HI6028 Taxation Theory, Practice & Law Assignment: Tax Liability & FBT

This document presents a comprehensive solution to a taxation assignment, addressing key concepts in Australian income tax law. It begins with a detailed calculation of an individual's total assessable income, taxable income, and tax liability, including the application of Medicare levy, Medicare levy surcharge, and student loan (HECS). The solution demonstrates the application of different tax rates based on income slabs provided by ATO. Furthermore, the assignment delves into the concept of Fringe Benefit Tax (FBT), defining it and providing examples such as discounted loans, work car usage, and reimbursement of employee expenses. The solution explains the features of FBT and its calculation, including the statutory formula for car fringe benefits, and provides a step-by-step calculation of the gross and total taxable value of a car fringe benefit, along with relevant references to support the analysis. The assignment covers the topics of taxation, FBT, and tax liability calculation for students.

TAXATION THEORY,
PRACTICE & LAW

Question: 1
Calculation of Total Assessable Income, Taxable Income, Tax Liability, Student loan
(HECS), Medicare Levy, and Medicare Levy Surcharge
Particulars Amount
Taxable salary 90000
Super Annuation Guarantee Charge 0
Passive income from investment 10000
Total assessable income 100000
Less: Deductions 0
Taxable income 100000
Income Tax Payable 22967
Medicare levy @ 2% 2000
Medicare levy surcharge @ 1.5% 1500
Working Note: 1
Calculation of income tax payable
Up to 18200 = NIL
18201 – 45000 = 5092 (45000 – 18200 = 26800 * 19%)
45000 – 10000 = 17875 (100000 – 45000 = 55000 * 32.5%)
Total income tax payable = 22967.
In the above illustration, it has been seen that the total assessable income comes out to be 100000
which comprises of both salary received by the individual resident of Australia (Susanne) and
income earned from investment made in the share for the same year of which assessments are
being done (Murphy, 2019). The total assessable income and taxable income both are equal in
the above case of Susanne as there is no deduction available to her that can make difference
between assessable and taxable income because student loan taken for her previous studies are
not an allowable deductions under the regime of Australian Taxation Office. Income tax payable
has been calculated by applying different rates applicable on an individual residents of Australia
accordingly to the slabs provided by ATO (Wu, 2020). In the given tax there are two different
has been applied to arrive at a value of tax liability that is, 19% and 32.5% for income up to
45000 and 100000 respectively. In order to generate funds for Australian health system, there is
an additional tax levy known as Medicare levy @ 2% applied on each tax return filed during the
year on the taxable income of the taxpayer and Medicare levy surcharge @1.5% has been
applied on taxable income of those taxpayers who are not covered by any of the private health
insurance.

Question: 2
Part: A
The fringe benefit can be defined as those benefits given by companies to their employees at any
level generally preferable is executive level for carrying out either work related or personal needs
both. It may be provided due to ensuring higher job satisfaction (Murphy, 2019). The value of
such benefits are thus derived for the tax purpose and the employer pays tax on the amount or
value of benefits provided to the employee. It is always provided as an additional benefit which
is not a part of regular salaries and wages. Fringe benefit tax has been calculated on the taxable
value of the fringe benefit so provided to the employee. This is not a part of income tax and thus
is separated from it. Some examples of such fringe benefits are:
 Providing an employee with a discounted loan.
 Allowing to use work car for private purposes.
 Providing free of charge tickets of concerts to employees.
 Reimbursing employee’s expenses such as school fees of their children, etc.
It the duty of the employer to make self – assessment of their Fringe benefit liability for a fringe
benefit year beginning from 1st of April and ending on 31st of March and accordingly file return
for the same (Jacobson, 2020).
Employer can claim income tax deduction for the amount paid for providing such fringe benefits
to their employees along with the fringe benefit tax they have paid on these fringe benefits. Also,
GST credits can be claimed by employer paid on the items that has been provided as fringe
benefits.
Salient features of fringe benefits tax
Some of the main features of the fringe benefits tax as per Australian Taxation Office are as
follows:
 It is the tax charged on the taxable value of the fringe benefits as derived either by
statutory or operating cost method.
 The tax on such fringe benefits or FBT has been paid by the employer who has provided
some kind of fringe benefits to their employee during the period beginning from 1st April
to 31st March every year (McLaren, 2019).
 Fringe benefit tax is applicable even in the case when a third party under an agreement to
carry out their responsibility or duties on behalf of the employer.
 Fringe benefits tax are separately calculated from income tax but the deductions for the
same can be claimed from the income tax payable by the employer.
 Calculation and reporting of the taxable value of a fringe benefits largely depends upon
the type of benefit offered by the employer to their employees.

Part: B
As per the Australian Taxation Office, from May 2011, the statutory formula for deriving the
taxable value of a car fringe benefits has been modified, where no consideration would be given
to the kilometers drive by the car during the period of provision of fringe benefits (Murphy,
2019). Instead, there is a new formula known as statutory formula has been introduced for
calculating the taxable value of car fringe benefits that, is statutory rate multiplied by the base
value of the car.
In above given illustration, this formula can be applied as follows to determine the taxable value
of a car fringe benefit provided by Carron to their employee Rabbie:
Statutory rate fixed by Australian Taxation Office for car fringe benefits = 20%
Base value of the car = $45000
Period for which this benefit is made available to Rabbie = 196 days out of 365 days in a year
Gross Taxable value of a car fringe benefits = 20% * $45000 * 196 / 365 = $4832.87
Out of the value so derived above of Gross taxable value for car fringe benefit, it will be reduced
by the amount contributed by the employee that is, Robbie towards operating and running a car
in order to arrive at a Total Taxable value of a car fringe benefit, which is as follows:
Total taxable value of a car fringe benefit = Gross taxable value of a car fringe benefit –
Contribution made by Employee (Robbie)
= 4832.87 – 1500 = 3332.87.

REFERENCES
Murphy, K., 2019. Procedural justice and the Australian Taxation Office: A study of scheme
investors. Centre for Tax System Integrity (CTSI), Research School of Social Sciences,
The Australian National University.
Murphy, K., 2019. Moving towards a more effective model of regulatory enforcement in the
Australian Taxation Office. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.
Wu, H., 2020. Towards a new research field: tax analytics using Australian Taxation Office
data (Doctoral dissertation, University of Sydney).
McLaren, J., 2019. Laws to protect tax whistleblowing in Australia: what does this mean for
taxpayers and the taxation profession. Australian Tax Review, 48, pp.24-41.
Jacobson, R., 2020. Tax reform: With 2020 vision. Taxation in Australia, 55(2), pp.79-85.