Questions
1. Alan is an employee at ABC Pty Ltd (ABC). He has negotiated the following remuneration package with ABC:
- Salary of $300,000;
- Payment of Alan's mobile phone bill ($220 per month, including GST). Alan is under a two-year contract whereby he is required to pay a fixed sum each month for unlimited usage of his phone. Alan uses the phone for work-related purposes only;
- Payment of Alan's children's school fees ($20,000 per year). The school fees are GST free.
ABC also provided Alan with the latest mobile phone handset, which cost $2,000 (including GST).
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?
2. Two years ago Peta purchased a house in Kew. This house had two old tennis courts down the back which were in poor condition. She purchased the property for two reasons:
- So that she and her family could live in the house; and
- So that she could build three units on the tennis courts and sell them at a profit.
In the current tax year the tennis club next door offered to buy the old tennis courts, but only if Peta first restored them to good condition. Peta decided to accept the club’s offer instead of going ahead with her plan to build and sell units.
Peta spent $100,000 on preparing the tennis courts for sale. This involved a great deal of work. Peta had to resurface the tennis courts and build new fences around them. She then sold the tennis courts in the current tax year to the tennis club for
$600,000.
Ignoring capital gains tax, discuss whether the receipt of $600,000 is ordinary income under s 6-5.
Answers
1a). For this situation we have to guidance ABC Ltd with respect to the FBT results. At whatever point an organization gives any benefit to its representatives then it needs to pay fringe benefit charge on it. In any case, there are a few benefits on which fringe benefit expense would not be pertinent like portfolios, apparatuses of exchange and PC programming. In the Section 54 of the Fringe Benefit Assessment Act 1986, it is plainly said that at whatever point organization is taking its representatives for trip either for lunch or supper then it would pull in fringe benefit tax. In the given case there are different fringe benefits given by the organization to its representatives. Every one of these benefits are examined below (Austii, 2017)
- Alan was a representative of ABC Ltd. In his pay bundle cellular bill was likewise included for which bill was paid by the organization. Yearly sum paid by the organization was $2,400. This would draw in fringe benefit charge and subsequently fringe benefit assess must be paid on it.
- Company had likewise paid school charges for Alan. This would likewise draw in fringe benefit tax on the measure of $20,000.
- Apart from this organization had likewise given a portable handset worth $2,000. According to Fringe Benefit Assessment Act 1986, if an organization gives any electronic gadget to its representatives then it would be exempted from fringe benefit charge. No fringe benefit assessment would be exempted from this case.(FringeBenefit, 2017)
- Company had taken 20 representatives for a supper party. Supper was in nearby premises and not in the organization premises. The sum for the supper paid by the organization was $6,000. Thus fringe benefit assess must be paid on it.
The aggregate fringe benefit expense to be paid by the organization would be Alan is a worker at ABC Pty Ltd (ABC).As per the Fringe Benefit Tax Law the assessment rate relevant in Australia for the year finished 31st March 2016 is 49%. Subsequently the fringe benefit charge which is to be paid by the organization would be $28,400 *49% = $13,916.
b) As we have examined in the initial segment that the various parts are distinctive. For this situation the aggregate number of employees of the organization was only 5. So it was a small organization. Being a little organization doesn't give any exclusion to the organization from fringe benefit in the event that it has taken every one of its workers for a supper outside the organization premises. Fringe benefit risk even for this situation would be same as section a. Subsequently fringe benefit duty to be paid by the organization would be $13,916 (Benefit, 2017)
c) The third case is totally not the same as the initial two sections. The number of workers of the organization is the same as in section a. Be that as it may; this time alongside the workers and their accomplice's customers of the organization was likewise present for the dinner. So it is considered as a formal meeting of the organization. It would not be considered as a group lunch, rather it is customer meeting. Fringe benefit risk for this situation would be $2,400 +$20,000 = $22,400
Fringe benefit assessment to be paid would be $22,400 *49% = $10,976.
2. For this situation we have to counsel that whether the receipt of $600,000 ought to be considered as ordinary income under Section 6-5 of the Income Tax Assessment Act 1936.
This area highlights the arrangements identifying with normal receipts. In the event that a man is an Australian occupant then the assessable wage would incorporate ordinary income straightforwardly or in a roundabout way gotten from all sources whether the pay is earned in or outside Australia amid the individual salary year. It is not in any way vital that every one of the earnings must be considered as standard salary. There are a few sources of incomes which must be rejected which are examined below (Australian Government, 2017)
- If pay is gotten from Income assurance protection arrangement.
- Borrowed sum from any individual or bank must be barred.
- If GST is gathered by a man then such pay ought not to be considered as ordinary income.
- Prize won by any individual not identifying with its business must be barred also.
- If any pay is earned from a man's pastime then it must be prohibited also from the common salary.
According to the Capital gain arrangements if any capital resource is sold to someone else at a higher cost than it would be called as capital gain and henceforth capital gain expense should be charged on it. This case is about a man named as Peta who has a house which is considered as capital resource. Tennis courts were additionally joined to the house however since the extent of tennis courts were not given, it was accepted that it involves 20% (Exfin, 2017).
The house was acquired by Peta for revenue driven making reason. The sum gotten by Peta from the club is not an income pay by any means. Since it is a piece of capital resource it must be viewed as a capital receipt. Presently since it is a capital receipt it can't be considered as an ordinary income. The said case is fundamentally the same as the case which was chosen by the High Court. The case was between FCT v Cooling. She had burned through $100,000 for the remodel of the tennis court, so this would be viewed as the cost of development. In spite of the fact that capital gain should be maintained a strategic distance from in this circumstance yet it can't be considered as revenue receipt by any means. Presently since this is not considered as an income wage for Peta, it can't be considered as ordinary income by any means. It is somewhat uncommon pay gotten from the club (CGT, 2017)
Thus in the wake of examining the case with the arrangements of the Income Tax Law the salary gotten by Peta is a capital receipt and can't be considered as ordinary income.
References
1986, F. B. T. A. A., 2017. det.wa.edu.au. [Online]
Available at: https://det.wa.edu.au/policies/detcms/policy-planning-and-accountability/policies-framework/legislation/fringe-benefits-tax-assessment-act-1986.en
[Accessed 13th May 2017].
Austii, 2017. Austii.edu. [Online]
Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/fbtaa1986312/s54.html
[Accessed 13th May 2017].
AustralianGovernment, 2017. Ato.gov.au. [Online]
Available at: https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/
[Accessed 13th May 2017].
Benefit, F., 2017. lawlex.com. [Online]
Available at: https://lawlex.com.au/tempstore/consolidated/6442.pdf
[Accessed 13th May 2017].
CGT, 2017. delisted.com.au. [Online]
Available at: https://www.delisted.com.au/capital-gains-tax/basics
[Accessed 13th May 2017].
Exfin, 2017. exfin.com. [Online]
Available at: https://exfin.com/australian-capital-gains
[Accessed 13th May 2017].
FringeBenefit, 2017. ato.gov.au. [Online]
Available at: https://www.ato.gov.au/law/view.htm?Docid=PAC/19860039/ATOTOC&PiT=99991231235958
[Accessed 13th May 2017].
