Fringe Benefit Tax for Employers
Fringe benefit tax are regarded as the important term of business that are useful in payable by the employers relating to the benefit paid to the employee apart from salary and wages. Charlie is a real estate agent and Shiny homes has provided Charlie with a sedan. The car ran a total of 80,000 kilometres with 30,000 for business purpose. According to the “sub-section 136 (1)” use of car by employee that is not related to the employment or business constitutes personal use (Somers and Eynaud 2015). Charlie has occurred cost that is in running the car and these cost is required to be separately incorporated in log book for keeping track of the business kilometres travelled.
The operating cost method is determined under “section 10A and Section 10B of FBTAA 1986”. A statutory rate of 20% is applied in determining the fringe benefit tax under statutory method (Shaw 2017). Similarly, the operating cost process separates the administrative cost in determining the fringe benefit tax. For Charlie both the method of statutory rate and operating costing method is applied in determining the fringe benefit cost. These are as follows;
A computation relating to the deemed interest and deemed depreciation for has been depicted in compliance with “section 11 (2)” of the act.
As evident from the above stated computation the fringe benefit tax under the statutory method is lower than the fringe benefit derived in the operating cost method.
Shiny homes have shouldered an expense of his employee Charlie honeymoon cost, cost of accommodation and cost relating to the car hire charges for the wedding of his employee (Fisher 2015). In compliance with the taxable value of the car fringe benefit that is computed above the cost incurred by Shiny for Charlie’s wedding and accommodation will be included in his overall tax liability. The case study of Charlie evidently provides that he has incurred expenses for car parking. Section 39A of the ITAA 1986 requires some criteria to be fulfilled before claiming car parking fringe benefit tax;
- The car should be owned by the employer
- The car must be parked in the employers premises
- Car is used for employment purpose
From the above listed criteria car was parked in separate premises by Charlie therefore it would not be considered assessable in respect of section 39A.
Alan is a practicing locum doctor and he receives from his clients cakes and scones as the mark of appreciation for treating his clients. Alan also charges fees from his clients. One day one of his client gifted Alan with a wine bottle that had the market value of $360 because he cured his client dog from a snake bite. Section 6-5 of the ITAA argues that any form of income that is related to the employment will be considered for assessment (Accounting, 2017). The cakes and scone received by Alan was not regarded assessable since it lacked commercial market value. Similarly, the receipt of fees and wine bottle would form the part of Alan assessable income because they held market value and commercially related to his employment income under “section 6-5 of the ITAA 1997”.
Assessability of Income under ITAA 1997
The taxation ruling of TR 97/11 takes account of business of primary production under ITAA 1997. The ruling provides the guiding framework that are relevant in understanding whether the person is carrying on a business or hobby (Jones 2017). The difference between hobby and business are as follows;
- A business has the significant commercial character while a hobby has no commercial purpose.
- A taxpayer under business has more than just the intention of engaging in business while a hobby has no business intentions it is generally for recreational purpose.
- In business taxpayer has the purpose of profit making while hobby lacks the profit making purpose.
An explanatory example of “Thomas v FC of T – 72 ATC 4094” considers that the business activities generally carries the intention of commercial purpose and are carried in the manner of ordinary trade.
The “taxation ruling of TR 97/11” applies on the taxpayer that executes the primary production activities under 1997 of the act (Tang and Wan 2015). Situations provides that Betty has been creating marmalade and was very famous among her neighbourhood. A decision was made by her to sell the marmalade in the market and a stall was set up on every Sunday for selling them to the customers. The extra amount of marmalade was sold by her husband Alan to the supplier and had the intention of making profit. According to the example of “FC of T v Evans (1989)” both Alan and Betty were indulged in repetitive business activities and the amount derived is taxable component (Jones 2017).
Any form of transaction taking place from the barter system would be considered taxable under “subsection 25 (1) of the ITAA 1997” (Dunne et al. 2015). The transactions of barter system are similar to cash and credit having GST consequences. The commencement of barter system by Alan and Betty and income generated from such transaction would require tax payment under “subsection 25 (1)” with GST as well. Considering the example of “FC of T v Cooke and Sherden 80” the barter transaction of Alan and Betty would require tax and GST to be paid.
Reference List:
ACCOUNTING, M., 2017. TAXMATTERS. Small.
Dunne, J., Aldred, J., Gorton, T. and Taylor, H., 2015. 2014 cases show a continuing trend of high ATO success rate. Taxation in Australia, 50(1), p.20.
Fisher, D., 2015. Mid market focus: No joy regarding FBT on travel expenses for FIFO arrangements. Taxation in Australia, 49(7), p.377.
Jones, D., 2017. Mid market focus: Income or capital?: Taxpayer draws a blank. Taxation in Australia, 51(7), p.357.
Jones, D., 2017. Tax and accounting income-Worlds apart?. Taxation in Australia, 52(1), p.14.
Shaw, A., 2017. Tax files: Why small really is better: Accessing the lower corporate tax rate for small business entities. Bulletin (Law Society of South Australia), 39(10), p.39.
Somers, R. and Eynaud, A., 2015. A matter of trusts: The ATO’s proposed treatment of unpaid present entitlements: Part 1. Taxation in Australia, 50(2), p.90.
Tang, R. and Wan, J., 2015. Fringe benefits tax and fly-in fly-out arrangements: John Holland Group Pty Ltd v Commissioner of Taxation. Australian Resources and Energy Law Journal, 34(1), p.17.
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