Solution 1
Issue
In this case Perisher is the manufacture of the ski equipment that operate around Victoria, from 1May 2019 company provided a car to one of its employees Nikita, as her work is related to travelling, it is not restricted to her to use for private purpose, she travelled for 12000 kilometers and incurred $770 for the expense of the car that was repaid by the company, it is not used for 15 days in this year due to repair and other air travel by the Nikita, Perisher purchased this car for $44000 including GST and $2000 for dealer GST. This question wants to calculate the FBT applied on this transaction in the hand of Perisher.
Legal Issue: Section 136(1) of the Fringe Benefit Tax Assessment Act 1986(FBTAA1986) Deals the case as part, the provision of use of car of company is FBT and the provision of FBT are applicable on this (Dean & Sopher, 2018).
Rules
What is car benefit: If an employer provided car for the use of employees it is counted in car benefit provided by the employer, if the car is used by the family members of the employees or for the personal use of the employee than it is also FBT.(Sec.7 of FBTAA1986)
There are two method of calculation of FBT:
- statutory formula method: As per this method following formula is used to calculate the taxable value of the car:
A x B x C – E
D
In this
- A = the base value of the car
- B = the statutory fraction
- C = Car available for private use
- D = No. Of days in tax year
- E = the amount of any employees payment ( employee contribution)
Base value is calculated as per the ownership of car, in the given assignment the car is owned by the employer so the provision is:
Cost price of the car
Add: cost of accessories
Add: GST
Add: Dealers delivery charges
Excluding stamp duty and insurance
Base value of the car
Note: The base value of the car is reduced by 1/3 if the FBT year is after 4th anniversary of the car, but in given problem the holding period is the same as FBT year so it is not reduced (ATO, 2020).
Statutory fraction
| Kilometer traveled in FBT year | Statutory fraction |
| Less than 15000 | 26% |
| 15000 to 24999 | 20% |
| 25000-40000 | 11% |
| Over 40000 | 7% |
Note after 2011 a uniform rate 20% is followed
Formula for annualized kilometer
A x B/C
A=Kilometer traveled
B=Days in tax year
C=Car held in FBT year
- Operating cost method:
Operating cost method covered under SECT 10 of FBTAA1986, as per this section the taxable value of the car is find out by using following formula
(C x(100%-BP))-R
C= Operating cost for the car
BP=Percentage for use in business
R=Amount paid by recipient
Car is owned by the employer: In such a case following are included in the cost of the car.
- Car expense incurred by the employer for the cost, registration, repair, Fuel and other are included in the cost of the car and deemed depreciation are also the part of the cost of the car (ATO, 2020).
Depreciation is calculated as per the diminishing value of the assets
25% of the value of the car on or after May 2006
Deemed interest is also calculated in this case that is as per the applicable rate of interest (Ingles, 2016).
Exempt car benefit:
Private Use of Car: use of car by the employee in such a way that it is not generated revenue for the business of the employer is called car use for private purpose for example:
- Travel between office to home is private use
- Travel between one part of business to another part of business is business in use
So it is self-explanatory that car is used for private at work, it is depend on the nature of use, for instance employee going for a trip and park the car at airport and keep the keys of car in his custody then it is private in use.
In some situation where car is held for number of days for garage for repair, in this situation the car is not treated for private use from the date of held for repair to collect from repair.
Taxable value of car benefit: Section 7 to 13 of Fringe benefit tax assessment act 1986 deals with the taxable value of the FBT and calculation of FBT.
Application
Thorough application of tax law (e.g. ITAA 1936 and ITAA 1997) to material facts in Perisher’s case.
- In Perisher’s case Division 28C, 28F, and 28 G of ITAA1997 is applied with this section 51AJ, and 51AF ,51AH of ITAA1936 is also applicable.
- As per this there are two method of calculation car expense those are allowed in the hand of taxpayer:
- Cent per kilometre method: As per this method: This method is use for the individuals and sole traders or partnership firm, in this a set of rate is applied and maximum 5000 per individual per year.
- Log book method: In this method the work-related expense are allowed for deduction, under this method:
- Claim is based on business use percentage
- Expense allowed are the business use and other but not the cost of the car
- In this method a log book is required for minimum continuous 12 week
- Cost of fuel can be claimed
- Written evidence for all the expense is required
Accurate conclusion of the FBT calculation:
Taxable value under statutory formula method:
Base value =$44000+2000=$46000
Annualised kilometres =12000-5=11995*365/336=$13030
(Total no. Of days from 1st May2019 to 31st March2020 is 336days)
Statutory fraction=20%
No. Of days available for private use is 336-10=326
Taxable value=46000*20%*326/365=9200
Note: we are taken standard 365 in place of 366 days in case of leap2020.
Taxable value under operating cost method:
Deemed depreciation=46000*25%*336/365=$10586
Deemed Interest=46000*5.85%*336/365=$2477.19
Expense $770
Operating cost=770+10586+2477=$13833
Taxable value=13833*(100-20) %=$11066
Conclusion
So, it is better for the Perisher Pty Ltd to use the statutory method because from using this method, he could claim the deduction for the private purpose which is computed as $ 689.
Note: we assume that the car is used 20% for business as per log book.
Solution 2
Issue
Material fact
- Antique painting: In this case Antique painting given by Taryn father 5 year ago, her father brought this on 20th August 1984, Taryn sold it on 1st June 2020, in this the provision of Capital gain is applicable, as per Income Tax Capital Gain collectables are define in subsection108-10(2) of the Income Tax Assessment Act 1997, as per this section, any assets acquire before 20th September 1985 are pre-CGT assets and are exempt from capital gain liability.
