Fringe Benefits Tax Assignment on Business Law

Question

Task:

Question 1
Discuss what is meant by FBT? You should discuss the relevant statutory provision as well as the various categories and why the legislation was introduced.

Question 2
During the current tax year Erin received the following amounts:

• Salary and wages income of $98,000.
• $4,400 interest from a bank term deposit of $50,000.
• $500 per week for 50 weeks of the year from a rental property she owns.
• Winnings of $10,000 on the poker machines.
• $500 from selling eggs that her chickens laid to friends.
• A holiday bonus of $1,000 from her employer.
• A watch worth $400 from a happy client.

Question 3
Discuss the importance of the distinction between receipts that are capital in nature from those that are income in nature.

Question 4
Paula is employed as a Physical Education (PE) teacher at the local high school. During the year, she spent the following amounts for which she has substantiation:

• Purchase of gel comfort running shoes worn everyday (2 pairs) $460
• Purchase of sunscreen, required as her classes are mostly conducted outside $70
• Cost of a one-day seminar on new warm-up and stretching techniques $160
• Taxi fares for travel from home to work when her car was at the mechanic $50
• Cost of first aid course (total before $400 reimbursement by the school) $400

Answer

Question 1:
The concept of Fringe Benefits Tax explored in this Fringe Benefits Tax Assignment is the extra amount paid by a company over the salaries or wages of the labour or employee, respectively. According to the Fringe Benefits Tax Act (FBTA), 1986, this benefit is provided to the employees of the organization concerning their relationship with the company only. Hence, they can either be someone who worked with the company in the past or might work with them in the future. According to Section 5A- Fringe Benefits Tax Assessment Act (FBTAA) 1986, it is very significant to ensure that the benefit provided is related to the employee and not someone else. According to section 70 of the FBTAA 1986, a proper formulated FBT return needs to be filed with the ATO for the year ending 31st March till 21st May of the same year. According to Section 5-A of FBTAA 1986, the fringe benefits are only paid by the employer on which they have to pay a tax at a marginal rate of 47% (Section 6, FBTA, 1986).

The concept of fringe benefits act is based on three major acts, which include the following points mentioned in this Fringe Benefits Tax Assignment:

1. FBTAA 1986: This act examined in this Fringe Benefits Tax Assignment is significant for the calculation of the tax and the rules for considering an expense to be a fringe benefit. Section 5B provides instructions to be followed to ascertain the amount of taxable income of an employer. Section 5C of the act mentions the final sum of the fringe benefits to be taxed. Part 3 of the act talks about the various benefits mentioned in different acts (Pasztor, J. and Valent, 2016) .
2. FBTA 1986 - This act imposes the tax on taxable items and income of the employers (Section 5), FBT 1986). The act mentions about the marginal tax rate followed and if there are any amendments in the rate (Section 6, FBT 1986).
3. Fringe Benefits Tax (Application to the Commonwealth) Act 1986 - This act is mainly to ensure that the Australian government bodies follow the regulations mentioned in the FBTAA 1986 (Black, 2018).

Various types of benefits included in Fringe Benefits are discussed in the following section of Fringe Benefits Tax Assignment:

1. Car Fringe Benefits - The division 2 of the part 3 Fringe Benefits of the Fringe Benefits Tax Assessment Act,1986 talks about the car fringe benefits provided by the employer to the employee for which he has to pay taxes to the government authority. The section 19, 24, 44, and 52 of the Fringe Benefits Tax Assessment Tax Act talks about the use of an employee's car for business purposes. Sections 9 and 10 mentions about the fuel expense benefit provided to the employees in the FBTAA 1986 (Revenue, 2017).
2. Loan Fringe Benefits - Section 16 of the FBTAA 1986 mentions the benefits provided to the employee when they take the loan from the employer. Section 19 of the FBTAA, 1986 says that the debtor or the employee has to provide a declaration about his purpose of the loan and that he will not misuse the benefit to the creditor (employer).
3. Housing Benefits - Section 25 of FBTAA considered herein Fringe Benefits Tax Assignment gives an overview of the housing benefits which an employee can get from his employer. Section 26 mentions that the unit of accommodation used for calculating the benefit can be a house, accommodation in a hotel etc. Section 27 mentions the determination of the market value of the housing benefits provided to employees.
   From section 7 to 65 F of the FBTAA 1987 reviewed in this Fringe Benefits Tax Assignment, there are various types of fringe benefits mentioned like car parking benefits, property fringe benefits, meal entertainment fringe benefits, airline fringe benefits and others (Sole J.A. and Thomas, 2016).

