HA3042 Taxation Law

Answers

• The personal expenses borne in respect to the employees are considered as the part of the FBT liability and thus the fees of the children that are paid by the company ABC Pvt. Ltd. are to be a part of the liability.
• The remunerations and the salaries does not form part of the FBT liability calculation and therefore, the salary of Alan i.e. $300,000 will not be considered.
• The mobile phone expenditures forms part of the personal expenditures of the employee and as discussed above it will be considered in the FBT calculation. Hence, the bills of the mobile phones must be considered. The employee Alan was not given the expenses of the mobile phone but given directly to the third party. The yearly expenses were $2640 and expenses for the month were lower than $300. Hence, the same must form part of the FBT Liability.
• The money is incurred towards the workers for the entertainment of the special and particular programmes. The special benefits are known as fringe benefits and the employer undertakes the decision of considering it as the expenses of deductible nature. The amounts that have been incurred only towards the employees will require a justification of the total claims. Several arguments formed the part of the non treatment of expenses of entertainment having connections and links with the associate members i.e. staffs and family members. The calculation of FBT on the amount spent on the entertainment of the employees as the same is complex in terms of computation. Thus, the company must take steps to exclude the consideration of fringe benefits from FBT calculation.
• Individual calculation of the amount must be done with the added advantages of the GST. The same must be summarized by using the method of the gross rate multiplication. It is applied to gather a lot of advantages. The phone that has been given for use in office needs to be categories in the head of expenditure that is not personal and is related to the work. Thus, in calculation of the amount including the GST provisions, the mobile purchased needs to get included along with other items. Therefore, the gross amount must be excluded at the time of calculation of the FBT liability.

The amount calculated after considering the above calculations gets adjusted with the rate of the FBT and the rate is 49% (Ato.gov.au. 2016).

The liability of FBT of the ABC Private Limited is as follows:

The revised FBT liability is computed as follows:

2. In Australia, there are both the indirect and direct sources that must be considered to compute the assessable income. The income that needs to be assessed must form part of the ordinary and statutory incomes. Moreover, the gains achieved by the selling of the assets must form part of the assessable income. The ITAA Act considers the following as the ordinary proceeds of the company and the same are stated below:  

• Income generated from the wages, salaries and the leave encashment.
• Income generated from the business dealings like shares sale, farming proceeds and earnings
• Income generated from the rented property, fixed deposit interests and earnings from dividends on the shares invested.

The ITAA Act considers the following as the statutory proceeds of the company and the same are stated below:  

• Royalty
• Recovery of Bad debts
• Credit Recognition
• Bonus on Insurance
• Earnings from the trade exchanges
• Capital gains on the property sale
• Termination and retirement benefits

As per the mentioned case, Peta brought an abode that had two old courts and was obtained for the purpose of playing tennis. The house was acquired two years ago and Peta showed desire in dwelling in the house and also generate profits from the tennis court. In the near future, she sold the court for $600,000 to a club. The earnings that have been generated from the court sale is to be considered as the income assessable. It will form part of the assessable income as she had the main motive of purchasing the house for generating income from tennis courts (Eccleston 2013).  

There was an observation that Peta had incurred a total sum of $100,000 towards the repair and construction of the fences of the tennis court as it had become too old. The amount of repair and construction of the fences will not form part of her total net income as the sole purpose behind the repair was the generation of the income from tennis courts. It will thus form part of the ordinary incomes as stated in the ITAA Act.

In addition, Peta made plans to sell the property in parts but he was not allowed and had to go on with the whole sale of the property. The reason for the sale as a whole was a diligent offer passed in by the club next door. She was not involved in dealings that were related to the real estate. The motive of Peta was the generation of income for selling the court of tennis and the same was not part of the dealings of real estate properties. The sale from property will thus form part of the statutory incomes as stated in the ITAA Act.

Further, as per the tax if the above amount is in nature of capital gain, there will be an advantage of 50% exemption on the total sales figure. Therefore, from the above discussions it is confirmed that the total sum of $600,000 is not ordinary but specific income under the ITAA Act (Armour et al. 2013).

Reference List

Anagnostopoulos, A., Cárceles-Poveda, E. and Lin, D., 2012. Dividend and capital gains taxation under incomplete markets. Journal of Monetary Economics, 59(7), pp.599-611.

Armour, P., Burkhauser, R. V., and Larrimore, J. (2013). Deconstructing income and income inequality measures: A crosswalk from market income to comprehensive income. The American Economic Review, 103(3), 173-177.

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.