.
Statutory method
Statutory method

4TAXATION
Taxable value of fringe benefits
Particular
Amoun
t ($)
Amoun
t ($)
Base value of the car (A) 70000
Statutory rate (B) 20%
Car Available for Private use (Days) (C) 196
Number of days in the FBT year (D) 365
Taxable Value of the Car Fringe benefit (A*B*C)/D
(Base value of the car*Statutory rate*Car Available for Private
use)/Number of days in the FBT year 7517.81
Operating cost Method
Operating cost method:
Taxable value of fringe benefits
Particular
Amou
nt ($)
Amou
nt ($)
Petrol and oil cost 14000
Deemed Depreciation 17500
Deemed Interest 3955
Repairs and maintenance 24500
Registration 140

5TAXATION
Insurance 560
Total operating cost (A)
(Petrol and oil cost + Repairs and maintenance + Registration+
Insurance +Deemed Depreciation+ Deemed Interest ) 39200
Proportion of use for private purpose:
Total kilometer run 80000
Work related 50000
Private purpose related (work related/Total Kilometer)X100 30000
Percentage of private use (B) ((private use/total kilometer)*100) 37.5%
Taxable value of fringe benefits (AXB)
(Total operating cost*Percentage of private use) 14700
The deemed depreciation is determined by using the formula as given under section 11(1)
of the FBTA using the statutory rate of 25%.
Calculation of Deemed Depreciation
Particulars Amount
Base value of car $70,000.00
Depreciation rate 25%
Deemed Depreciation
(Base value of car* Depreciation rate*365)/365)) $17,500.00

6TAXATION
The statutory interest rate for the year 2016/17 is 5.65%. The deemed interest is
determined through the use of formula as given under section 11(2).
Calculation of Deemed Interest
Particulars Amount
Base value of car $70,000.00
Statutory Interest rate 5.65%
Deemed Interest
((Base value of car*5.65%*365)/365) $3,955.00
The above conducted calculation depicts that a lower value is relation to the TVFB is provided
through the use of SFM and therefore the methods should be applied to find out the TVFB
towards the Car. In addition it has been provided through the case study that the employer hired
the car for a wedding purpose and therefore the charge will form a part of TVFB. The case study
also states that the employer has paid the accommodation cost of the employee towards the
honeymoon, thus, in thus in the same way the cost would be added to TVFB. According to
section 39 of the FBTA car parking fringe benefits can only come to the context if the car is
parked in a location which the employer has leased or owns. The case study does not provide for
any such situation.
Calculation of FBT
Particular Amount Amount
Taxable value of fringe benefits of car $7,517.81
Taxable value of fringe benefits for car hired exclusively for the $1,000.00

7TAXATION
honeymoon purpose of Charlie
Taxable value of accommodation of hotel $3,000.00
Taxable value of total fringe benefits (7517.81+1000+3000) $11,517.81
FBT rate 49%
Fringe Benefit Taxable Amount (11517.81/ (1-49%)) $22,583.94
Fringe Benefit Tax (22583.94X49%) $11,066.13
Answer 2
Section A
It has been provided through the case study that Allan and Betty wish to change the tree and in
relation to this they have purchased a big house which is located in central Victoria and they
have sold their existing home located in Melbourne. Thus in the given situation it can be stated
that the transactions would not be liable for being assessed under any tax provisions. On the
other hand the income which is earned by Allan as a locum doctor and Betty as part time
accountant is liable to be assessed for income tax with respect to the rulings of the Income Tax
Assessment Act 1997 (TAA). In addition it has been stated trough the case study that as Allen is
highly popular within his elderly client base he is getting cakes and food in form of gifts along
with the regular fee. It has to be considered that the products have a $36 as precise certain market
value and they will come under non commercial products and thus they are not liable for any
additional tax implication for Allan. It is also to be considered that the wine which Allan has
received will have tax implications as it would be added to his income which would be used to
identify his tax liability under TAA.

8TAXATION
Section B
In order to find out that whether an activity is for a business purpose or a non business purpose
certain indictors as provided under The Taxation Ruling TR 97/11 can be used (Nijland and Dijst
2015). Using the indicators under the ruling helps to identify the difference between business and
non-business activity in a clear way. These indicators are as follows
Firstly, increased significance is provided to the purpose why the activity s carried out in order to
determine its type. In case the purpose of the activity is commercial it is deemed as a business.
Secondly, where the primary object of the activity is profit making it is evidently a business
activity
Thirdly, the activity would also be deemed as a business activity in case there is an employment
relationship within it.
Fourthly, the degree of investment which the activity incorporates also determines its type
Finally, in order to be a business activity the activity has to have a premise mandatorily
It has been stated by the court in the case of Cooper Books Pty Ltd vs. Commissioner of
Taxation of Commonwealth of Australia that the above mentioned criteria have to be
mandatorily deployed in order to identify the nature of an activity as business or non business.
Section C
It has been stated by Kim et al. (2015) that where a non-business activity is transformed into a
business activity it is going to have tax implications. The gardening activity conducted by Allen
and Betty in the given situation has transformed in a business activity. This is evident as they are

9TAXATION
able make $500-600 profit every month. The barter system which has been introduced by them
is also liable to be assessed as per the provisions of ITAA.
Section D
In the country in the same way as any cash or credit transaction, the Barter system also falls
under the ITAA and GST provisions. A transaction which is business in nature and carried out
in form of a barter system is going to have the same tax implications like any other credit of cash
dealing under TAA and GST provisions. Thus as provided by the case study where a barter
system has been set by Allan and Betty it would be liable under tax implications of ITAA and
GST in the same way as any other cash or credit transaction.