Question 2:

The assessable income of an assessee is calculated under section 6.5 of the Income-tax assessment act 1997. The concept of the taxable income depends on the concept of ordinary income. An ordinary income can be discussed as the basic sources that an assessee performs basic things to earn revenue from that course (Davis et al, 2019). As per section 6.5(2) of the Income-tax Assessment Act 1997, an ordinary income will be any income that is generated in Australia and Australian sources is included. This also consists of direct and indirect sources. In the given case, Erin is assumed to be a resident Australian. Thus it should be taxed in an ordinary way. The following earnings of the assesse are discussed hereunder (Ato.gov.au. 2020).

A: Salary and Wages income:

As per section86.40 of the Income-tax Assessment act 1997 utilized to prepare this Fringe Benefits Tax Assignment, then the salary income or the wage income will be assessed as personal service income; hence it should be regarded as a taxable income. In the given case, it is assumed that the salary is the basic sources of income; therefore, it should be included in assessable income.

B: $4400 interest from a bank term deposit of $50000

As per section 4.10 of the income tax assessment act 1997, if an assessee receives any kinds of interest then, in that case, it needs to show the interest as an income. The sources include the interest received from any bank or a financial institution from institution accounts and term deposits. This also includes the penalty interest received on investments (Ato.gov.au. 2020).

C:$500 per week for 50 weeks:

In accordance of the ATO and section 4.10 of the Income-tax assessment Act 1997 reviewed in this segment of Fringe Benefits Tax Assignment, if the assesse receives any income from letting out its property fully or partly, then it should be included in the assessable income. Furthermore, the TD 4006/31 has clearly stated the process of claiming any deduction and other income related to the rental property. Thus the $25000 ($500*50) will be included in taxable income (Christensen, 2017).

D: Winnings of $10000 on the poker machine:

As per provision of the act, most of the speculative income is not taxable if the assesse is not holding such activities as its usual normal profession and depending upon such income to carry its livelihood. Therefore in the given case of Fringe Benefits Tax Assignment, it is assumed to be a non-assessable income. If it was a regular profession of the assesse than in that case based on the case ruling of Brajkovich v FC of T 89 ATC 5227, the winnings from poker would be included in the assessable income (Yuen, 2019).

E: $500 from selling eggs:

As per the provision of the act, under section 6.20 if any income is arriving from the course of a hobby, then it will not be taxed nor be included in the assessable income. Further, the assessee cannot claim for the deduction for expenses or losses for the hobby from the assessable income. If it was not a hobby and the assessee is taking it as supportive income than in that case, it will be included in assessable income as per section 4.10 of the Income-tax assessment act 1997.

F: Holiday bonus:

As per section 15.75 of the income tax assessment act 1997, the holiday bonus of $1000 will be included in the assessable income (Ato.gov.au. 2020).

G: A watch worth $400 from a happy client:

Based on the given case of Fringe Benefits Tax Assignment as it is a reward for the service than in that case, it will be included in the assessable ordinary income. If this was merely a gift then, in that case, it will not be included in the assessable income based on the case ruling of Hayes v FCT 1966 case, Scott FCT (Ford and Dibden, 2019).

The assessable income as per section 6.5, 6.10 and section 4.15 of the income tax assessment act 1997 that taxable income will be presented in the next section of Fringe Benefits Tax Assignment:

Question 3:

The receipts earned by a business through the normal course of business and from its regular activities are known as revenue receipts. It is stated herein Fringe Benefits Tax Assignment that the receipts which have been earned in extraordinary cases or on sale of an asset of the business are known as a capital receipt. Revenue receipt does not affect the assets or liability of the business. In contrast, capital receipts either lead to an increase in liability or decrease in assets. According to the Income Tax Assessment Act (ITAA) 1997, capital receipts earned by the sale of assets and gains earned on them are taxable according to section 110-25 (Wild, 2017).

Section 108-5 (1) talks about Capital Gain Tax Assets which are taxable, and Section 100-25 (2) mentions few capital gain tax assets which include fixed assets of various types. The section 100-25 of ITAA1997 mentions various methods can be used to determine the capital gain on sale of an asset which includes indexation method. This talks about indexation values of asset and comparing it with the value from the sale of the asset (Section 102-5 ITAA 1997). Section 112, Income Tax Assessment Act 1997 mentions about the discounting method, which states that individuals need to pay a 50% discounting tax in case of a capital gain. For companies, this method is not considered, but in the case of life insurance companies and funds discounting method is allowed at 33%. The Section 104-5 of ITAA1997 states that whichever method shows a lesser capital gain; it should be considered for the person to pay less tax (O’Connell, 2017).

