Fringe Benefit Tax
Fringe benefit tax refers to the tax amount that has been paid by the employer to the government authorities for the benefits that has been provided by him to him employee in relation to the employment services that has been offered by him. This tax has been levied with an intention to ensure that the employer of a company does not use these measures as a basis of tax evasion. The benefit that has been provided by the employer does not form part of the salaries and wages that has been offered to the employee. These are majorly non cash benefits which are provided to the employee to feel at home. This concept has been introduced with an intention to cover majorly all the basic amenities and facilities that are been provided by an employer to his employee. These benefits can be paid directly as well as indirectly by the employer. In Australia, the fringe benefit tax rate has been kept from higher side i.e. 49%. For every country we have some specified exemptions limit that they need to follow for determining the fringe benefit that is taxable in the hands of the employer. In order to ensure that the benefit provide by the employer to a person is covered under the definition of FBT if the person is being hired by the employer as an employee.
Certain common examples of the fringe benefits provided to the employee are as follows:
- The insurance coverage of the employee has been borne by the employer.
- Educational assistance has been provided by the employer to the employee. The employer in this case may allow employee to work on flexible hours
- The office car that has been provided to the employee for the official use has been used by the employee for his personal use.
- Loan provided to the employee at a rate which is lower than the rate at which the loan is available in the market.
In the given case, Periwinkle limited is engaged in carrying out the business of bath tab manufacturing in the country. Emma has been employed is the company is taking care of the outdoor business of the company. Thus as result, she has been provided a car which she is using for carrying out the official business work as well as for personal use. The car was purchased on 1st May 2015 and till March 31, 2016, the car ran for 10,000 Km.
The car has been used by her for a period of 335 days between 1st May 2015 to 31st March 2016. Between these periods the car was parked at the airport for 10 days when Emma was out of station during this period. The car for a period of 5 days has under gone repairs. Thus, in short the car was used for 320 days by Emma for both official and personal use.
In order to calculate the FBT rate it is important to determine the check whether the expense on which the FBT is required to be paid is inclusive of GST or not. In case the amount is inclusive of GST in that case, the expense amount is grossed up to 2.1463. On the other hand, in case the amount is exclusive of GST then in that case, the expense amount is grossed up to 1.9608.
Calculation of FBT on car benefit provided by Periwinkle to Emma
In the given case, in order to calculate the FBT liability for Periwinkle limited for the Fringe benefits in the form of car that has been provided to Emma, it is important to calculate the Fringe benefit value on which the liability of FRT taxation would be calculated.
The FBT value would be calculated as follows:
FBT taxable value = FBT capital value X statutory percentage X (number of days in FBT year the vehicle is available for use)/365
The FBT capital value refers to the capital value on which the FBT taxation is calculated. In the given case, the car has been purchased for $33,000 whereas $550 has been spending on the repairs. Thus in that case, the FBT capital value would be $32450
In order to determine what percentage of the car if being used for personal purposes, a statutory percentage is taken based on the assumptions which have been provided in the act itself. In the given case if the car has been purchased without any existing contract and the car has ran for than 15000 Kms during the period, then in that case, the statutory percentage would be 20%.
As calculated above, the car has been used for both personal as well for official purposes in total for 320 days net after considering the time for which has been put on hold while Emma was out of station and the car was on repairs.
Considering all these points, the FBT value of the car would be calculated as follows:
FBT taxable value = $32450 X 20% X (320/365) = $5690 (rounded off)
FBT liability = FBT taxable value X Gross up factor X FBT rate
= $5690 X 2.1463 X 49%
= $ 5,984
In the given case, the company has given loan to Emma at an interest rate of 4.45%. As per the Australian tax laws, the market interest rate prevailing in 2016 is 5.45%. For the purpose of FBT, if an employer gives loan to the employee at concessional rates that what is prevailing in the market, then in that case, the different in the interest rates will be treated as Fringe benefit and the same would be used for computation of FBT tax liability.
Taxable value of loan Fringe tax benefit = $ 5, 00,000 X (5.45 – 4.45) % X 212/365 = $ 5808
FBT liability = taxable value X FBT rate
= $2904 X 49%
= $ 1423
Emma has used 10% of the loan amount for purchasing shares. In this case she would be entitled for further deduction on the interest on loan amount used for income generating purposes
Hence further deduction of FBT liability – (FBT liability X 10%) = $1423 – ($1423X 10%) = $ 142
Net FBT liability in case of Loan fringe benefit = $1423- $142 = $ 1280
Purchase of bathtub by Emma at a concessional price
Emma has acquired a bath tab from the company at a concessional rate. The tab has a cost price of $1700 and the same is sold in the market at a price of $2600. In this case, the bath tab was sold to Emma for $1300. As per the Australian tax laws, no FBT will be applicable if the employee has been provided with goods that has been manufactured by the company itself and the same has been provided at concessional rates to the employee.
