Solution
David answered on
Dec 29 2021
HA3042 Taxation law
2012
HOLMES INSTITUTE
Name of the Institute
[HA3042 TAXATION LAW]
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TAX MEMORANDUM
To
Chatswood Pty Ltd
Subject: Fringe Benefit Tax Liability year ending 31
st
March 2012
This in response to the fringe benefits taxation advise seek from you and I would inform you
the basics of the fringe benefits taxation prevailing in Australia along with the liability, if
any, imposed on the firm due to the fringe benefits provided from your end to the employees
Facts:
The fringe benefits provided from your end to Mr. Paul who is working as a Sales Manager in
your company are provided in the way of company car, entertainment allowance and a cheap
loan at a concessional rate for the year ended 2012. The dollar values of the fringe benefits
provided to Mr. Paul was car at a cost of $22,500 which was provided for zero cost to him, an
entertainment allowance of $2000 per year, and a concessional loan of $8,000 at a rate of 3%.
All these are covered under the Fringe Benefit tax and would be computed accordingly.
Analysis:
Under the Australian Law, Fringe Benefit Tax refers to a commonwealth tax that is mainly
levied on the non-salary type benefits provided by the employers to employees
(http:
www.ofs.mq.edu.au/financial_accounting/fringe_benefits_tax/overview.htm). There are
various types of fringe benefits that are covered under the ambit of FBT Australia rules and
such type of fringe benefits include the non salary benefits such as children’s education, free
holiday travel, company cars which are meant for private use, private health insurance,
discounted goods or services provided, entertainment expenses, providing low interest rate
loans, and etc (http:
australia.angloinfo.com/money/income-tax/fringe-benefit-tax/). The Fringe
http:
www.ofs.mq.edu.au/financial_accounting/fringe_benefits_tax/overview.htm
http:
australia.angloinfo.com/money/income-tax/fringe-benefit-tax
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Benefits Tax was introduced in the year 1986 and for the computation of any tax liability, it is
not necessary for the employer to provide the benefit under the FBT directly as it can be paid
indirectly via the associate of the employer or under any given circumstances by which the
eceiver of such benefits is related with the company under the a
angements made by the
employer.
Looking at the above sections of the Fringe Benefits, we can see that Chatswood had
provided three types of Fringe Benefits to Mr. Paul and upon which it would be calculated on
the basis of FBT treatment that is executed separately in each and every case.
In the case of the car provided to Mr. Paul, we can see that the car was owned by the
Company and had been provided under the private usage terms of the Mr. Paul. The Car was
given to Mr. Paul which costs to the company $22,500 and as stated in the facts, there was no
payment being made for the car from Mr. Paul to the Company. Now, under the Australian
Taxation system, the computation of FBT for the car is computed under the two systems i.e.
Statutory Formula Method and Operating Cost Method. The appropriate method in the case
of Chatswood Pty Limited was that of Statutory Formula Method because the Annualised
Kilometres that were driven for the private use was mentioned in the facts of the case. The
Statutory Formula Method is primarily used to compute the Fringe Benefits that is stated as
the percentage of the car’s value. Given the higher percentage of car is used i.e. distance
travelled, the lower would be the fringe benefits. Given that the total number of kilometres
travelled were 20,000 hence the taxable value of fringe benefits would be 20% of the base
value of car i.e. $22,500 which would be computed as $4,500
(http:
www.fleetplus.com.au/novated_leases_fbt)
In the case of the entertainment allowance provided by the employer to the Mr. Paul, under
the Australian Taxation, the FBT on entertainment covers the entertainment allowance
http:
www.fleetplus.com.au/novated_leases_fbt
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provided to employees, entertainment by way of food, drink or recreation and
accommodation or travel in connection of such entertainment. The entertainment allowance
of $2000 would be accounted as entertainment provided for each and every element that is
covered under the ambit of entertainment as no particular scope is defined under the same.
Hence we chose to compute the taxable value of the entertainment expense using the 50-50
split off method and a
ive at the taxable value of $1000.
(http:
www.ato.gov.au
usinesses/PrintFriendly.aspx?ms=businesses&doc=/content/52028.htm)
In addition to the...