Statute for the Taxation Benifits for FBTAA

Question: Describe about the Statute for the Taxation for Benifits for FBTAA. Answer: The relevant statute for the taxation of the various fringe benefits is FBTAA, 1986 (Fringe Benefits Tax Assessment Act 1986). The FBT(Fringe Benefit Tax).on various benefits that are doled out by Periwinkle to the employee (Emma) would be calculated with reference to this statute as shown below. Car fringe benefit Periwinkle purchases a car in the year 2015 with a cost of $ 33,000. This car is provided to Emma (employee) who is authorised to use the vehicle as part of her personal use and hence as per Section 8, FBTAA 1986, car fringe benefit in indeed been provided to Emma for FY2016 and FBT liability on the same has to be accounted for by Periwinkle (Wilmot, 2012). Applicable formula for computation of taxable gross up value of Car Fringe Benefit (Section 39F) (Barkoczy, 2015). The computation of the various inputs required above is shown below. Capital value of Car Vehicles acquisition cost in 2015 $ 33,000 Repairs cost incurred in FY2016 $550 Vehicles capital amount =( Acquisition cost Repairs Cost) = (33000 - 550) $ 32,450 Statutory Percentage The statutory percentage essentially is driven by the factors identified below (Sadiq et. al., 2016). Vehicles year of purchase The usage (personal nature) by the employee during the time, the vehicle was available for use in year under assessment. For a year of purchase later than 2011 and usage by employee for personal reasons not to be in excess of 15,000 km, the statutory percentage would be 20% (Gilders et. al., 2016). This is the case here where both conditions are satisfied and hence statutory percentage applicable in 20%. Usage Days Deductions from the year would be made for the following. Car made available for use on May 1, 2015 and hence a deduction of 30 days for April 2015. Car was sent for annual repairs and hence a deduction of 5 days for the same Hence, applicable days = 365 30 5 = 335 Gross up factor The applicable factor here would be 2.1463 as car is Type 1 good on which GST applies (ATO, 2016). Taxable value of Car fringe benefits = (Capital value of vehicle Days for which vehicle available for use Statutory percentage gross up factor ) =( 32450 0.20 2.1463) $12,593.80 FBT payable by Periwinkle (FBT @ 49% for FY2016) =( 12593.80 0.49) $6,171 Loan fringe benefit The case information states that Periwinkle has provided a loan to Emma to the tune of $ 500,000. The interest rate charged on this amount would be 4.45% pa which is lesser than the corresponding RBA prescribed rate of 5.65% pa as given by TD 2015/8 (ATO, 2015b ). Loan fringe benefit would arise in this case, as the interest charged by employer is lesser than the RBA prescribed rate and the magnitude of the interest rate savings would be the quantum of loan fringe benefit (ATO, 2015a). The taxable value of this benefit is computed in the manner shown below. Interest cost assuming lending at RBA rate or 5.65% pa =(0.0565 500000) $28,250 Interest cost assuming lending at rate charged by Periwinkle =(0.0445 500000) $ 22,250 Interest savings for the whole year =( Interest cost @ RBA rate - Interest cost @ offered by Periwinkle) =(28250 - 22250) $ 6,000 Interest extended for days in FY2016 (September 1 to March 31) 213 Taxable value (loan fringe benefit) = (6000 ) $3491.80 Loan and related payments are Type 2 goods as GST does not apply, hence the relevant gross up value for FY2016 is 1.9608 (ATO, 2016). Grossed up value (Loan Fringe Benefit) =( Taxable amount Gross up factor) =( 3491.8 1.9608) $ 6,846.72 FBT payable by Periwinkle =(0.49 Grossed up value) =(0.49 6846.72) $3,354.9 It is noteworthy that deduction to employer is available if the amount extended to loan is used by the employee for incremental income. In the given case, Emma deploys 90% of the borrowed funds or $ 450,000 to purchase a holiday home which is capable of producing income and Emma may use it for that purpose thus ensuring deductions for Periwinkle. However, for the residual amount of $ 50,000, no deductions are possible for Periwinkle as it has been given by Emma to her husband for his use (Nethercott, Richardson Devos, 2016). Expense fringe benefits (Bathtub) Based on the information provided, Emma would receive expense fringe benefit as she was sold the bathtub at a discounted price by Periwinkle (Barkoczy, 2015). Bathtub cost of production $700 Retail selling price of bathtub $2,600 Offer price to Emma for bathtub $1,300 Expense fringe benefit =( Retail selling price- Offer price to Emma for bathtub) = ( 2,600 1,300) $1,300 Gross up factor (FY2016 Type 1 good) (ATO, 2016) 2.1463 Grossed up amount =( Expense fringe benefit 2.1463) =( 1300 2.1463) $4,078 FBT payable at the end of employer =( Grossed up amount 0.49) $1,998 (b) Usage of $50,000 by Emma for generation of share trading Now, Emma does not divert $ 50,000 towards husband and instead uses it herself and hence Periwinkle could not claim tax deduction on the same which would lower the FBT liability as shown below (Barkoczy,2015). Interest payable at RBA rate on $ 50,000 =(0.0565 50000) $2,825 Interest payable at Periwinkles rate on $ 50,000 =(o.0445 50000) $ 2,225 Hence, savings in interest =(2825 - 2225) $ 600 Thus, FBT deduction for employer =(Interest savings on $ 50,000 0.49) =(600 0.49) $294 References ATO 2015a, Loan Fringe Benefits, Australian Taxation Office, Available online from https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-benefits/Loan-fringe-benefits/ (Accessed on September 20, 3016) ATO 2015b, TD 2015/8, Australian Taxation Office, Available online from https://law.ato.gov.au/atolaw/view.htm?docid=%22TXD%2FTD20158%2FNAT%2FATO%2F00001%22 (Accessed on September 20, 3016) ATO 2016, Gross-up rates for FBT, Australian Taxation Office, Available online from https://www.ato.gov.au/rates/fbt/?page=3 (Accessed on September 20, 3016) Barkoczy,S 2015.Foundation of Taxation Law 2015,7th edn, CCH Publications, North Ryde Gilders, F, Taylor, J, Walpole, M, Burton, M. Ciro, T 2016. 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