According to the research on Fringe Benefits Tax Assignment, Revenue Receipts are earned by a business through its operations and sale of goods and services. Still, Capital Receipts and gains are mostly earned by sale of assets due to which the ITAA1997, Section 100-25 states that capital receipts are taxable while revenue receipts are not. The ITAA1997 states that both the type of receipts are completely different and hence get completely different for the taxable purpose. The revenue receipts are added into the income of the company which is subtracted by the revenue expenses after which net profit is calculated and after making the required adjustments, according to the tax slab the tax rate is charged on the revenue income. A capital gain or capital income is very irregular as it does not happen frequently, and revenue income is earned regularly from the operations of the business (Bentley, 2019).

Question 4:

Herein Fringe Benefits Tax Assignment, the discussion will be made on the various expenses that the assesses might claim for the deduction under section 8.1 of the Income Tax Assessment act 1997. There are some basic criteria discussed in the Fringe Benefits Tax Assignment that can be assessed if the expenses are meeting the following criteria.

1. If such expenses are incurred actually, and these expenses are not reimbursed from the employed and others.
2. These expenses should be directly relatable to generate its ordinary income.
3. There must be sufficient record to prove such expenses which are claimed for a tax deduction (Warren, 2016).

The taxation of the deduction is as follows:

Purchase of gel comfort shoes:

This will be included as the tools and equipment that are essential to perform the ordinary activities of the assesse as a part of physical education's job as the cost of such expenses cost more than $300 for two pairs. Thus the deduction can be claimed over the life of the assets.

Purchase of sun screams:

The assessed can claim for the deduction for sunglasses, sunhats and suns cream lotions if it is relatable to its profession, thus claimable as deductible expenses.

Cost of the one-day seminar:

The cost of the one-day seminar can be included as deduction expense as it is related to the work culture of the educational profession as a physical educator.

Taxi fare for travel:

As per section 25.100 of the Income Tax Assessment act 1997, the assesse cannot claim for such expenses as this is related to the home to work. Rather as per sect 900.95, the assesse can claim for the travelling expenses if it is incurred for the business purpose only (White, J. and Townsend, 2018).

Cost of first aid course:

In the given case of Fringe Benefits Tax Assignment, the assets cannot claim the whole of $400 as it is partly reimbursed by the school amounting to be $400. Further assesse can claim for the deduction if it is related to a designated first aid person and required to undertake first aid training to assist in an emergency work situation. Thus, this amount cannot be claimed as deductible expenses (Chardon, Freudenberg and Brimble, 2016).

The total dedication that the assessment can claim under section 8.1 is presented in the next section of Fringe Benefits Tax Assignment:

References:

2020. [online] Available at: [Accessed 23 June 2020]. Ato.gov.au. 2020. Teacher And Education Professionals - Income And Work-Related Deductions. [online] Fringe Benefits Tax Assignment Available at: [Accessed 23 June 2020].

Bentley, D., 2019. Does A Capital Gains Tax Work? The Australian Experience Eleven Years On. Journal of Malaysian and Comparative Law, 23, pp.13-36.

Black, C., 2018. Taxation of Intellectual Property Under Domestic Law and Tax Treaties: Australia. Taxation of Intellectual Property under Domestic Law, EU Law and Tax Treaties", IBFD: Amsterdam.

Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing your deduction from your offset. Austl. Tax F., 31, p.321.

Christensen, S., 2017. Tax update for property buyers. Australian Property Law Bulletin, 32(4), pp.63-65.

Davis, G., Akroyd, P., Pearl, D. and Sainsbury, T., 2019. Recent personal income tax progressivity trends in Australia (No. 2019-05). Fringe Benefits Tax Assignment Treasury Working Paper.

Ford, S. and Dibden, A., 2019. Gifted assets, valuation and ordinary income. Taxation in Australia, 53(10), p.560.

O’Connell, A., 2017. Australia. In Capital Gains Taxation. Edward Elgar Publishing.

Pasztor, J. and Valent, S., 2016. Fringe Benefit-still a Motivation?. In Proceedings of FIKUSZ Symposium for Young Researchers (p. 127). Óbuda University Keleti Károly Faculty of Economics.

Revenue, I., 2017. Tax Information Bulletin. Interpretation.

Soled, J.A. and Thomas, K.D., 2016. Revisiting the Taxation of Fringe Benefits. Wash. L. Rev., 91, p.761.

Warren, N., 2016. e-filing and compliance risk: Evidence from Australian personal income tax deductions. Austl. Tax F., 31, p.577.

White, J. and Townsend, A., 2018. Deductibility of employee travel expenses: The ATO's guidance. Taxation in Australia, 52(11), p.608.

Wild, P., 2017. Determining commercially viable two-way and one-way ‘Contract-for-Difference’strike prices and revenue receipts. Energy Policy, 110, pp.191-201.

Yuen, K., 2019. Navigating the trust loss provisions maze. Fringe Benefits Tax Assignment Taxation in Australia, 53(9), p.490.