- Taryn sold her car for $12000 on 20th May 2020, this one is purchased by her on 1st January 2015 for $20000, This car is counted in luxury car, in this case Taryn is liable to pay luxury car tax, a luxury car is the car that value including GST is higher than luxury car tax limit, and the previous paid tax is reduced in this case (Harding, 2013).
- Taryn sold Harry potters collection that is capital assets and subject to capital gain, she brought it for $350on 10th October 2018, and sold $1500 on 4th January 2020, in this case if the cost of item is $300 or less then immediate deduction can be claim if it is satisfied following requirements(www.ato.gov.in)
- It is used for earning of assessable income.
- It is not the part of set of income acquired for more then $300
- It is not the identical item.
Rules
There are two method of used to reduce the cost of depreciable assets that are:
- Immediate deduction
- Decline in value
- Sale of gold necklace on 20th march 2020, she brought it on 2018 for $1200, as per the applicable provision of the ITAA1997 ,it is covered under the provision of Collectables, and the provision of collectable specified that any collectables those are acquired for $500 or less then it is not attract the CGT event (ATO, 2020).
- Taryn sold a sculpture for $6,000 on 1 January 2020, she bought it on December 1994, as it is covered under the provision of collectables, SECT995.1 is applicable in this regard.
Identification and analysis of legal issues:
- It is covered in collectables it is defines in section 108-10(2) of the income tax assessment act 1997. CGT assets that are personal in nature are included in antiques, the provision defines that any amount that received from sale of capital assets are not attract the CGT if the value of the assets $500 or less at the time of acquired of the assets, so in this case no CGT event has occur, as per the given case the value of the collectibles is $2500 at the time of acquire so it is attract CGT, as it is not $500 or less (ATO, 2020).
- This transaction attracts luxury car tax, as the model of the car covered in luxury so it is required to pay this tax. LCT is required to pay in this case.
- In this case Trayn sold her Harry potters collection that was brought by her for $350 in 2018, as it is sold for 1500 it is also not attract the CGT event as the value of the assets is less than $500 so it is not attract this (Shams, e al., 2013).
- Sale of gold item are subject to capital gain or loss so it is subject to capital gain, it is counted in collectibles same as other antiques but it attract taxes when profit received from sale of such gold necklace, a long term collectibles attract 28% taxes, in this case any amount which is received as profit by sale of gold is liable for tax (ATO, 2020).
- Trayn sold a sculpture for $6000, it is also counted in collectible, sect.995.1 is applicable that describe that, it is required valuation if it is acquired before 1st July 2011 and sold before July 2016 then no need of valuation.
Application
Thorough application of ITAA 1997 to material facts:
Collectibles and personal use assets cover under SECT118.10 of ITAA 1997
- Capital gain or loss from collectibles is disregarded if the cost of the assets is $500 or less and it is depreciable assets.
- Some special rules are applied on the collectibles if some interest in it few are listed below:
- Artwork, jewellery and antiques
- A rare folio or books
- Postage stamp
It is also disregarded if the cost of the assets is $500 or less
Note: In case the interest is develop on before 16the December 1995 then capital gain is disregarded, if it is acquired for $500 or less, section 118-10 of Income Tax (Transactional Provision) Act 1997.
Note: If the assets is depreciable and the value of the assets is $10000 or less then it is disregarded.
Note: Capital loss on personal use assets are disregarded subsection 108-20(1).
Conclusion
- In this case the assets is purchases before 20th September 1985 so it is not attract the capital gain as the capital gain tax is not in existence on that day.
Sale proceed from Antique painting 20000
Less cost of sale 1500
Profit from sale 18500
Less @50% 9250
Capital gain 9250
- This is luxury assets so it is attracting the LCT and it is required to pay it. It is calculated as per the following formula
(LCT Value-LCT threshold) x10/11*33%
- As it is also part of collectibles and the purchases price is not more than $500 so it is not attracting the CGT.
- Sale of gold necklace is subject to tax; it is calculated as follows:
Sale proceed $2000
Less cost $1200
Profit $800
Tax @28% so the required pay tax is 800*28/100=224
- Sale of sculpture is subject to payment of tax as the sale proceed is $6000 so the applicable tax rate is 12% if it is 100 years of age but in this case the age of assets is not 100 years so in this case the sculpture is not under this preview so it attract general rate of tax.
References
- ATO, 2020. Welcome to Australian taxation office, 2020 [Online]. Available at: https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Motor-vehicle-and-transport/GST-and-motor-vehicles/?page=3 [Accessed on: 3/09/2020].
- ATO, 2020. Welcome to Australian taxation office, 2020 [Online]. Available at: https://www.ato.gov.au/Newsroom/smallbusiness/Lodging-and-paying/Cars-and-tax/ [Accessed on: 3/09/2020].
- Dean, M. and Spoehr, J., 2018. The fourth industrial revolution and the future of manufacturing work in Australia: Challenges and opportunities. Labour & Industry: a journal of the social and economic relations of work, 28(3), pp.166-181.
- Harding, M., 2013. Taxation of dividend, interest, and capital gain income.
- Ingles, D., 2016. Does Australia need an annual wealth tax?(And why do we now apply one only to pensioners). And Why Do We Now Apply One Only to Pensioners)(March 1, 2016). Tax and Transfer Policy Institute Working Paper-3/2016.
- Shams, S.M., Gunasekarage, A. and Colombage, S.R., 2013. Does the organisational form of the target influence market reaction to acquisition announcements? Australian evidence. Pacific-Basin Finance Journal, 24, pp.89-108.