HA3042 Taxation Law

At the end of the year ABC hosted a dinner at a local Thai restaurant for all 20 employees and their partners. The total cost of the dinner was $6,600 including GST.

(a) Advise ABC of its FBT consequences arising out of the above information, including calculation of any FBT liability, for the year ending 31 March 2017. Assume that ABC would be entitled to input tax credits in relation to any GST-inclusive acquisitions.

(b) How would your answer to (a) differ if ABC only had 5 employees?

(c) How would your answer to (a) differ if clients of ABC also attended the end-of-year dinner?

Answer:

A variety of requirements are considered for the calculation of the liabilities and FBT taxability. In the given case, ABC Private Limited must consider the following for knowing the tax liability of Alan:

• Fees of the children are paid by the company ABC Pvt. Ltd. and being personal in nature forms part of the liability.
• Salaries and remunerations are not a part of the liability and must not be taxed.
• Mobile phone expenses are personal in nature and this must form part of the liability of FBT.
• The benefits towards entertainment purposes of the employees require justification and a great deal of complexity arises towards the calculation of the same. Thus, the same must not be considered towards the liability of the FBT.
• There must be added benefits of GST and there must be a gross rate multiplication and the purchased mobile must be included with the other items. There must be an exclusion of the gross amount for the computation (Ato.gov.au. 2016).

Lastly, after the adjustments in the calculated amount, the FBT rate of 49% must be applied.

Liability of the ABC Private Limited: 

In the books of ABC Private Limited

Computation of FBT Liability

as on 31.03.2017

	GST Inclusive	GST Free
Particulars	Amount	Amount
	$	$
Payment of Phone Bill	2640
Payment of School fees of Employee's Children		20000
Dinner at Restaurant	330
Providing Mobile Phone	2000
Total of GST Inclusive/Free Benefits	4970	20000
	A	B
Gross-up Rate	2.1463	1.9608
	C	D
Gross-up Value	10667.11	39216
	E = A x C	F=B X D
Total Taxable Fringe Benefit	49883.11
	G = E + F
Less : Exemption for Mobile Phone at gross-up value	4292.60
($2000 x 2.1463)	H
Net Taxable Fringe Benefit	45590.51
	I = G - H
Fringe Benefit Tax Rate	49%
	J
Fringe Benefit Tax Liability	22339.35
	K = I x J

Revised Liability of the ABC Private Limited:

In the books of ABC Private Limited

Computation of FBT Liability

as on 31.03.2017

	GST Inclusive	GST Free
Particulars	Amount	Amount
	$	$
Payment of Phone Bill	2640
Payment of School fees of Employee's Children		20000
Dinner at Restaurant	1320
Providing Mobile Phone	2000
Total of GST Inclusive/Free Benefits	5960	20000
	A	B
Gross-up Rate	2.1463	1.9608
	C	D
Gross-up Value	12791.95	39216
	E = A x C	F=B X D
Total Taxable Fringe Benefit	52007.95
	G = E + F
Less : Exemption for Mobile Phone at gross-up value	4292.60
($2000 x 2.1463)	H
Net Taxable Fringe Benefit	47715.35
	I = G - H
Fringe Benefit Tax Rate	49%
	J
Fringe Benefit Tax Liability	23380.52
	K = I x J

The cases of clients and the employees have vast differences and hence the client’s amount of spending buy the company is required to be computed with the total liabilities without any deductions (Eccleston 2013). 

The ordinary proceeds under the ITAA Act are as below:

• Proceeds from the salaries and remunerations.
• Proceeds from the sale of shares, securities, farming and others.
• Proceeds from the rentals, interests and dividends.

The statutory proceeds under the ITAA Act are as below:

• Royalty
• Credit Recognition
• Insurance Bonus
• Capital gains on the property sale
• Termination and retirement benefits

Peta had obtained the building as he wanted to earn the profits from the old tennis courts. It was acquired before and had the motive of generating profits. The same will be a part of the income assessable as the main aim was the generation of income and not attaining the house for dwelling (Gains 2013).

Further, there was an incurrence of repair and maintenance that also had a sole motive of increasing the total income and thus the same will be a part of the ordinary incomes under the ITAA Act. She had thought of selling the part property but taking it to be a good offer he sold the whole parts. The sale will thus form the part of the statutory incomes under ITAA Act (Ato.gov.au. 2016).

There will also be an exemption of 50% allowed on the total figure of sales and will be considered specific income under ITAA Act. 

Reference List

Ato.gov.au. (2016). Fringe benefits tax (FBT) | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/ [Accessed 20 Sep 2016].

Dunne, J., Aldred, J., Gorton, T. and Taylor, H., 2015. 2014 cases show a continuing trend of high ATO success rate. Taxation in Australia, 50(1), p.20.

Eccleston, R., 2013. The Tax Reform Agenda in Australia. Australian Journal of Public Administration, 72(2), pp.103-113.

Gains, C., 2013. Capital Gains Tax.

Huang, C.C. and Marr, C., 2012. Raising Today’s Low Capital Gains Tax Rates Could Promote Economic Efficiency and Fairness, While Helping Reduce Deficits. Center on Budget and Policy Priorities, p.14.

Jacob, M., 2016. Tax regimes and capital gains realizations. European Accounting Review, pp.1-21.

O'Connell, A., Martin, F. and Chia, J., 2013. Law, policy and politics in Australia's recent not-for-profit sector reforms. Austl. Tax F., 28, p.289.

Roine, J. and Waldenström, D., 2012. On the role of capital gains in Swedish income inequality. Review of Income and Wealth, 58(3), pp.569-587.