Question 1 (10 marks)
Determine whether the following
benefits are fringe benefits or exempt fringe...

Question

Question 1 (10 marks)
Determine whether the following
benefits are fringe benefits or exempt fringe benefits and, where applicable,
the relevant category of fringe benefit. Provide reasons for your answer:
a) Kerry is an employee of the
university. She is provided with 10 gift vouchers worth $50 each for use at the
local supermarket as a Christmas gift. Advise Kerry and the University of the
Tax Consequences of this transaction.

b) Sorella borrowed $10,000 from
her employer on 4 September 2011 as her home was damaged in a freak storm. The
loan was provided at no interest. On 15 January 2012, her employer informed
Sorella that she was only required to repay half the loan. Advise Sorella and
her employer of the Tax Consequences of this transaction.

c) Penny is employed as a secretary
by a law firm. As part of her remuneration package, the firm agrees to provide
her with legal services in relation to her divorce at a 60% discount to its
normal rates. The firm also purchases a plasma TV set for $5,500 (inclusive of
GST), which it gives to Penny. Explain how the taxable value of these fringe
benefits will be calculated.

Question 2 (10 marks)
Peter sold an investment property
in Sydney and the transaction was settled on 30 June 2012 for $800,000. He
incurred legal fees of $1,100 and a real estate agent’s commission of $9,900 in
relation to the sale. Peter purchased the investment property in March 1987 for
$100,000. He paid $2,000 in stamp duty on the transfer and incurred legal fees
of $1,000 in relation to the purchase.
a) Calculate the capital gain under
the indexation method. (6 marks) 
b) Calculate the capital gain under
the 50% discount method. (3 marks) 
c) Which method should be used in
this case? (1 mark)

David · Accepted Answer

1. 
a) In the given problem, Kerry is under the employment of the university. The university has 
given to her 10 gift vouchers of $50 each. These are meant to be used at the local 
supermarkets and are given to her as a Christmas gift. Now, we need to determine whether 
these benefits are fringe benefits or exempt fringe benefits and hence, advise Kerry and the 
University of the tax consequences of this transaction. For this we need to determine what 
fringe benefits are and what exempt fringe benefits are. 
A fringe benefit is a benefit in the form of a right, privilege, service or facility, provided by 
an employer to the employee. According to Sec 136(1) of the Fringe Benefits Tax 
Assessment Act 1986, a fringe benefit is a benefit provided during a tax year by an employer 
or an associate of employer, to an employee or an associate of employee and excludes certain 
payments specifically mentioned in the section. This fringe benefit is subject to a fringe 
benefit tax which is payable by the employer. 
An exempt fringe benefit is not subject to the payment of any fringe benefit tax and it also 
includes a minor benefit. According to Section 58P of the FBTAA, any benefit which is 
minor and under $ 300 in value, and not frequently provided by the employer is to be 
classified as a minor benefit which is exempt from fringe benefits tax. (Brett, 2009)  
On application of the above law to the given problem, it is seen that the benefit can be called 
fringe benefit on the basis that it is provided by the employer to the employee in the given tax 
year. Now, when we apply the provisions of section 58P to the given case, on application of 
the threshold limit it is seen that the gift contains 10 vouchers which are worth $ 500 for the 
10 vouchers. Now applying the other criteria listed in Section 58P (1) (f), it is clear that the 
gift is provided only for Christmas and not on a regular basis. Hence, on application of these 
criteria, the gift of 10 gift vouchers provided to Kerry by the university is a taxable fringe 
benefit at the hands of the University. 
b) In the given problem, Sorella has taken a loan of $ 10,000 from her employer on 4
th
 
September 2011. The purpose of the loan was to repair her home which was damaged in a 
freak storm. Her employer provided her with the loan at no interest. Moreover, on 15
th
 
January 2012, she was made conversant by her employer that she was required to repay only 
half of the said loan.

Question 1 (10 marks) Determine whether the following benefits are fringe benefits or exempt fringe benefits and, where applicable, the relevant category of fringe benefit. Provide reasons for your...

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