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ACC701 Financial Accounting

Referencing Styles : Harvard | Pages : 14

Issues – The issue in this case is related to the tax liability of the fringe benefit to the employee provided the employer regarding employment.

Rules – One should note fringe benefit as payment provided to the employees when it is different from salaries or wages. As per the FBT legislation, one should view fringe benefit as a benefit that the employees receive regarding the release of employment relationship. As per ‘Section 136 (1), FBTAA 1986’, employee receive these benefit because they are the employees. As per the fringe benefit tax, the accountability of the fringe benefit tax is to the employer in case the employee, other officer or company directors receive the payment from the employer and thus, this obligation needs to be maintained or the employees receive the benefit regarding these payments (Sowa et al. 2018).

The employers, irrespective of trustee, sole trader, government authority or partnership, are required to make the payments of fringe benefit tax. This tax needs to be paid irrespective of the fact that the fringe benefit is provided by wither the employer or any other party. Fringe benefit tax needs to be paid whether or not the employer has the liability to pay other taxes like income tax. The employers have the right for claiming income tax deduction for cost of providing benefits along with the payable fringe benefit tax amount (Young and Miles 2015).

According to “Section 7 (1) of FBTAA 18986”, a fringe benefit related to car takes place when the employer makes the car available for the private use of the employee. The car is made available for the private use of the employee by the employer on any given day in case the employee generally uses the car for private purpose or the car is made available for the employee’s private use. The general rule says that it is considered as the private use of the car when it is used to travel from home to work place (Harding 2014).

Two methods are there for the calculation of the fringe benefit related to a car; they are the statutory formula method and operating cost method. It is compulsory for a taxpayer to choose the method of statutory formula unless the operating cost method is chosen by them. The operating cost method might be chosen by a taxpayer for all cars or any cars irrespective of which method they adopted in the earlier year. “Section 7 (8) of FVTAA 1986” puts the obligation of using the log book to maintain records for the use of operating cost method (Hemmings and Tuske 2015).

Application – In the application of the above-mentioned rules, it needs to be mentioned that XYZ Pty Ltd provided its employee Devika with a car for the purpose of private use and the car was available for the private use of Devika throughout the FBT year of 2018/19. It is noteworthy to mention that XYZ Pty Ltd provided the car to Devika in respect of her employment with the company. In accordance with “Section 136 (1) of FBTAA 1986”, Devika received the benefit from her employer during the taxation year in relation to employment (Hodne et al. 2013).

XYZ Pty Ltd made the car available for Devika for the purpose of her private use along with the purpose of business use. Devika travelled a total of 20,000 kilometer. Among this, Devika travelled 70% of the total distance for the purpose of business use while she travelled the rest parts for the purpose of private use. Thus, as per “Section 7 (1) of FBTAA 1986”, fringe benefit related to the car arises due to make the car available for the private use of Devika (Voßmerbäumer 2013).

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