Thus in this case, the Bath tab that has been provided to Emma at concessional rates will fall outside the preview of FBT.
In the given case, Dave is planning to sell all his assets and utilize the entire amount for his retirement. He is planning to get retire in next 1 year. He has already turned 59. He is planning to collect $1 million and rent out a city apartment and deposit certain amount in the superannuation fund for future use.
He decided to sale his residence where he was lining from past 30 years. The residence was acquired for $70,000 and he decides to get it auctioned. The house was sold for $850,000. During this action process, Dave forfeited $85,000 amount of one of the desired buyer. He paid $15,000 to the agent for making all the necessary adjustment for the sales process.
As per the Australian income tax laws, no capital gain tax is paid by the person on sale of his residence. However, this exemption is applicable on only for the home where you live in. If a person has more than one home, in that case the exemption will be provided for only one home in which the person is living.
In the given case, Dave has been living in the house of more than 30 years. While making the sale he has made a profit of $850,000. The amount that Dave has forfeited will be treated as his income. Being this profit is made on sale of his own residence; hence the transaction is not applicable for Capital gain tax.
Dave during the year 1985 has purchased a painting of Pro hart. This painting was purchased for $15,000. Dave arranged for an action of the painting in the current year and sold the same for $125,000.
As per the Australian tax laws, if a person makes some gain or loss from sale of personal and collectible assets, then the gain so made by them would be taxable in their hands but they would be classified under a separate category. These gains and losses would not be classified with normal capital gain tax and should be taxed separately. The collectable and personal asset in this case includes art work such as drawings, paintings, photographs etc., jewellery, antiques, coins etc. Being these are personal assets thus the same cannot be leased out.
In the given case, Dave has sold the painting go for pro hart which he has purchased for $15,000 for $125,000. He has made a gain of $110,000 on sale of the painting. The gain so made on this sale would be taxable in the hands of the assessee but they needs to be classified under a separate head other than from the capital gain head.
Dave in the year 2004 has purchased a motor cruiser for $110,000. The cruiser was later on in the current year has been sold for $60,000.
As per the Australian tax law provisions, there is no capital gain tax applicable on sale of personal assets such as car, home etc. of an individual.
In the given case, being Dave has a motor cruiser which is being used by him for his personal use. In this case, it will be regarded as a personal asset of the individual and thus the same would be exempt from Capital gain tax. In the given case, Dave has incurred a loss of $50,000, being the profit earned for personal asset will not be taxed, in the similar way; any loss incurred on such sale would be set off from any gain.
During the year, Dave a taken $70,000 as loan and used the same for purchase of shares. These shares later on in the year were sold for $80,000. Dave paid $5000 as interest on this loan. Further for the transaction in shares, he has paid $750 as brokerage and $250 as stamp duty.
If a person is carrying on a business of trading in shares, in that case, the income so arising would be taxable as ordinary income. Otherwise, the income so arising on the sale of shares would be treated as capital gain and would be taxed accordingly.
In this case for the purpose of computation of capital gain all the expenses that have been incurred in earning the profit on such sale would be allowed as deduction. However, the interest that the individual has paid on the loan amount that he has utilised for purchasing the shares, would not be allowed as deduction being the same does not have any direct link with generation of income.
In this case, Dave made a profit of $9,000 on the transaction. The interest amount of $5,000 would not be allowed as deduction.
For the current year Dave made a net capital gain of $119,000 in total ie $110,000 from sale of painting and $9,000 from sale of shares.Dave in the last year has a net capital loss of $10,000 that he has earned on sale of shares. The capital loss so incurred by Dave can be carried forward and will be reduced from the gain made in the current year.Thus, in net Dave has made a capital gain of $109,000 which he can utilize for making further investment in the superannuation fund which he has created for his retirement purposes.ReferencesATO.
|Sale of shares||$80,000|
For the current year Dave made a net capital gain of $119,000 in total ie $110,000 from sale of painting and $9,000 from sale of shares.
Dave in the last year has a net capital loss of $10,000 that he has earned on sale of shares. The capital loss so incurred by Dave can be carried forward and will be reduced from the gain made in the current year.
Thus, in net Dave has made a capital gain of $109,000 which he can utilize for making further investment in the superannuation fund which he has created for his retirement purposes.
ATO. Gov, Statutory formula method for Car FBT taxation, viewed on 1st June 2016,
ATO. Gov, FBT Tax rate 2016, viewed on 1st June 2016
ATO. Gov, Collectables and personal use assets, viewed on 1st June 2016.
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