Question 2 FBT - great note helpul PDF

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Question 2 1. Car Fringe Benefit – Division 2 When an employer offers a car for private use, a car is provided under fringe benefit tax (FBT) section 7 of the FBTAA 1986. Under section 136(1) of FBTAA states private use implies any usage by an employee or associate not being solely derived in the context of assessable income by a car. However, travelling between home and work are normally not regarded as the process of assessable income and would comprise private usage. In this case Car fringe benefit is calculated under two types of methods statutory and cost basis that’s provided by the FBTAA. Statutory method under section 9 states that this method only applies to the car unless an employer elects to use the cost basis method. Which is found in section 10 of the FBTAA where the employer elects to use the cost method. However, if section 10 is being applied the employee must hold logbook records and odometer records in order to sustain when using the cost basis method as provided in subsection 10A and 10B. In this question Jack has held all his invoices, receipts and odometer readings to be satisfied under subsection10A and 10B of the FBTAA. The following calculations will be calculated through type 1 of fringe benefits: The Taxable Value of Car Fringe Benefits: Statutory Method (section 9 of the FBTAA 1986) Where the formula used to provide the following calculations for statutory method Taxable value = (0.2 x base value of car x No. days car FB provided in FBT year/ No days in FBT year) – recipients payments. s9(2) Base value = $65,000 Taxable Value = (0.2 x $65,000 x

182 365

(provided by Jack the number of days between 1 October

2020 to 30 March 2021) - $2,000 (Jacks fuel expenses) Taxable value = $4,482.2 (rounded to 1 decimal place) Type 1 Fringe Benefits under section 5B where the fringe benefits taxable amount (FBTA) is based on the formula (Type 1 x 2.0802) at the rate of fringe benefits tax rate of 47%. Therefore, s5B FBTA = $4,482.2 x 2.0802 = $9,323.9 (rounded to 1 decimal place) Fringe Benefits Tax Liability = $9,323.90 x 0.47 = $4,382.23 Section 10 of Cost Basis Method: (which includes deemed depreciation section 11) The formula for the cost basis as followed Taxable Value = [Cost x (100% - Business Percentage)] – Recipient’s contribution. Where: C = ($7,372 + $2,000 + $800 + $1,200) = $11,372 BP = (

9,700 12,700

R = $2,000

) x 100 = 76%

Taxable Value = [$11,372 x (100% - 76%)] - $2,000 = $729.28 FBTA = $729.3 x 2.0802 = $1,517 As a result, GPL should choose the cost basis method under section 10 as it has shown a reduction of $7,806.82 in tax value due to the above calculations for the car fringe benefits that was given by Jack. Where the fringe benefits tax amount for statutory amount being $9,323 minus the cost basis amount of $1,517 which amounts to a reduction of $7,806.82 tax liability. 2. Loan Fringe Benefit Division 4 Section 16 of the FBTAA where the employer provides the employee or associate with a loan. In this case GPL has provided a loan for Jack amounting to $10,000. But $6,000 was only used for the investment of the property. Section 19 of the FBTAA 86 other deductible states the rule where the reduction in taxable value can be partly applied for income producing purposes and partly for private purposes (NSW Government 2013). In this case GPL loaned Jack $10,000 however Jack has used $6,000 for the investment of the property and $4,000 for personal expenses. Section 18 of the FBTAA which the taxable value is calculated by the loan amount x [statutory interest rate (4.8%) – Actual interest rate] x no days provided during year/no days in FBT year. Where: Loan = $6,000 (used for investment property) Statutory interest = 4.8% Actual interest rate = 2% Number days = 121 & number days in the FBT year = 365 Taxable value = $6,000 x (4.8% - 2%) x

121 365

= 55.7 (rounded to 1 decimal place)

As a result, Jack has saved $55.7 by acquiring a loan from her employer rather than applying straight through the corporate banks. 3. Property Fringe Benefit (Battery) Division 11 Section 40 of FBTAA 1986 implies when an employer provides an employee with a property. Section 42 of FBTAA 1986 where the taxable value broadly depends on whether the property is manufactured and who is the property is ordinarily sold to such as retailers or public. Section 62 of FBTAA 1986 where in house fringe benefits add $1,000 more of a reduction in taxable value is available per employee. s62 Taxable value = [($2,000 retails x 75%) -$1,000(additional reduction)] = $500

FBTA = $500 x 2.0802 (since type 1) = $1,040.1 Fringe benefit liability = $1,040.1 x 0.47 = $488.85 4. Mobile Phone Minor Benefits s58P Section 58P states minor benefits as the notional taxable value of the benefit is less than $300. Where, notational taxable value is defined under section 136(1) as taxable value of FBT that determines each category of FB taken into any reduction for the associate’s contribution (POTL 2021). The Taxation Ruling 2007/12 defines minor benefit that meets the less than $300 threshold that is found in paragraph 58P(1) (CCH 2021). In this scenario Jack’s mobile phone valued at $75 does satisfy the minor benefits s58P as the taxable value is less than $300....